Impact of Australia’s AML Tranche 2 laws on Professional Services

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is continuing to hone in on businesses that aren’t complying with Australia's existing anti-money laundering (AML) and counter-terrorism financing (CTF) rules.

In December 2022, AUSTRAC commenced civil penalty proceedings against SkyCity Adelaide for alleged serious and systemic non-compliance with AML/CTF laws. This follows similar action against Star Entertainment Group the previous month.

And in May 2023, Crown Resorts agreed to pay a $450 million penalty over historic breaches of AML/CTF laws at its Perth and Melbourne casinos. Crown admitted it failed to assess the money laundering and terrorism financing risks at its casinos and didn’t have appropriate risk-based systems in place to mitigate those risks.

Among AUSTRAC’s allegations against SkyCity are:

• Failed to assess money laundering and terrorism financing risks appropriately
• Didn’t include appropriate risk-based systems and controls to mitigate and manage risks
• Failed to establish an appropriate framework for Board and senior management oversight of AML/CTF programs
• Didn’t have a transaction monitoring program to monitor and identify suspicious activity
• Didn’t have an appropriate customer due diligence program for additional checks on higher-risk customers
• Didn’t conduct ongoing customer due diligence on a range of customers who presented higher money laundering risks.

Comply or face sanctions

In this stepped-up activity against Tranche 1 entities, AUSTRAC is signalling its expectations of Tranche 2 entities when Australia’s AML and CTF rules are expanded. In its May budget, the Government committed $14.3 million over four years starting in 2023 to support the necessary policy and legislative reforms.

With Tranche 2 laws expected to roll out over the next 12-18 months, professional services firms like lawyers, conveyancers, accountants, and real estate agents will be expected to be more proactive in preventing money laundering and terrorist financing. The steps taken by AUSTRAC against Tranche 1 entities in recent times indicate what could face these newly included entities if they fail to comply with the new AML/CTF regime.

Professionals who offer specific services covered by the new AML/CTF laws will need to establish risk management plans, conduct thorough client checks, closely monitor their clients' activities and transactions, and identify any suspicious behaviour.

Tranche 2 of Australia’s AML/CTF laws represent a significant expansion of the regulated sectors. Its objective is to close loopholes that have been exploited by money launderers and terrorists to ‘wash’ illicit funds.

The main requirements of Tranche 2 laws for professional services

The key aspects of Tranche 2 laws include:

1. Expanding the scope of regulated entities

Tranche 2 extends AML obligations to a broader range of professional service providers that were not previously covered. This includes real estate agents, lawyers, conveyancers, and accountants. These professionals are now considered ‘reporting entities’ under the AML/CTF Act and will be required to comply with the legislation's stringent requirements.

2. Customer Due Diligence (CDD) / Know Your Customer (KYC)

With the implementation of Tranche 2, the CDD and KYC processes become even more critical for this expanded group of professional services. They are now obligated to conduct thorough due diligence on their customers to identify and verify their identities, assess the nature and purpose of their transactions, and monitor ongoing business relationships more diligently.

Impact of the new regime on Professional Services providers

Tranche 2 of Australia's anti-money laundering laws represents a big step in combating financial crime and terrorism. While these new obligations will pose some challenges to professional service providers, they also allow them to enhance their integrity, safeguard their industries from illicit activities, and strengthen Australia’s financial system.

Real estate agents

Tranche 2 will have a major impact on Australia’s real estate industry. Real estate transactions involving high-value properties have been attractive to money launderers for a long time as they try to legitimise their illicit funds. Under new laws, real estate agents must perform extensive background checks on buyers and sellers, leading to an increased administrative burden, longer transaction times, and potential financial costs for compliance.

Lawyers and conveyancers

Lawyers and conveyancers play a crucial role in property transactions and financial dealings. Tranche 2 demands they be more vigilant in identifying and reporting suspicious activities, particularly those related to property transactions. Although legal professionals are already used to stringent regulations, the expanded AML requirements mean they will need more resources to ensure they remain compliant. The new regime could also impact their overall speed and efficiency.

Accountants

Accountants will also experience significant changes under Tranche 2 because people often use their services in financial activities that could be connected to money laundering. With the new obligations in place, accountants will have to carefully review their clients' activities, especially if there are any unusual or large transactions. This might mean they will need more training and better processes and software to help them comply.

Challenges and opportunities

Tranche 2 of the AML laws brings challenges for these professional service providers, but it also gives them a chance to demonstrate their commitment to following the rules and ethical practices. If they comply with the new regulations, it can improve their reputation as reliable partners for their clients and reduce the risks of facing legal or reputational problems.

How One AML can remove the stress from your AML auditing

If you’re a lawyer, conveyancer, accountant, or real estate agent, your business will be affected by Tranche 2 of the new AML/CTF laws. One AML can help you understand and meet your AML and CTF obligations. We provide robust, cost-effective, and seamless solutions. Get in touch today.