What is AML & CTF and how does it affect Australia?

 

KEY TAKEAWAYS:

• The regulation of Anti-Money Laundering (“AML”) and Counter Terrorism Financing (“CTF”) in Australia is currently the subject of reform.
• The reforms to be introduced will expand the scope of the current regime so that it will extend to cover “tranche 2” designated service providers
• Notably, these service providers are from professional services industries such as legal, accounting, real estate and trust and corporate service providers.
• These entities only have a limited period of time to ensure that they will be compliant when the new regime comes into effect.

---

 

Background

For nearly two decades, the Australian community has been afforded protections against criminal activities involving money laundering and terrorism financing.  One of the main objects of the Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth), when it was introduced, was to “detect, deter and disrupt money laundering, the financing of terrorism, and other serious financial crimes” within designated services such as financial and related services, bullion businesses, and gambling services.  According to the Australian Transaction Reports and Analysis Centre (AUSTRAC), which is Australia’s AML/CTF regulator, more than 17,000 such businesses are currently regulated.

Yet despite this strong framework, Australia’s AML/CTF regime has been criticised in recent years for being dated and having a number of inefficiencies.  It has also been identified as requiring further legislative protections to ensure alignment with the international standards set by the Financial Action Task Force (FATF), the intergovernmental organisation Australia has been a member of since 1990.

Following an initial mandatory review of the legislation, which was completed in 2016, further review and stakeholder consultation in 2024 culminated in the passing of the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (the Amendment Act) on 29 November 2024.  Not surprisingly, the Amendment Act focuses on the modernisation and scope expansion of the AML/CTF regime and introduces a number of significant changes which aim to address and prevent the threat of organised crime in Australia.  However, given that Australia’s CML/CTF regime will now extend to professional services such as those in the legal industry, for the purposes of this article, we will focus on the change which affects previously unregulated or “tranche 2” designated service provider entities.

 

Which new “tranche 2” entities are covered by the Amendment Act?

The provisions of the Amendment Act commence on 31 March 2026 for currently regulated businesses.  That is, the financial and related services, bullion businesses and gambling services identified above.  However, from 1 July 2026 the regime will extend to new businesses or what are essentially “tranche 2” designated service providers, including real estate professionals and jewellers, as well as legal, accounting and trust and company service providers.

This expansion in scope aims to protect several key sectors which have been identified as being vulnerable and susceptible to criminal exploitation in relevant areas.  For example, the sale and purchase of property has been identified as being an effective and efficient way to disguise the transfer of illicit funds, and complex trust and corporate holding structures are known to be used to conceal illegitimate and unlawful activities.

 

What do new designated service providers need to do to comply with the Amendment Act?

To assist them to comply with the updated regime, the new tranche 2 designated service providers are encouraged to enrol with the regulator AUSTRAC as soon as possible and will be able to do so from 31 March 2026.  In any event, enrolment is mandatory and regulated service providers must ensure that they enrol by 29 July 2026 to avoid penalties.

Notably, AUSTRAC will be publishing various guidance and education materials aimed at helping newly regulated entities to meet their compliance obligations.

For example, as currently specified on Austrac’s website (https://www.austrac.gov.au/about-us/amlctf-reform/summary-amlctf-obligations-tranche-2-entities), after their enrolment, newly regulated service providers will need to establish and roll out a sufficiently robust compliance framework.  This framework will need to be tailored to the needs of the organisation and address a handful of key matters.  To summarise, those matters cover the following:

1. AML/CTF Program with Governance Arrangements

Regulated service providers must ensure that they establish a suitable AML/CTF Program for their business with appropriate governance arrangements.  This is essentially a collection of policies and risk assessment procedures designed to ensure that AML/CTF obligations can be met, and Australia’s financial system can be kept safe.  Significantly, most service provider staff will have a role to play in the rollout and implementation of their organisation’s AML/CTF Program.  It will therefore be essential to ensure that steps are taken as soon as possible to have such a program prepared and socialised with employees.

 

2. Customer Due Diligence (CDD) Process

Tied to the rollout of an AML/CTF Program is the requirements that newly regulated service providers develop and implement a process for conducting customer due diligence (to be referred to as CDD).  The purpose is to help ascertain whether customers may pose relevant money laundering and terror financing risks.

 

3. Annual and Specified Occurrence Reporting

As regulated entities, tranche 2 designated service providers will also be required to lodge an annual compliance report with AUSTRAC and submit various other reports if specific targeted transactions and suspicious activities occur.

 

4. Record Keeping

Finally, to ensure that there is sufficient evidence of the above practices, newly regulated service providers will also be required to keep records for at least 7 years of their compliance, CDD and risk management activities.

 

Take Action!

If your business provides services such as real estate, jewellery, legal, accountancy or trust and company services then it is likely that it may be caught by the new “tranche 2” laws.  You will, therefore, as a threshold matter, first need to determine if your business is in fact a designated service provider as defined by the legislation.

If it turns out that your business will be subject to the tranche 2 laws then the next step is to enrol with AUSTRAC by the due date and take steps to comply with your new regulatory obligations.  As these are matters which are likely to involve an approach which is tailored to the particulars of your business, we understand that you may need to seek legal advice.  If that is the case, please do not hesitate to contact Coutts Lawyers & Conveyancers for assistance.

 

---

ABOUT MELISSA CARE:

au