All our tranches have come at once! AML/CTF Law Reform in Australia

A Bill was introduced in the House of Representatives in the Australian Federal Parliament on 11 September 2024 to implement significant reforms to Australia’s Federal Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth) (AML/CTF Act). In addition to the long-heralded “Tranche 2” reforms to cover certain services of “gatekeeper” professions like lawyers, accountants, conveyancers and real-estate agents, the Bill implements several other significant changes. Some of those changes have been made to align the AML/CTF Act and Australia’s AML/CTF regime more broadly with global Financial Action Task Force (FATF) recommendations.

What are the changes?

As noted in the Bill’s Explanatory Memorandum, the proposed reforms to AML/CTF laws are intended to:

• Simplify compliance: “replace Part 7 of the [AML/CTF Act] with a set of outcomes-focused obligations that will ensure reporting entities undertake appropriate measures to mitigate and manage risk”, including:
  • “introducing new, flexible concepts for reporting entities that organise themselves into groups to manage risks more efficiently”;
  • “clarifying the roles and responsibilities of a reporting entity’s governing body and its AML/CTF compliance officer”; and
  • “clarifying obligations for Australian companies operating overseas through a foreign branch of an Australian reporting entity, or a foreign subsidiary of an Australian parent company”;
• Simplify customer due diligence: “reframe and clarify the core requirements for initial customer due diligence (CDD) and ongoing CDD, clarify when enhanced CDD must be applied, and streamline the circumstances when simplified CDD may be applied”;
• Expand regime to cover specified services of “Tranche 2” entities:
  • “expand the AML/CTF regime to certain services provided by gatekeeper professions: real estate professionals, dealers in precious metals and precious stones, and professional service providers, including lawyers, conveyancers, accountants and trust and company service providers (also known as ‘tranche two’ entities)”;
  • “expand the list of designated services in section 6 of the AML/CTF Act to include higher risk services provided by tranche two entities”;
• Clarify points around legal professional privilege:
  • “clarify the treatment of information subject to legal professional privilege for the purposes of the reporting and information disclosure obligations in the AML/CTF Act”;
  • “preserve the core intention of the doctrine of legal professional privilege in both common law and statute, and ensure that regulated entities who handle client information that is subject to legal professional privilege can comply with their reporting and information disclosure obligations under the AML/CTF Act”;
• Reform the “tipping off” prohibitions: “reform the current prohibition against reporting entities ‘tipping off’ their customer about the formation of a suspicion” and “focus on preventing the disclosure of suspicious matter report (SMR) information or information related to a notice issued under section 49 or 49B of the AML/CTF Act where it would or could reasonably prejudice an investigation”;
• Expand regime to cover additional digital asset services: “extend the AML/CTF regime to additional virtual asset-related services to appropriately address the sector’s risk, amends the current terminology of ‘digital currency’ to ‘virtual asset’, and inserts a new definition of ‘virtual asset’ in line with [FATF] Recommendation 15”;
• Clarification on bearer negotiable instruments: “clarify what monetary instruments are captured by the definition of a ‘bearer negotiable instrument’ and its subsequent reporting requirements”; and
• Simplifying “transfer of value” designated services: “simplify and modernise the framework for electronic funds transfer instruction obligations, designated remittance arrangements and international funds transfer instruction (IFTI) reporting purposes”.

Why are the changes being made?

According to the Bill’s Explanatory Memorandum, the proposed reforms have 3 main objectives:

• Combatting crime – “There are a number of inefficiencies throughout Australia’s AML/CTF regime that limit the effectiveness of Australia’s response to transnational crime at large…Currently, businesses internationally recognised as providing high-risk services (including lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious metals and stones) are not regulated as part of the AML/CTF regime. These sectors are known internationally as Designated Non-Financial Businesses and Professions (DNFBPs) or tranche two in the Australian context. Gaps in the regulated population leave legitimate businesses vulnerable to exploitation by opportunistic criminals seeking to obfuscate the origins of their illicit wealth from law enforcement.”
• Improving FATF compliance – “[If action is not taken], Australia [risks] falling further behind continually strengthened international standards set by the FATF, heightening the risk of substantial reputational and economic damage and increasing criminal threats to Australia’s financial systems and professional services. Without hardening Australia’s AML/CTF regime in line with the FATF standards, criminals would continue to exploit legitimate Australian businesses left exposed.”
• Minimising regulatory burdens – “Industry and government stakeholders have consistently called for reforms to key obligations of the AML/CTF regime due to unnecessary complexity. “[Regulated entities are currently] subject to an overly complex regime that inflates regulatory costs, ultimately diminishing the extent to which they are able to holistically comply with the AML/CTF regime.

What’s next?

The Bill is expected to be referred to a Committee in the House of Representatives for further consideration. As a result, the progress towards the enactment of the Bill is unclear at this stage. Significantly, however, the commencement dates for the provisions of the Bill that amend key portions of the AML/CTF Act are 31 March 2026 and 1 July 2026. If this schedule is observed, the amendments will be enacted before the FATF’s mutual evaluation of Australia’s AML/CTF regime, which is currently scheduled to take place after those dates – a possible onsite period of the evaluation being scheduled for December 2026 and a possible plenary session to discuss the FATF evaluation in June 2027.

What do you have to do?

• If you are a “Tranche 2” entity which has not previously been regulated, you will need to take significant steps to understand your obligations as a reporting entity under the AML/CTF Act.
• If you offer “transfer of value” designated services or digital asset services, the way in which the AML/CTF Act applies to you is likely to change.
• If you are any other type of reporting entity under the AML/CTF Act, there will be significant changes with how you engage with the AML/CTF Act, including opportunities for simplifying what you need to do to comply with the Act.

We will issue further guidance over time. In the meantime, please contact us if you have any questions.

Queries

If you have any questions about this article, please get in touch with the authors or any member of our Banking & Finance or Fintech, Privacy & Emerging Technologies team(s).

Disclaimer

This information is general in nature. It is intended to express the state of affairs as of the date of publication. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.