Anti-money laundering (AML) laws are aimed at identifying, preventing and reporting suspicious financial transactions. Australia’s Anti-Money Laundering and Counter-Terrorism Financing regime (AML/CTF regime) provides the framework for businesses to help deter, detect and disrupt money laundering and terrorism financing whilst simultaneously providing this information to the relevant government revenue and law enforcement agencies, which contributes to the protection of our financial system.
Which businesses currently adhere to Australia’s AML/CTF regime?
Businesses that provide designated services and have been identified as posing a risk for money laundering/terrorism financing and possess a geographical link to Australia are required to adhere to this regime. They include:
– Financial services such as Authorised Deposit-taking Institutions (ADIs), Life insurance services, Custodial/depository services, Superannuation fund management, Securities markets/ investment services,Pension/annuity services or retirement savings accounts, Lease/hire purchase services, Loans or finance, Outsourced payroll preparation, Issuing money/postal orders, Gambling, Remittance (money transfer) services, Digital currency exchange services, Bullion dealers –
If you have or operate a business that falls within this category, then probability is you already have an Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) program which details how you comply with the current legislation.
However, with upcoming changes to be introduced to Australia’s AML/CTF regime are you up-to-date with how these amendments may impact your business?
Alternatively, are you one of the newly identified businesses that will need to adhere to the revised AML/CTF regime soon?
What is Tranche 2 of the AML/CMT regime?
Tranche 2 refers to the second phase of reforms to Australia’s AML/CTF laws which will impact both existing and new reporting entities. These second phase measures were passed into law by the Commonwealth Parliament on 29 November 2024, as the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024.
The amendment Act has three key objectives:
- To extend the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime to certain higher-risk services provided by real estate professionals, professional service providers including lawyers, accountants and trust and company service providers, and dealers in precious stones and metals (Tranche 2 entities);
- To improve the effectiveness of the AML/CTF regime by making it simpler and clearer for businesses to comply with their obligations; and
- To modernise the regime to reflect changing business structures, technologies and illicit financing methodologies, as well as align it with international standards and best practice.
These changes aim to close regulatory gaps, strengthen Australia’s defences against financial crime and align us with international standards set by the Financial Action Task Force (FATF).
Did you know?
The Australian Institute of Criminology (AIC) estimates that serious and organised crime cost the Australian community up to A$60.1 billion during the period 2020-2021, with illicit financing at the centre of most crime types. The research also estimates that for every year a criminal group is able to launder funds, it increases the crime-related harm they cause to the community by 49%.
How will your business be impacted?
These amendments consist of measures that are to be implemented within businesses to achieve the prevention and detection of money laundering activities, as well as to ensure financial transactions comply with legal requirements and global standards.
Examples of these measures include strengthened customer due diligence, increased customer risk profiling requirements, expanded know your customer (KYC) requirements, enhanced transaction monitoring, more comprehensive record keeping and detailed risk management policies.
There are benefits to government administration through a strengthened AML/CTF regime, including the ability to provide relevant government bodies and regulators increased transparency of potential risks posed by individuals or companies, a better protected financial system, and an enhanced capability, through stricter monitoring, to safeguard customer funds from financial crime and unlawful activities.
However, these additional requirements will impose increased administrative and compliance burdens on the business community as each reporting entity will need to adhere to a more extensive set of rules and regulations when managing customer data and financial transactions. This increased compliance burden will inevitably be reflected in increased costs to the end consumer of the professional services concerned.
The new reporting obligations may also create ethical dilemmas, as lawyers and accountants try to resolve the tension between their reporting obligations on the one hand, and their obligation of confidentiality and fidelity to their clients.
The impact of the second phase changes for the business community, and indeed the community as a whole, can be seen in the numbers involved – with an anticipated increase in the number of reporting entities from 17,000 to 90,000.
Consequently, not only does it result in higher operational costs for businesses due to the additional time and resources required to fulfill these compliance requirements, but given the addition of new sectors such as accounting, real estate and others, these increased costs span a wider market space, potentially being significant and impactful enough to affect the price we pay for these goods and services.
How to comply with the new AML/CTF regime
The AML/CTF regime sets out a range of six key obligations to protect regulated businesses that are at the front line in preventing serious financial crimes. Each business must fulfill these minimum obligations, as well as assess the risk of potential money laundering or terrorism financing in general when providing a designated service to a customer:
- Register with AUSTRAC: Regulated businesses must enrol with AUSTRAC if they provide a designated service.
- Develop and maintain an AML/CTF Program: Regulated businesses must identify the AML/CTF risks they face, develop and maintain a relevant AML/CTF program, which includes recording and securely storing all AML/CTF activity.
- Customer due diligence (CDD): Regulated businesses must verify the identity and understand the risk profiles of their customers prior to providing service. This is referred to as ‘know your customer (KYC) information’ e.g. via verified copies of documents or credit-reporting body reports.
- Ongoing due diligence: Regulated businesses must conduct ongoing customer due diligence throughout the lifetime of a business relationship.
- Reporting: Regulated businesses must report to AUSTRAC all ‘suspicious matters’, cash transactions of A$10,000 or more, international transfers, information about carrying/shipping physical currency, instructions for the transfer of value sent into or out of Australia and annual compliance reports.
- Record keeping: Regulated entities must make, retain and make available (upon request) records that can assist with a financial crime investigation or that are relevant to their compliance with the AML/CTF regime for seven years.
Any further information pertaining to the enhanced requirements will be communicated once available.
What are high-risk industries in terms of the AML?
According to The Financial Action Task Force (FATF), an international financial crime watchdog, the following industries are considered high-risk for money laundering and terrorist financing and require enhanced due diligence and monitoring:
- Banking and financial services
- Casinos and gambling
- Precious metals and stones dealers
- Real estate
- Virtual assets and cryptocurrencies
- Money services businesses, Including currency exchanges and money transfer services
- Legal and accounting services
- Art and antiquities dealers
- Non-profit organisations
- High-value goods dealers
When does the new regime become effective?
The Australian Government is currently working in consultation with industry on these requirements to achieve relevant and appropriate tailored industry education and guidance, particularly for new tranche two entities.
At the moment, it is looking probable that reporting entities will be expected to be compliant by 2026. Therefore, if you operate in the real estate, law or accounting sector, it is advisable to commence looking at how this will affect your business and start preparing your processes and team in order to understand and implement these requirements. If you are a client of any of these sectors, expect your fees to increase.