Tranche-two : New AML/CTF Regulations for Lawyers, Accountants, Real Estate Agents
The Commonwealth Attorney-General’s department is consulting on long-awaited reforms to modernise Australia’s AML/CTF laws. The consultation paper includes two parts:
- changes to address various concerns arising in the operation of the current regime, and
- regulation of ‘tranche-two’ entities in line with Financial Action Task Force (FATF) evaluation.
Tranche-two entities are professional services providers including lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones.
Organised crime is estimated to have cost the Australian economy $60bn in 2021. The paper suggests that tranche-two entities play a key role in these activities and identifies further economic consequences for Australia, beyond the obvious, as a result of this.
Australia is a founding member of the FATF, the global financial crime watchdog and was at the forefront of AML/CTF regulation at the time the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) was enacted. Yet, of 200 economies globally, Australia is now one of only five that do not regulate tranche-two entities in line with FATF standards. This comes at a significant cost. The 2015 FATF Mutual Evaluation Report found Australia was non-compliant or only partially compliant with FATF Standards in a number of respects, and made specific recommendations in response, including to regulate Tranche-two entities. The consultation paper notes that failing to address these FATF requirements could result in Australia being “grey listed”, rendering Australia increasingly attractive for money laundering and reducing its international standing and reputation.
However, the proposal also considerably increases the regulatory burden on, and will stretch the limited resources of the small businesses that form a significant proportion of tranche-two entities. AML/CTF enrolment, risk assessment, reporting, customer due diligence and record-keeping requirements will unavoidably impose significant new compliance costs on affected businesses.
The consultation paper is an opportunity to shape the implementation of this regulatory agenda to ensure it is informed by and meets industry needs. The paper raises a number of questions as to the types of services provided by the tranche-two entities that should be regulated, whether particular tranche-two services should be exempt, and whether any of the key AML/CTF obligations duplicate, conflict or interfere with other industry practices or regulations. For instance, the legal profession has raised concerns about the operation of legal professional privilege and consultation is expected to address how the privilege can be maintained whilst addressing the ML/TF risks. The accounting profession is invited to consider instances of existing practices that may duplicate the proposed obligations. Real estate agents are invited to consider how the Act should approach the scope and design of AML/CTF obligations, to be ‘fit for purpose’ for real estate.
The activities of the tranche-two entities to be regulated are relatively simple compared to other designated services, and have much in common across the relevant professions and industries. It remains to be seen to what extent there are opportunities for standardisation of approach and efficiency gains that can be made from the similarities in the AML/CTF regulated operations of tranche-two entities.
What are the AML/CTF laws?
The proposal is to impose the AML/CTF regulatory requirements on tranche-two entities including:
- Enrol (or in some cases register) with AUSTRAC;
- Conduct Customer Due Diligencee. Collect and verify information about a customer’s identity before providing a designated service;
- Conduct ongoing customer due diligence during the customer relationship;
- Report on all ‘suspicious matters’, cash transactions of AUD10,000 or more and international funds transfers;
- Identify the risks in providing designated services, develop, maintain and comply with an AML/CTF program that meets the requirements of the AML/CTF laws;
- Prepare and retain customer and transaction
Submissions in response to the consultation paper close on 16 June 2023.
If you would like to know more about how the proposed reforms may affect your business, or to discuss making a submission, contact Andrew Ham or Sirisha Pinnali from our Banking and Finance team.
