Changes to Australia’s AML/CTF legislation are coming: key things to know

Money laundering – where there is a flow of funds and an underlying criminal activity – has grave and far-reaching ramifications on our society and economy. So too of course, has terrorism financing.

The Australian Government has made clear that changes to Australia’s anti-money laundering and counter terrorism financing (AML/CTF) regime are on their way, to increase its scope and effectiveness.

A large impetus for these reforms is the Financial Action Task Force’s (FATF) looming assessment of Australia’s AML/CTF regime, likely to commence in 2026. In its 2018 report, FATF found Australia to be non-compliant, or only partially compliant, with 14 of its 40 recommendations. In a recent follow up report, FATF concluded that Australia ‘has a mature regime for combating money laundering and terrorism financing, but that certain key areas remain unaddressed’.[1]

An unfavourable report from FATF following its next evaluation could negatively impact Australia’s international credit rating.

What are the expected changes to Australia’s AML/CTF regime?

The existing AML/CTF regime encompasses designated services provided by financial institutions, money remitters, digital currency exchanges, gambling service providers and gold bullion dealers.

The Commonwealth Government has indicated its intention to introduce a Bill this year to extend the regime to ‘gatekeeper professions,’ including lawyers, accountants, real estate agents, and precious metal and stone dealers.

However, not all legal practitioners will be caught by the reforms – only those providing a ‘designated service’. While what is a ‘designated service’ remains to be settled, it is likely to include services involving:

• the buying, selling or transferring of property
• transactions to buy, sell or transfer legal entities
• receiving, holding and controlling, or disbursing financial assets (such as money, accounts, securities, digital assets or property)
• contributions for the creation, operation or management of legal entitles
• creating, operating or managing a legal entity
• acting as, or arranging a third person to act as, a director/partner/trustee or nominee shareholder
• providing a registered office or principal place address for a company, partnership, or other legal entity.[2]

At the time of writing, it is not yet established what the new regime will require of legal practitioners. It is likely, however, that legal practices that provide a designated service will have to implement and maintain an AML/CTF program (including conducting client due diligence) and potentially make suspicious matter reports to AUSTRAC, the relevant Commonwealth regulator.

Existing legal and ethical obligations on solicitors relevant to preventing money laundering and terrorism financing

Even without a new AML/CTF regime, many of the professional obligations that apply to legal practitioners are relevant to strengthening practices against unwitting involvement in money laundering (ML) and terrorism financing (TF).

The Australian Solicitor Conduct Rules (ASCR) impose a suite of ethical obligations on solicitors, which, if adhered to, will go far to stave off ML and TF risks. For example, the ASCR provides that solicitors must:

• have a paramount duty to the court and the administration of justice (Rule 3). The client’s wishes do not have highest priority when it comes to legal services. Legal services that facilitate an illegal purpose must not be provided, meaning any risk of providing those services must be addressed and mitigated.
• deliver their legal services competently and diligently and avoid compromise to their integrity (Rule 4). It may be a ML and TF red flag if a solicitor is pressured to provide services outside their area(s) of expertise. Adhering to this competency rule mitigates the risk of acting for a ML or TF scheme.
• not engage in conduct that would demonstrate that they are not a fit and proper person to practise, nor conduct that is likely to be prejudicial to, or diminish, public confidence in the administration of justice (Rule 5).
• follow a client’s lawful, proper and competent instructions (Rule 8).
• exercise reasonable supervision over all solicitors and all other employees (Rule 37). Reasonable supervision can include having appropriate staff training on regulatory compliance, a process for regularly reviewing matters and files, and proper policies and procedures for the practice.
• avoid conflicts of interest between clients (Rules 10 and 11). In order to properly carry out this duty, solicitors must know their clients. This involves properly identifying potential clients and taking reasonable care to ensure the instructions received are lawful and proper.

Solicitors are also already bound by stringent trust accounting obligations imposed by the Uniform Law, and are subject to state and federal criminal legislation that make it an offence to deal with property that is suspected to be the proceeds of crime.

In addition, the Financial Transaction Reports Act 1988 (Cth) provides that any physical cash over $10,000 must be reported to AUSTRAC.

The case of Marcevski v Victorian Legal Services Board (Legal Practice) [2023] VCAT 1324 involved a criminal lawyer who was found to have breached his reporting obligations to AUSTRAC and consequently had his practicing certificate cancelled. The case serves as a good reminder that AML regulations apply to solicitors even in the absence of reforms to Australia’s existing AML/CTF legislation.

Resources to strengthen your practice now against money laundering and terrorism financing now

The Law Society is committed to assisting practitioners navigate and be prepared for changes to Australia’s AML/CTF legislation.

Already, the Law Society has created a self-paced, interactive e-learning resource for practitioners on how they can strengthen their practice against ML and TF risks. Access to this resource is complimentary.

The Law Society has also assisted the Law Council of Australia to create a comprehensive suite of written guidance material for practitioners on AML/CTF.

The Law Society’s Professional Support Unit (PSU) provides free and confidential guidance to all solicitors regarding their obligations under the Legal Profession Uniform Law in the areas of costs, ethics and regulatory compliance.

Enquiries can be made to PSU by telephone, email, or in person.

Costs: [email protected] or (02) 9926 0116

Ethics: [email protected] or (02) 9926 0114

Regulatory Compliance: [email protected] or (02) 9926 0115

Practitioners should contact PSU’s regulatory compliance team (on the details above) to inquire about accessing a complimentary CPD on risk assessment and practice management specific to mitigating ML and TF risk.

For the latest information on this evolving space, as well as access to AML/CTF resources and information, go to the Law Society of NSW’s designated AML/CTF page here.

[1] FATF, Australia, https://www.fatf-gafi.org/en/countries/detail/Australia.html#:~:text=In%202015%2C%20the%20FATF%20and,certain%20key%20areas%20remain%20unadddressed (accessed 19 July 2024). See also, FATF, Anti-money laundering and counter-terrorism financing measures – Australia – 4^th follow up report and technical compliance re-rating’, March 2024, https://www.fatf-gafi.org/en/publications/Mutualevaluations/Australia-fur-2024.html (accessed 19 July 2024).

[2] See Attorney-General’s Department, ‘Reforming Australia’s anti-money laundering and counter-terrorism financing regime: Paper 2: Further information for professional services providers, May 2024, https://consultations.ag.gov.au/crime/reforming-aml-ctf-financing-regime/user_uploads/paper-2-further-information-for-professional-service-providers.pdf (accessed 19 July 2024).