How Designated Business Groups Work for AML Reporting Entities

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Introduction

Navigating anti-money laundering and counter-terrorism financing (AML/CTF) obligations can be complex for Australian reporting entities, particularly those operating within a larger corporate group structure or providing multiple designated services. The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), overseen by the Australian Transaction Reports and Analysis Centre (AUSTRAC), provides a mechanism known as a Designated Business Group (DBG) to help certain related entities manage these responsibilities more efficiently.

This guide explores the concept of the DBG, explaining its purpose and function within the Australian AML framework. It aims to clarify reporting entities considering this structure, outlining how DBGs allow group members to share the administration of certain obligations, such as aspects of customer due diligence or maintaining a joint AML/CTF program. While understanding the crucial principle that each entity must still fulfil its compliance duties.

What is a Designated Business Group?

The Group Concept for AML Compliance

A DBG is a formal arrangement recognised under Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). It allows two or more reporting entities, often related companies within a corporate group, to join for AML/CTF compliance purposes.

This group concept enables related businesses to operate under a shared framework, each providing designated services. To form a DBG, the reporting entities must enter into a written agreement that signifies their election to operate as a group for specific AML/CTF administrative tasks.

Streamlining AML Obligations

The core purpose of establishing a DBG is to enhance efficiency and consistency in meeting AML/CTF obligations. It allows members of the group to share the administration of compliance tasks, including:

• Developing an AML/CTF program
• Managing record-keeping
• Pooling resources
• Adopting a joint AML/CTF program

This sharing approach aims to reduce duplication of effort across the related reporting entities, potentially leading to cost savings and a more standardised approach to managing risks.

Who Can Form a Designated Business Group?

General Eligibility Requirements

To establish or join a DBG, several fundamental criteria must be met by all participating entities:

• The group must consist of two or more entities
• Each participating entity must qualify as a ‘reporting entity’ under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)
• Each entity must provide at least one designated service as defined by the Act

Additionally, these reporting entities must formalise their arrangement through a written agreement explicitly stating their intention to create the DBG.

Specific Categories Eligible to Form a Designated Business Group

Beyond the general prerequisites, the ability to establish a DBG is restricted to specific categories of related reporting entities, ensuring that a defined legal or contractual link exists between members. These eligible categories include:

• Related Companies: Reporting entities that are related bodies corporate, as defined under section 50 of the Corporations Act 2001 (Cth), can establish a DBG. This typically covers relationships such as a holding company and its subsidiaries, or subsidiaries under a common holding company. A foreign company can also be part of such a DBG if it is considered a reporting entity and a resident in Australia.
• Joint Ventures: Entities participating in a joint venture are eligible, provided a formal legal contract exists that outlines the venture’s arrangements. A critical condition is that each member must provide designated services under the terms stipulated in that joint venture agreement.
• Registrable Designated Remittance Service Providers: A DBG can be formed by providers of registrable designated remittance services. This includes entities operating as money transfer service providers, representatives of these providers, or sub-representatives engaged under relevant agreements.
• Accounting and Legal Practices: Accounting or legal practices that are themselves reporting entities (because they provide designated services) may form a DBG. Eligibility for these practices is subject to specific conditions outlined in Part 2.1 of Chapter 2 of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth).

How Does a Designated Business Group Work?

Establishing Your Designated Business Group with AUSTRAC

Establishing a DBG involves a formal process coordinated with AUSTRAC. To get started:

1. Two or more eligible reporting entities must create a written agreement confirming their decision to become group members.
2. The proposed group must appoint a nominated contact officer to liaise with AUSTRAC.

It’s important to note that a reporting entity can only belong to one DBG at any time.

The nominated contact officer must hold a specific position within one of the member entities:

• An ‘officer’ as defined in section 9 of the Corporations Act 2001 (Cth) (such as a director or company secretary), or
• The designated AML/CTF compliance officer of a group member

To formally establish the DBG, the nominated contact officer needs to submit specific forms to AUSTRAC, preferably through the AUSTRAC Online portal:

• Form 1: Election to be a member of a designated business group—A separate form is required for each reporting entity joining the group
• Form 2: Formation of a designated business group—This single form finalises the establishment once all member election forms have been submitted

Once established, the nominated contact officer must inform AUSTRAC of changes to the DBG’s details within 14 days. This includes members joining or leaving, termination of the group, or a change in the nominated contact officer, using Form 3: Variations available in AUSTRAC Online.

Shared AML Obligations: The Joint AML/CTF Program Option

Members of a DBG can adopt a single, joint AML/CTF program. This approach allows group members to collectively fulfil certain obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), rather than maintaining separate programs.

If a DBG chooses this path, the joint AML/CTF program must comprehensively cover:

• Part A requirements: The framework for identifying, mitigating, and managing money laundering and terrorism financing risks, including:
  • Risk assessment
  • Governance
  • Compliance officer appointment
  • Employee training
  • Reporting systems
• Part B requirements: Customer identification and verification procedures, often referred to as ‘Know Your Customer’ (KYC) processes

A joint program can streamline compliance efforts and ensure consistency across member entities. However, it’s essential to understand that using a joint AML/CTF program is optional. Any member of the DBG can decide to administer its program if that better suits its specific needs or risk profile.

Specific Compliance Tasks Members Can Share

Beyond the option of a joint AML/CTF program, the DBG structure allows members to share the administrative burden of several specific compliance tasks. Any group member can perform these tasks on behalf of other members, contributing to operational efficiency.

Examples of AML/CTF obligations that can be shared among DBG members include:

• Ongoing Customer Due Diligence (CDD): Performing regular monitoring and updating of customer information across the group
• Record-Keeping: This covers various activities such as:
  • Maintaining records related to verification requests made to credit reporting agencies
  • Documenting the designated services provided by members
  • Keeping necessary transaction records and associated customer documents
  • Making and retaining records detailing the customer identification procedures followed
  • Providing and storing copies of customer identification records obtained during verification
  • Making and keeping records of the AML/CTF program itself and any updates or variations
• Reporting: Lodging required AML/CTF compliance reports with AUSTRAC for other members of the group

While these administrative tasks can be shared within the DBG, it is crucial to understand that this arrangement does not transfer the underlying legal responsibility. Each reporting entity within the group remains individually accountable for ensuring compliance with all relevant AML/CTF obligations.

Key Considerations for Designated Business Groups

Advantages: Efficiency, Consistency, and Cost Savings

Forming a DBG offers many potential advantages for eligible reporting entities looking to streamline their AML/CTF compliance efforts. Members can realise significant benefits by sharing administrative burdens and resources across the group.

Key advantages include:

• Efficiency: DBGs significantly reduce duplication of effort in managing AML/CTF obligations. This allows for:
  • Centralised development of program documentation
  • Coordinated training initiatives
  • Unified implementation of compliance systems
  • Reduced administrative overhead for individual members
• Consistency: Operating under a joint AML/CTF program or shared procedures ensures a uniform approach to compliance across all member entities. This consistency strengthens the overall compliance posture of the group and simplifies oversight.
• Cost Savings: Pooling resources for compliance activities leads to considerable financial benefits through:
  • Shared technology investments
  • Utilisation of centralised compliance staff
  • Development of group-wide training programs
  • Reduced individual entity expenses
• Streamlined Reliance: Within a DBG, members can often rely on CDD and customer identification procedures performed by other members, simplifying customer onboarding and ongoing monitoring processes.
• Resource Pooling: Members can leverage specialised compliance expertise or technology investments available within one part of the group for all, enhancing overall capability without requiring separate investments from each entity.

Limitations and Risks: Individual Liability and Governance Complexity

Despite the potential benefits, operating within a DBG structure also presents limitations and risks that reporting entities must carefully consider. Effective governance and a clear understanding of responsibilities are essential for successful implementation.

Potential drawbacks and risks include:

• Individual Legal Liability: This is the most critical consideration. Even when administration is shared or a joint AML/CTF program is used, each reporting entity within the DBG remains legally responsible for fulfilling its obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). If a shared process fails, the entity relying on that process bears the legal consequences.
• Governance Complexity: Establishing and maintaining effective governance for the DBG requires significant coordination. This includes:
  • Creating clear written agreements outlining roles and responsibilities
  • Developing oversight mechanisms
  • Implementing processes for managing shared functions
  • Navigating complex implementation and management challenges
• Coordination Challenges: Ensuring that shared processes or a joint program adequately address the specific money laundering and terrorism financing risks of every member can be difficult. A ‘one-size-fits-all’ approach may not suffice when members have diverse risk profiles or provide different designated services.
• Risk of Shared Failures: Because liability remains individual, a failure in a centrally managed process (like customer identification) can expose multiple members to regulatory breaches and potential enforcement action by AUSTRAC. Robust internal assurance is needed to mitigate this risk.
• Impact of Structural Changes: If a member undergoes a corporate change (such as being sold) and no longer meets the eligibility criteria (e.g., is no longer a related company), it must leave the DBG. This can necessitate the rapid setup of a standalone compliance framework for the departing entity.

Upcoming Reforms: From Designated Business Groups to Reporting Group

The Transition to Reporting Groups in 2026

The framework surrounding group compliance structures within Australia’s AML/CTF regime is set to change. The existing DBG concept is scheduled to be replaced by a new structure called ‘reporting groups’.

This transition is part of broader reforms introduced by the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth) and will take effect for current reporting entities on 31 March 2026.

Key Differences in the New Group Concept

The upcoming ‘reporting group’ framework introduces several key differences compared to the current DBG model, aiming for greater flexibility and potentially broader application. While the core idea of enabling related entities to share compliance functions remains, the new structure will feature distinct characteristics:

• Broader Eligibility Based on ‘Control’: Unlike DBGs, which are restricted mainly to specific legal relationships like ‘related companies’ under the Corporations Act 2001 (Cth), reporting group eligibility will likely be based on a broader concept of ‘control’. This may encompass arrangements beyond traditional corporate group structures, potentially including franchises or partnerships where practical influence exists.
• Introduction of a Mandatory ‘Lead Entity’: Each reporting group will be required to designate a ‘lead entity’. This entity will hold primary responsibility for overseeing group-wide AML/CTF compliance, including:
  • Developing the group program
  • Managing the overall money laundering and terrorism financing risk assessment for the group members
• Potential Inclusion of Non-Reporting Entities: The new framework anticipates that related entities within the group that are not themselves reporting entities might be able to form part of the reporting group and potentially fulfil certain obligations on behalf of the reporting entity members.

Conclusion

DBGs offer eligible related reporting entities a way to streamline AML/CTF compliance by sharing administrative tasks like joint programs and CDD under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). However, it is crucial to remember that each group member retains individual legal liability for fulfilling its obligations, even as the framework prepares to transition towards ‘reporting groups’ in 2026.

Navigating these structures and the upcoming changes requires careful planning and expert guidance. Contact AML House today for specialised legal and consulting services to help your business effectively manage AML/CTF compliance and transform these regulatory challenges into strategic opportunities.

Frequently Asked Questions