On 20 April 2023, it was announced that the Attorney General’s Department would commence consultation on proposed reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime.
This article explores the Department’s consultation paper on reforms to simplify and modernise the AML/CTF regime and to address risks in certain professions. We specifically focus on the material relevant to the legal profession.
Part 1: Simplifying and modernising the AML/CTF regime
Part 1 of the consultation paper proposes reforms that will simplify and modernise the operation of the AML/CTF regime. Two key obligations for priority reform are:
- The requirement to adopt and maintain an AML/CTF program to identify, mitigate and manage money laundering and terrorism financing risks.
- Requirements around customer due diligence.
Additional proposed reforms are outlined in Part 1, such as the provision of a statutory exemption for assisting an investigation of a serious offence.
Part 2: Tranche-two entities
Lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious metals and stones (known as tranche-two entities) are particularly vulnerable to misuse and exploitation by transnational, serious and organised crime groups and terrorists due to the nature of the services that they provide.
Out of more than 200 jurisdictions, Australia is now one of only five, alongside China, Haiti, Madagascar and the United States, that do not regulate tranche-two entities. Australia is not compliant with global standards such as the Financial Action Task Force (FATF) Standards, of which a number are specific to tranche-two entities.
Part 2 of the consultation paper explores how tranche-two entities provide services that can be exploited to disguise ownership, conceal the origins and purposes of financial transactions, facilitate tax evasion and, ultimately, launder the proceeds of crime. Several case examples are provided to demonstrate these activities in action. Part 2 then examines the proposed reforms and some key considerations relevant to lawyers and other tranche-two entities.
Case examples involving lawyers
Lawyers have been involved in cases where they have acted as professional facilitators for other criminals. In a global money laundering case, a migration lawyer was amongst the nine individuals arrested, suspected of providing advice to alleged members of a significant money laundering organisation relating to avoidance of detection by law enforcement, including inciting the destruction of evidence.
Lawyers may also use their expertise to commit crimes for personal gain. In one case, a prominent Sydney lawyer turned property developer and a former tax partner at a top tier accounting firm orchestrated a large-scale tax fraud and the laundering of proceeds of crime realised from that offending. The offenders created a web of false identities and siphoned money from accounts in Australia through the United Kingdom, Hong Kong and the United Arab Emirates via fake domestic and international companies. They brought the funds back into Australia (often disguised as loans) to fund their lavish lifestyles. After multiple trials, the two individuals received significant terms of imprisonment.
What professional services are proposed to be covered?
The Attorney General’s Department proposes to reform the AML/CTF regime to cover lawyers, accountants, conveyancers, and trust and company service providers when they prepare or carry out transactions for clients, relating to the following:
- Buying and selling of real estate.
- Managing of client money, securities or other assets.
- Management of bank, savings or securities accounts.
- Organisation of contributions for the creation, operation or management of companies.
- Creation, operation or management of legal persons or legal arrangements (e.g. trusts).
- Buying and selling of business entities.
Part 2 of the consultation paper also outlines proposed reforms for the real estate sector and for dealers in precious metals and precious stones.
Excluded services
The Attorney General’s Department proposes to exclude representing a client in litigation. AML/CTF obligations will not arise in relation to litigation unless during the course of such representation the legal professional also engages in one or more of the services listed above.
Legal professional privilege
Legal professional privilege is essential to the foundational principles of access to justice and rule of law. Legal professional privilege is currently protected by section 242 of the Evidence Act 1995. During the Senate Legal and Constitutional Affairs References Committee (the Committee) Inquiry into the adequacy and efficacy of Australia’s AML/CTF regime, the legal sector raised concerns with extending the AML/CTF regime to cover the legal sector. Concerns included that it would create an irreconcilable tension between lawyers’ ethical duties and AML/CTF obligations that would fundamentally change the nature of the lawyer/client relationship.
The Committee recommended that the government seek advice as to whether section 242 of the AML/CTF Act should be amended to ensure the proper operation of legal professional privilege. The government has accepted this recommendation and is committed to developing a model with the sector that clearly protects legal professional privilege.
What will this mean for lawyers and other tranche-two entities covered by the AML/CTF regime?
The AML/CTF regime establishes “Six Key Regulatory Obligations” that regulated entities must comply with to protect businesses from misuse by criminals:
- Customer due diligence: Regulated entities must verify a customer’s identity before providing a designated service, and must understand the customer’s risk profile.
- Ongoing customer due diligence: Regulated entities must conduct ongoing customer due diligence throughout the course of the business relationship.
- Reporting: Regulated entities must report to AUSTRAC all “suspicious matters”, cash transactions of AUD10,000 or more, all instructions for the transfer of value sent into or out of Australia and annual compliance reports.
- Developing and maintaining an AML/CTF Program: Regulated entities must conduct a risk assessment and implement an AML/CTF program to manage those risks.
- Record keeping: Regulated entities must make and retain certain records that can assist with the investigation of financial crime or that are relevant to their compliance with the AML/CTF regime for seven years, and ensure they are available to law enforcement, if required.
- Enrolment and registration with AUSTRAC: Regulated entities must enrol with AUSTRAC if they provide a designated service.
Key takeaways
The Attorney General’s Department has commenced consultation on proposed reforms to Australia’s AML/CTF regime. There is a focus on simplifying and modernising the AML/CTF regime, and on regulating tranche-two entities to ensure compliance with global standards. Lawyers and other tranche-two entities need to be aware of the professional services proposed to be covered by the reforms, as well as the obligations they will have if the reforms are implemented.
