How Law Firms Can Build a Strong AML Compliance Program in Australia

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Introduction

Australian law firms face a significant regulatory shift as the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth) extends Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) obligations to legal professionals providing designated services. With compliance required by July 1, 2026, firms must proactively develop tailored AML compliance programs to effectively manage risks related to money laundering and terrorism financing.

Building a robust AML compliance framework is essential not only to meet legal requirements, but also to protect the firm’s reputation and contribute to the integrity of Australia’s financial system. This guide offers practical insights for law firms to establish comprehensive risk assessments, governance structures, client due diligence, staff training, technology integration, and reporting mechanisms aligned with the upcoming regulatory changes.

Firm-Wide Risk Assessment & Tailored AML Policies

Identifying High-Risk Practice Areas & Client Types

A comprehensive risk assessment is the foundational step for any law firm aiming to build a strong AML compliance program. This assessment identifies the specific money laundering and terrorism financing (ML/TF) risks inherent in the firm’s operations, focusing on practice areas, client profiles, and service delivery methods.

Key high-risk practice areas commonly include:

High-Risk Practice Area	Description & Key Risks
Property Conveyancing	High risk due to large sums of money & the potential use of complex ownership structures (e.g., offshore companies, trusts) to obscure beneficial ownership. Red flags include rapid property flipping, cash deposits, & unclear sources of funds.
Corporate Structuring & Restructuring	The creation, sale, or transfer of companies & trusts can facilitate money laundering, especially when involving nominee directors, shell companies, or frequent unexplained changes in ownership.
Trust Management	Trusts with opaque beneficiary arrangements, especially those involving high-risk jurisdictions or unexplained large fund movements, present elevated risks. Identifying settlors, trustees, & beneficiaries is critical.
Transactional Financing	Activities like equity & debt financing may be exploited for illicit purposes, particularly when involving high-value or cross-border transactions.

Client types that increase ML/TF risk include:

High-Risk Client Type	Reason for Increased ML/TF Risk
Politically Exposed Persons (PEPs)	Individuals in prominent public positions (plus their families & associates) require enhanced due diligence due to heightened corruption risks.
Clients from High-Risk Jurisdictions	Clients connected to countries with weak AML regimes, high corruption levels, or those subject to international sanctions pose increased risks.
Complex Corporate Entities	Clients with intricate ownership structures, including offshore entities or nominee arrangements, complicate the identification of beneficial owners.
Non-Face-to-Face Clients	Engagements conducted remotely or via intermediaries reduce opportunities for direct identity verification, elevating risk.
Cash-Intensive Businesses	Clients operating in sectors with high volumes of cash transactions may present additional money laundering risks.

Documenting & Regularly Reviewing Risk Assessments and Policies

The risk assessment process must be formally documented, detailing the methodology, identified risks, and the rationale behind risk ratings. This documentation serves as the basis for developing tailored AML/CTF policies and procedures that directly address the firm’s unique risk profile.

Key elements of effective AML/CTF policies include:

Policy Element	Description
Customisation	Policies must be specific to the firm’s identified risks, outlining clear procedures for client due diligence, transaction monitoring, reporting, & record-keeping.
Actionable Procedures	Policies should provide clear, practical guidance on detecting red flags, escalating concerns, & responding to identified risks, including applying enhanced due diligence.
Governance & Approval	All policies require formal approval by senior management or the firm’s governing body to ensure accountability & proper resource allocation.
Regular Review & Updating	Risk assessments & AML policies must be reviewed at least annually or when significant operational, client, or regulatory changes occur.
Integration into Daily Operations	Policies should be embedded within the firm’s standard workflows & decision-making processes to ensure practical application.

Examples of red flags linked to specific practice areas should be incorporated into policies to assist staff in recognising suspicious activities. For instance, in property law, unusual cash deposits or rapid property transactions without economic justification should trigger enhanced scrutiny and possible escalation.

Governance & Accountability: AML Officer & Senior Management Oversight

Roles & Responsibilities of the AML Compliance Officer

The appointment of a dedicated AML Compliance Officer (also known as a Money Laundering Reporting Officer or MLRO) is a fundamental requirement for Australian law firms under the expanded AML/CTF regime commencing July 1, 2026. This individual must:

• Be employed at a management level within the firm
• Possess the necessary expertise in anti-money laundering and counter-terrorism financing
• Reside in Australia
• Demonstrate integrity, competence, and independence as a “fit and proper” person

Key responsibilities of the AML Compliance Officer include:

Key Responsibility	Details
Operational Management	Oversee the development, implementation, & daily management of the firm’s AML/CTF compliance program to mitigate ML/TF risks.
Suspicious Matter Reporting	Receive & review internal reports of suspicious activity, conduct inquiries, & decide whether to submit Suspicious Matter Reports (SMRs) to AUSTRAC. Act as the primary liaison with regulatory bodies.
Training Oversight	Coordinate & deliver AML/CTF training to ensure all relevant personnel understand their obligations & can identify financial crime red flags.
Risk Assessment Leadership	Lead or significantly contribute to the firm’s ongoing ML/TF risk assessment process, keeping it current & aligned with regulatory expectations.
Internal Controls & Monitoring	Establish & maintain robust internal controls, continuously monitor compliance across the firm, & promptly address any breaches.
Program Updates & Approvals	Ensure any amendments to the AML/CTF program receive formal approval from senior management & are clearly communicated within the firm.

Furthermore, the AML Compliance Officer must have sufficient authority and access to necessary resources—including personnel and information systems—to perform these duties effectively. Clear delineation of decision-making authority is essential, with high-risk matters (such as onboarding PEPs or handling complex SMRs) requiring senior management approval in line with firm protocols.

The Role of Senior Management in AML Oversight & Support

While the AML Compliance Officer manages day-to-day compliance, ultimate responsibility for the AML/CTF program rests with the firm’s senior management or governing body (for example, partners or a board of directors). Their active and ongoing oversight encompasses:

• Formal Approval: Endorsing the AML/CTF program and any significant updates to ensure alignment with the firm’s size, complexity, and risk profile.
• Resource Allocation: Providing the AML Compliance Officer with adequate resources, authority, and independence to execute their responsibilities effectively.
• Risk Oversight: Reviewing and satisfying themselves that the firm’s ML/TF risks are properly identified, assessed, and mitigated through appropriate controls.
• Regular Reporting: Receiving periodic reports from the AML Compliance Officer on:
  • Program effectiveness
  • Compliance status
  • Suspicious matter activity
  • Any significant issues or breaches
• Fostering Compliance Culture: Championing a culture of compliance throughout the firm and encouraging staff to remain vigilant and proactive in managing AML/CTF risks.
• Independent Reviews: Ensuring the AML/CTF program undergoes regular independent reviews or audits—typically at least once every three years—to assess its adequacy and effectiveness.

To support effective governance, the AML Compliance Officer should report directly to senior management or the board. This structure facilitates timely escalation of critical compliance matters and aligns strategic decisions with the firm’s AML/CTF risk-management priorities.

Implementing Robust Client Due Diligence (CDD) Procedures

Collecting & Verifying Client Identity & Beneficial Ownership

Client Due Diligence (CDD) is fundamental to an effective AML compliance program for law firms. It involves collecting and verifying key Know Your Customer (KYC) information to confirm the identity of clients and beneficial owners before providing designated services.

For individual clients, firms must collect:

• Full name
• Residential address
• Date of birth

Verification requires confirming the full name and either date of birth or residential address using reliable and independent sources such as government-issued identification or trusted electronic data.

For non-individual clients like companies, trusts, or associations, firms must gather sufficient information to confirm the entity’s existence and legal status. This includes details such as:

• For Australian companies: registered legal name, Australian Company Number (ACN) or Australian Registered Body Number (ARBN), registered office address, principal place of business, and directors’ names.
• For foreign companies: full legal name, country, and address of incorporation, registration number, and director information.
• For trusts: full name of the trust, trustees, settlor (unless exempt), and beneficiaries or class of beneficiaries.
• For associations and cooperatives: legal name, key office bearers’ names, and registered or principal addresses.

Identifying and verifying beneficial owners is critical, particularly for entities with complex ownership. A beneficial owner is any individual owning or controlling 25% or more of the entity or exercising effective control. Firms must trace ownership chains through multiple layers if necessary. If no natural person meets this threshold, firms must identify and verify the senior managing official.

Verification methods mirror those used for client identity and must be risk-based. Additionally, firms must have documented procedures detailing how client and beneficial owner information is collected, verified, and managed. These procedures should also address how to handle discrepancies or incomplete information, ensuring that reasonable measures are taken to resolve any issues before providing services.

Screening for PEPs & Applying Enhanced Due Diligence

PEPs pose a higher risk of involvement in money laundering due to their public roles. Australian law firms must implement screening processes to identify whether a client or beneficial owner is a PEP, their family member, or close associate.

PEPs include:

• Domestic PEPs: individuals holding or having held prominent public positions in Australian government bodies.
• Foreign PEPs: individuals with similar roles in foreign governments.
• International Organisation PEPs: persons holding prominent positions in international organisations.

Screening methods include checking commercial PEP databases, public domain information, and specialised reports. Firms must ensure that personal data collected during screening complies with privacy laws.

When a PEP is identified, Enhanced Due Diligence (EDD) measures apply. For foreign PEPs and their close associates, EDD is mandatory. For domestic and international organisation PEPs, firms assess the risk and apply EDD if the risk is high.

EDD measures include:

• Obtaining senior management approval before establishing or continuing the business relationship.
• Verifying the source of wealth and source of funds of the client and beneficial owners.
• Conducting intensified ongoing monitoring of transactions and business relationships.

EDD also applies to other high-risk scenarios, such as clients from high-risk jurisdictions, complex ownership structures, or transactions involving high-value or unusual activities. Furthermore, firms must document their EDD procedures and maintain an auditable trail of decisions and actions taken.

Ongoing Monitoring & Updating Client Risk Profiles

CDD is an ongoing obligation that extends throughout the business relationship. Law firms must continuously monitor client transactions and activities to detect unusual or suspicious behaviour that may indicate money laundering or terrorism financing risks.

Key components of ongoing monitoring include:

• Scrutinising transactions to ensure consistency with the client’s known profile, business activities, and risk level.
• Updating client risk profiles in response to changes such as new information, changes in ownership, or shifts in transaction patterns.
• Periodically reviewing and re-verifying client information, particularly for higher-risk clients or when doubts arise about the accuracy or currency of existing data.

For clients engaged before the commencement of AML obligations (pre-commencement customers), full initial CDD is not required retrospectively unless triggered by a suspicious matter report or a significant change in the business relationship that elevates risk.

Firms should establish clear policies and systems to support ongoing monitoring, including defining triggers for re-assessment and re-verification. This continuous due diligence helps firms manage risks effectively and comply with their AML/CTF obligations under Australian law.

Developing an AML Training & Awareness Program

Designing Role-Specific AML Training Modules

Effective AML training must be tailored to the distinct roles within a law firm to ensure that all personnel understand their specific responsibilities in preventing money laundering and terrorism financing. A structured training program should include the following:

• Fee Earners (Solicitors, Paralegals): Training should focus on recognising red flags relevant to their practice areas, such as property conveyancing, corporate restructuring, and trust management. They must learn how to conduct thorough client due diligence, understand complex ownership structures, and know when and how to escalate suspicious matters to the AML Compliance Officer.
• Support Staff (Secretaries, Administrative Assistants): These staff members require foundational AML awareness. Training should cover procedures for handling client identification documents, recognising basic red flags like unusual client requests or large cash payments, and understanding internal reporting pathways.
• Trust Account Clerks: Given their role in managing client funds, trust account clerks need specialised training on monitoring transactions for suspicious activity, understanding threshold transaction reporting obligations, and identifying inconsistencies or anomalies in client accounts.
• Senior Management and Partners: Training for senior leadership should emphasise their governance and oversight responsibilities. This includes understanding the firm’s AML risks, the importance of fostering a culture of compliance, approving high-risk client engagements, and supporting the AML Compliance Officer in enforcing policies.

The content must also cover updates on legislative changes, emerging money laundering typologies, and the interaction between AML obligations and legal professional privilege. Incorporating practical examples and case studies relevant to each role enhances understanding and application.

AML Training Delivery Methods & Record-Keeping

A blended approach to training delivery maximises engagement and effectiveness. Law firms should consider multiple methods, including:

• In-House Training Sessions: Led by the AML Compliance Officer or experienced staff, these sessions can be customised to the firm’s specific risk profile and allow for interactive discussions and Q&A.
• External Providers: Engaging specialist AML trainers or consultants can provide expert insights, particularly for complex topics or for training compliance officers.
• E-Learning Modules: Online courses offer flexibility, allowing staff to complete training at their pace. Many platforms provide modules tailored to legal professionals and include tracking features to monitor completion.
• Practical Exercises: Using realistic scenarios, role-playing, and case studies helps staff apply AML concepts to their daily work, reinforcing learning through experience.

Maintaining accurate training records is essential to demonstrate compliance and track staff progress over time. This includes documenting attendance, completion rates, and assessment results to ensure ongoing awareness and competence in AML obligations.

Leveraging Technology & Robust Record-Keeping for AML Compliance

Key Features of AML Compliance Software

Selecting the right AML compliance software is essential for law firms to efficiently meet their obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). Effective solutions should automate and streamline key compliance tasks, reducing manual workload and enhancing accuracy.

Key features to consider include:

Software Feature	Description & Purpose
Automated Client Screening	Automatically verifies client identities (Know Your Customer – KYC) & business entities against sanctions lists, PEP databases, & adverse media sources to identify high-risk clients.
Risk Assessment Tools	Provides integrated risk-scoring to categorise clients & transactions based on ML/TF risk levels, with customisable models to align with the firm’s risk appetite.
Transaction Monitoring	Detects unusual or suspicious transaction patterns using rule-based alerts or AI-driven anomaly detection, triggering reviews by compliance officers.
Document Management & Audit Trails	Offers centralised storage for all compliance documents (CDD records, risk assessments, etc.) with detailed audit trails to ensure audit readiness.
Integration with Practice Management Systems	Seamlessly connects with existing software (e.g., Actionstep, 3E) to embed AML compliance into daily workflows, improving efficiency & data consistency.
Automated Workflows & Reminders	Manages compliance tasks like periodic reviews, training renewals, & reporting deadlines through automated workflows & notifications to prevent lapses.

ComplianceGPT is one example of AML software suitable for Australian legal firms. When evaluating these options, firms should ensure the software meets Australian regulatory requirements and is tailored to the legal sector’s specific needs.

Secure Document Storage & Record Retention

Maintaining secure and accessible records is a fundamental obligation under the AML/CTF regime. Law firms must keep comprehensive records to demonstrate compliance and support regulatory audits or investigations.

Key aspects include:

• Types of Records to Retain: Document the AML/CTF program, client due diligence files (including KYC and beneficial-ownership verification), transaction records for designated services, staff training logs, internal and external reports (such as SMRs and Threshold Transaction Reports), and independent review findings.
• Retention Period: Retain all AML/CTF-related records for a minimum of seven years, counting from the end of the business relationship, the date of the transaction, or when the record was created, as applicable.
• Security Measures: Protect records against unauthorised access, alteration, or loss by implementing:
  • Role-based access controls
  • Encryption of sensitive digital data at rest and in transit
  • Secure physical documents in locked storage with restricted access
• Audit Trails and Retrievability: Maintain detailed audit logs showing who accessed or modified records and when. Organise and index files to allow prompt retrieval for audits, regulatory requests, or investigations.
• Data Protection Compliance: Ensure record-keeping practices comply with applicable data privacy laws, such as the Privacy Act 1988 (Cth), balancing AML requirements with client confidentiality.
• Use of Technology: Utilise cloud-based document management systems on secure Australian servers—provided they meet stringent security standards—and implement regular backups and incident response plans to safeguard against data loss or breaches.

By integrating robust technology solutions with stringent record-keeping protocols, law firms can enhance their AML compliance effectiveness while safeguarding sensitive client information.

Effective Reporting & Review Mechanisms for AML Programs

Internal SMR & Escalation Procedures

Law firms must implement clear and accessible internal procedures for staff to report suspicions related to money laundering, terrorism financing, or other criminal activities. These procedures ensure that any concerns are promptly escalated to the appointed AML Compliance Officer (AMLCO), who is responsible for evaluating and managing these reports.

Key aspects include:

• Recognition of Suspicious Activity: Staff should be trained to identify red flags and unusual client behaviour that may indicate financial crime risks.
• Reporting Process: The firm’s policies must specify how employees can report suspicions internally, including the information required and the designated reporting channels.
• AMLCO’s Role: Upon receiving an internal report, the AMLCO conducts further inquiries or EDD as necessary. They assess whether there are reasonable grounds to submit an SMR to AUSTRAC.
• Confidentiality and Support: A culture that encourages reporting without fear of retaliation is vital. Confidentiality must be maintained to protect those who raise concerns.

This internal escalation mechanism is crucial to ensure timely detection and management of potential money laundering or terrorism financing activities within the firm.

External Reporting Obligations to AUSTRAC

Australian law firms, as reporting entities under the AML/CTF regime, have specific obligations to report certain matters to the Australian Transaction Reports and Analysis Centre (AUSTRAC). These reporting requirements are fundamental to Australia’s efforts to detect and prevent financial crime.

The main reporting obligations include:

Report Type	Description & Trigger	Reporting Deadline
Suspicious Matter Reports (SMRs)	Submitted when there are reasonable grounds to suspect a connection to money laundering, terrorism financing, proceeds of crime, or tax evasion.	Within 24 hours for terrorism financing suspicions; within 3 business days for all other suspicions.
Threshold Transaction Reports (TTRs)	Required for any physical currency transaction of AUD $10,000 or more (or foreign equivalent) related to a designated service.	Within 10 business days of the transaction.
International Funds Transfer Instruction (IFTI) Reports	For instructions to send or receive funds/value into or out of Australia on behalf of a client.	Within 10 business days after the transfer instruction is sent or received.
Cross-Border Movement (CBM) Reports	For carrying physical currency or bearer negotiable instruments valued at AUD $10,000 or more into or out of Australia.	Varies; generally required before or shortly after the movement occurs.
Annual Compliance Reports	An annual summary of the firm’s AML/CTF compliance activities, risk assessment, & program effectiveness.	Submitted annually between January 1 & March 31.

Timely and accurate reporting to AUSTRAC is essential for effective regulatory compliance and supports national efforts to combat money laundering and terrorism financing.

Regular Independent Reviews & Policy Updates

To maintain the effectiveness and relevance of an AML/CTF program, law firms must conduct regular independent reviews and update their policies and procedures accordingly.

Key requirements include:

Requirement	Description
Independent Review Frequency	An independent review of the AML/CTF program must be conducted at least once every three years, or more frequently if significant changes occur.
Scope of Review	The review must assess the adequacy & effectiveness of the entire AML/CTF program, including risk assessments, CDD, monitoring, reporting, training, & governance.
Independence of Reviewer	The reviewer must be independent of the program’s design & daily operation to ensure objectivity (e.g., external auditor or independent internal audit function).
Reporting & Remediation	Findings must be reported to senior management, & the firm is required to promptly address any identified deficiencies & implement improvements.
Policy Updates	Policies must be living documents, regularly updated to reflect legislative changes, emerging risks, review outcomes, or changes in the firm’s business.
Senior Management Oversight	Senior management must actively oversee the review process & ensure the AML/CTF program remains aligned with the firm’s risk profile & legal obligations.

By embedding regular independent reviews and timely policy updates into their compliance framework, law firms can ensure their AML/CTF programs remain robust, effective, and responsive to evolving risks and regulatory expectations.

Conclusion

With Australia’s expanded AML/CTF regulations taking effect on July 1, 2026, the time for law firms to act is now. This is more than a new layer of compliance; it is a fundamental call to reinforce the integrity of your practice and the nation’s financial system. A passive approach is a risk your firm cannot afford. Building a robust, proactive, and effective AML/CTF program is the only path forward.

Navigating these significant changes can be complex. Partner with trusted experts who provide legal and consulting services tailored to the unique challenges of the legal sector. By taking early and proactive steps, you will ensure compliance and protect your firm’s invaluable reputation. Contact our experts at AML House today to begin building a resilient AML framework that safeguards your firm’s future.

Frequently Asked Questions (FAQ)