Lawyers among professional services to be affected by proposed reforms to anti-money laundering regime

The government has conducted two rounds of consultation on its plans to modernise Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime.

The aim of the reforms is to make sure that the laws continue to deter, detect and disrupt money laundering and terrorism financing activities and to satisfy the international standards set by the Financial Action Task Force (FATF). Significantly, a major component of the reform is the expansion of the AML/CTF regime to “tranche two” entities which includes lawyers, accountants, real estate professionals and other professional services. These entities presently do not fall under the AML/CTF regime.

Attorney General Mark Dreyfus recently told the National Press Club that Australia was “one of a handful of countries remaining in the world who have not legislated to bring in these kinds of entities.”

Speaking at the same National Press Club address, AUSTRAC CEO Brendan Thomas said the regime currently applies mainly to financial institutions.

“And those obligations are based on a set of international standards enforced by a group called the Financial Action Task Force, the international body that sets money laundering standards,” said Thomas.

Law firms will be required to understand their clients, the risk posed to their business and they will be required to adopt risk mitigation strategies. “It’s really about putting controls around risk and not turning a blind eye to crime that might be in front of you,” said Thomas.

The Law Council of Australia is supportive of monitoring the risks that may support money laundering into Australia however the “legislation needs to be balanced and proportionate to the real risk, targeted and carefully drafted to ensure vital foundations of our legal system, including access to justice and client legal privilege, are not weakened,” said Law Council of Australia President-Elect Juliana Warner.

“A cornerstone of Australia’s justice system, and the rule of law, is that when a client tells their lawyer something in order to seek advice, their communication will be confidential and privileged. …

“Any reforms must not require lawyers to breach client legal privilege. This is the client’s privilege, not the lawyer’s,” she said.

Law practices are already subject to stringent reporting requirements and are required to report major cash transactions of more than $10,000 to AUSTRAC.

Justin Wong, principal lawyer at Streeton Lawyers says “I think it’s wrong to suggest that law practices are largely unregulated and therefore susceptible to money laundering risks. … [M]ore than any other industry, law practice trust accounts are highly regulated.”

As Wong points out, in NSW, law firms are subject to annual external audits and must comply with ongoing reporting and notification obligations in relation to each transaction.

“Law practices must keep records of depositors and transactions, which are easily available if legally required. Most law practices have strict ‘know your customer’ requirements,” he says.

Furthermore, the level of risk of legal practices being susceptible to financial crime varies depending on the area of law.

“Practice areas that involve large transactional work, international counterparties, and complex structures are likely to be those which face the biggest risk. On the other hand, practice areas like criminal law, where transactions to third parties are limited and [involve] … relatively small amounts attach lower risks in my view,” says Wong.

The Law Council has released detailed Guidance Notes including the “National Legal Profession Anti-Money Laundering & Counter-Terrorism Financing Guidance” to assist the profession in understanding and navigating their professional obligations.