Anti-Money Laundering and Counter-Terrorism Financing (AML / CTF) Regime set to apply to Lawyers
4 mins reading time
The legal profession in Australia is poised for a regulatory overhaul with the proposed expansion of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime to include Lawyers. Historically, these regulations have been limited to financial sectors, but the increasing complexity of financial crimes calls for broader oversight.
What is the AML/ CTF regime?
Each year, billions of dollars are generated from illegal activities and corrupt practices. Australia’s AML/CTF regime, introduced in 2006, establishes a regulatory framework for businesses offering specific types of designated products and services to help prevent money laundering, terrorism financing, and other serious financial crimes.
Recently, significant changes have been proposed to the application and scope of this regime. Lawyers, given the key role they play in transactions and advisory capacities, are now recognised as crucial in combating these crimes. The anticipated changes will require legal practices to implement comprehensive compliance measures to effectively identify and prevent illicit activities while maintaining their professional obligations.
What changes are proposed?
The Government has been consulting on two aspects of the AML / CTF regime:
- Simplifying and modernising the current AML/CTF Rules – to make it easier for all businesses to meet their obligations; and
- Addressing money laundering and terrorism financing risks in certain professions – proposing that the AML/CTF Rules should be expanded apply to particular industry groups including Lawyers (being, “tranche 2 entities” along with Accountants, Real Estate Agents and Conveyancers).
These proposals are still under review, and no amending legislation has been drafted yet. The Government is actively seeking feedback on the practical impact these changes will have on the affected “tranche 2 entities”.
Why include Lawyers in the AML/CTF regime?
- Lawyers often maintain a close advisory relationship with their clients, offering guidance on a very wide range of personal and business matters. However, this close involvement also exposes Lawyers to potential exploitation, especially where clients engage in apparently ‘above board’ activities that may have underlying criminal elements.
- Legal practices may unwittingly facilitate money laundering or terrorism financing, or innocently provide the veneer of legitimacy needed by criminals. This can occur through:
Establishing arrangements that actually conceal the proceeds of crime; - Establishing complex structures that actually obfuscate the true ownership (or beneficial ownership) of assets;
- Devising and implementing sophisticated structures for placing assets out of reach or tracing; or
- Being reckless, indifferent or mis-instructed as to the clients’ activities and true sources of wealth.
Globally, the range of services provided by Lawyers is recognised as high risk for money laundering exploitation. However, Australia is one of the few countries that does not currently regulate this sector under its AML/CTF regime.
Including Lawyers as ‘tranche 2 entities’ aims to equip legal practices with tools to prevent the misuse of their services by criminals and help Lawyers identify early indicators of suspicious transactions and criminal activities.
What might be the “designated services”?
The proposed AML/CTF reforms would introduce a wide list of “designated services” performed by Lawyers, being services that have been identified as posing a risk for money laundering and terrorism financing.
The relevant “designated services” proposed to apply to Lawyers include as follows:
- preparing or carrying out transactions for clients relating to the buying and selling of real estate
- including residential, commercial, agricultural real estate, leasing, and conveyancing;
- managing client money, securities and other assets
- including trust accounts, holding money in trust, and investing client funds;
- managing bank, savings or securities accounts
- (including having signatory powers of bank accounts, managing settlements, managing trust funds, and holding funds in a fiduciary capacity;
- managing Estates, acting as Executor, administering trust assets, and facilitating distributions to beneficiaries;
- organising contributions for the creation, operation or management of companies
- including involvement with drafting board and corporate resolutions, minutes of meetings and agreements;
- assisting with the creation, operation or management of legal persons or legal arrangements
- including trusts, business formation, capital raising, corporate governance, drafting legal documents, advising on corporate structures;
- serving as a trustee / director / officer / legal representative; and
- being involved in the buying and selling of business entities
- including due diligence on legal and financial status, advising on structure of transaction, taxation implications, liability protections, obtaining regulatory approvals and filing documents with government agencies, overseeing closing of transactions, transfer of funds and completion of legal formalities, etc.
How can my Legal practice prepare for these proposed changes?
Australia is on a tight timeline for introducing its expanded AML/CTF commitments, with an expected hard deadline around mid-2025. Given the limited time to prepare for compliance, Legal practices should start considering the following questions:
- Does your legal practice undertake one – or any – of the likely new “designated services”?
- Does your legal practice want to continue to undertake any of the likely new “designated services”? Are there any “designated services” that you could cease, so as to fall outside of the AML/CTF regime? Are there any “designated services” that you could refer out to other legal practices that do have the required compliance measures in place?
- What client services do you offer? Are any of these services high risk? Should any of these services been altered or removed from your legal practice?
- What identification and verification information do you already collect about your clients? How is it stored? How often is it reviewed or re-visited?
- What new file / matter opening processes will you need to implement, prior to providing your legal services?
- What screening tools may be available for purchase to help your legal practice comply?
- How much do you “know” about your clients, and their sources of wealth?
- What processes do you already have in place to identify potentially suspicious activity and transactions?
- What record keeping practices are already in place in your legal practice?
- Who in your legal practice will take the lead to ensure AML/CTF compliance is properly and fully achieved?
Lawyers should also start to consider how to handle the obvious tensions between:
- the professionally-honoured, ethically-required and foundationally-held concepts of client confidentiality and legal professional privilege; versus
- the AML/CTF regime’s reporting obligations.
How can MK help my legal practice prepare?
Whilst the introduction of the simplified (yet expanded) regime is still being refined, it’s likely that the changes will come into effect in early 2025.
The AML/CTF regime is complex, requiring the implementation of numerous policies, procedures, and training. If your legal practice waits for the certainty of the introduction, the time needed to prepare relevant documentation and the significant costs involved in complying with the regime may become overwhelming, risking non-compliance by the due date.
As it stands, compliance with the AML/CTF regime has six key obligations:
- Enrol with AUSTRAC
- Develop and maintain an AML/CTF program tailored to your legal practice
- Conduct customer due diligence
- Conduct ongoing customer due diligence
- Report certain transactions and suspicious activity
- Make and keep records.
Contact Macpherson Kelley for assistance with all or any of the following:
- Advice on the steps you can be taking now to prepare for the anticipated changes;
- Foundational AML/CTF training seminars for your legal practice and staff, outlining how the regime is anticipated to apply to legal practices;
- Undertaking a risk assessment of your current legal practice;
- Auditing your current products, services, practice and procedures, to ascertain the scope of “designated services”;
- Preparing the drafts of your required AML/CTF policies and Program documents; and
- Providing updates on the AML/CTF changes as they become known.
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Anti-Money Laundering and Counter-Terrorism Financing (AML / CTF) Regime set to apply to Lawyers
The legal profession in Australia is poised for a regulatory overhaul with the proposed expansion of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime to include Lawyers. Historically, these regulations have been limited to financial sectors, but the increasing complexity of financial crimes calls for broader oversight.
What is the AML/ CTF regime?
Each year, billions of dollars are generated from illegal activities and corrupt practices. Australia’s AML/CTF regime, introduced in 2006, establishes a regulatory framework for businesses offering specific types of designated products and services to help prevent money laundering, terrorism financing, and other serious financial crimes.
Recently, significant changes have been proposed to the application and scope of this regime. Lawyers, given the key role they play in transactions and advisory capacities, are now recognised as crucial in combating these crimes. The anticipated changes will require legal practices to implement comprehensive compliance measures to effectively identify and prevent illicit activities while maintaining their professional obligations.
What changes are proposed?
The Government has been consulting on two aspects of the AML / CTF regime:
- Simplifying and modernising the current AML/CTF Rules – to make it easier for all businesses to meet their obligations; and
- Addressing money laundering and terrorism financing risks in certain professions – proposing that the AML/CTF Rules should be expanded apply to particular industry groups including Lawyers (being, “tranche 2 entities” along with Accountants, Real Estate Agents and Conveyancers).
These proposals are still under review, and no amending legislation has been drafted yet. The Government is actively seeking feedback on the practical impact these changes will have on the affected “tranche 2 entities”.
Why include Lawyers in the AML/CTF regime?
- Lawyers often maintain a close advisory relationship with their clients, offering guidance on a very wide range of personal and business matters. However, this close involvement also exposes Lawyers to potential exploitation, especially where clients engage in apparently ‘above board’ activities that may have underlying criminal elements.
- Legal practices may unwittingly facilitate money laundering or terrorism financing, or innocently provide the veneer of legitimacy needed by criminals. This can occur through:
Establishing arrangements that actually conceal the proceeds of crime; - Establishing complex structures that actually obfuscate the true ownership (or beneficial ownership) of assets;
- Devising and implementing sophisticated structures for placing assets out of reach or tracing; or
- Being reckless, indifferent or mis-instructed as to the clients’ activities and true sources of wealth.
Globally, the range of services provided by Lawyers is recognised as high risk for money laundering exploitation. However, Australia is one of the few countries that does not currently regulate this sector under its AML/CTF regime.
Including Lawyers as ‘tranche 2 entities’ aims to equip legal practices with tools to prevent the misuse of their services by criminals and help Lawyers identify early indicators of suspicious transactions and criminal activities.
What might be the “designated services”?
The proposed AML/CTF reforms would introduce a wide list of “designated services” performed by Lawyers, being services that have been identified as posing a risk for money laundering and terrorism financing.
The relevant “designated services” proposed to apply to Lawyers include as follows:
- preparing or carrying out transactions for clients relating to the buying and selling of real estate
- including residential, commercial, agricultural real estate, leasing, and conveyancing;
- managing client money, securities and other assets
- including trust accounts, holding money in trust, and investing client funds;
- managing bank, savings or securities accounts
- (including having signatory powers of bank accounts, managing settlements, managing trust funds, and holding funds in a fiduciary capacity;
- managing Estates, acting as Executor, administering trust assets, and facilitating distributions to beneficiaries;
- organising contributions for the creation, operation or management of companies
- including involvement with drafting board and corporate resolutions, minutes of meetings and agreements;
- assisting with the creation, operation or management of legal persons or legal arrangements
- including trusts, business formation, capital raising, corporate governance, drafting legal documents, advising on corporate structures;
- serving as a trustee / director / officer / legal representative; and
- being involved in the buying and selling of business entities
- including due diligence on legal and financial status, advising on structure of transaction, taxation implications, liability protections, obtaining regulatory approvals and filing documents with government agencies, overseeing closing of transactions, transfer of funds and completion of legal formalities, etc.
How can my Legal practice prepare for these proposed changes?
Australia is on a tight timeline for introducing its expanded AML/CTF commitments, with an expected hard deadline around mid-2025. Given the limited time to prepare for compliance, Legal practices should start considering the following questions:
- Does your legal practice undertake one – or any – of the likely new “designated services”?
- Does your legal practice want to continue to undertake any of the likely new “designated services”? Are there any “designated services” that you could cease, so as to fall outside of the AML/CTF regime? Are there any “designated services” that you could refer out to other legal practices that do have the required compliance measures in place?
- What client services do you offer? Are any of these services high risk? Should any of these services been altered or removed from your legal practice?
- What identification and verification information do you already collect about your clients? How is it stored? How often is it reviewed or re-visited?
- What new file / matter opening processes will you need to implement, prior to providing your legal services?
- What screening tools may be available for purchase to help your legal practice comply?
- How much do you “know” about your clients, and their sources of wealth?
- What processes do you already have in place to identify potentially suspicious activity and transactions?
- What record keeping practices are already in place in your legal practice?
- Who in your legal practice will take the lead to ensure AML/CTF compliance is properly and fully achieved?
Lawyers should also start to consider how to handle the obvious tensions between:
- the professionally-honoured, ethically-required and foundationally-held concepts of client confidentiality and legal professional privilege; versus
- the AML/CTF regime’s reporting obligations.
How can MK help my legal practice prepare?
Whilst the introduction of the simplified (yet expanded) regime is still being refined, it’s likely that the changes will come into effect in early 2025.
The AML/CTF regime is complex, requiring the implementation of numerous policies, procedures, and training. If your legal practice waits for the certainty of the introduction, the time needed to prepare relevant documentation and the significant costs involved in complying with the regime may become overwhelming, risking non-compliance by the due date.
As it stands, compliance with the AML/CTF regime has six key obligations:
- Enrol with AUSTRAC
- Develop and maintain an AML/CTF program tailored to your legal practice
- Conduct customer due diligence
- Conduct ongoing customer due diligence
- Report certain transactions and suspicious activity
- Make and keep records.
Contact Macpherson Kelley for assistance with all or any of the following:
- Advice on the steps you can be taking now to prepare for the anticipated changes;
- Foundational AML/CTF training seminars for your legal practice and staff, outlining how the regime is anticipated to apply to legal practices;
- Undertaking a risk assessment of your current legal practice;
- Auditing your current products, services, practice and procedures, to ascertain the scope of “designated services”;
- Preparing the drafts of your required AML/CTF policies and Program documents; and
- Providing updates on the AML/CTF changes as they become known.