Australia has commenced the implementation of Anti-Money Laundering (AML) reforms to align Australia’s AML regime with standards recommended by the Financial Action Task Force (FATF). 

This comes as a result of a Senate Inquiry in 2021, and ahead of the Australian AML/CTF regime’s evaluation against international standards in 2025 or 2026. 

The Attorney-General’s Department Consultation

The Attorney-General’s Department has released the first of two consultation papers on modernising Australia’s AML/CTF regime. Submissions in response to the consultation paper, are due by 16 June 2023.

Feedback received during this consultation will be used to inform subsequent drafting of AML/CTF reforms over the course of the year. The second paper will be released for consultation later in 2023.

Modernising the AML Regime Reforms

The 2016 Statutory Review found that the current AML/CTF regime is overly complex and hinders the ability of regulated entities, particular small businesses, to understand and ultimately comply with their AML/CTF obligations.

In line with the 2016 Statutory Review, the AGD is proposing to reform the AML/CTF Act by clarifying the obligations in the AML/CTF Act to reduce the burden on businesses and make proposed changes to the AML/CTF Rules that will help businesses understand the AML/CTF outcomes they are expected to achieve.

The proposals contained within the consultation, if introduced, will each of the 14,000 plus businesses currently covered by the AML/CTF Act to review and ultimately amend and enhance their AML/CTF Programs.  

The consultation poses 22 questions relating to a wide range of topics and participation in the consultation is one of a limited set of opportunities for businesses to play a role in shaping the AML/CTF obligations they will subject to for years to come.

Our analysis of the AGD’s and insights into the implications of the proposals can be accessed below.

Tranche 2 Reforms

Lawyers, accountants, real estate agents and other professionals in the property industry who provide one or more designated services will be required to implement risk management programs, conduct client due diligence, and monitor client behaviour and transactions for suspicious activity.  

Designated services include buying and selling real estate and land, the conveyancing of real estate and land, buying and selling businesses or legal entities, managing client funds, accounts, or assets, and operating and managing legal entities acting as a nominee director or a trustee.

Now is the time to start thinking about how Tranche 2 will impact your business, the Attorney General's Department has commenced a widespread consultation with industry and other stakeholders prior to implementing the reforms. The consultation phase will represent an important opportunity to provide your input, as well as shape the scope and nature of the obligations for your industry.  

Understanding the potential AML/CTF compliance challenges will support your participation in the upcoming consultation phase, and ultimately mitigate the impact of being brought into the AML/CTF regime. 

Real estate industry

What real estate services may be covered by AML/CTF obligations?

Based on the International Standards and equivalent activity in other countries, the following services offered by the real estate industry are likely to be included as designated services under the AML/CTF Act:

  • Engaging in activity that involves the transfer of a beneficial interest in land or other real property;
  • Managing client funds (other than sums paid as fees for professional services) or other assets; or 
  • Engaging in or giving instructions on behalf of a customer to another person for any conveyancing to affect the grant, sale, or purchase or any other disposal or acquisition of real estate or an interest in land.

If your business offers or provides one or more of the above services, your business will be subject to AML/CTF obligations.

Why will real estate have AML/CTF obligations?

  • Real estate can be an attractive channel for criminals wishing to launder illicit funds.
  • Criminals can purchase a property using illicit funds, live in the property purchased with illicit funds, renovate the property (using illicit funds) to improve its value and sell the property later for a capital gain.
  • The ultimate beneficial ownership of real estate can also be easily concealed, making it an attractive asset class for criminals.

Risks faced by the real estate industry

Aspects of the services offered by the real estate industry have been identified as being attractive to criminals wanting to launder the proceeds of crime and to finance terrorism. The Money Laundering and Terrorist Financing (ML/TF) risks associated with the real estate sector include:

  • The use of third parties to buy and sell properties;
  • Manipulating property values (that is, criminals buy and sell real estate at a price above or below market value);
  • Structuring cash deposits to buy real estate;
  • The use of complex company structures and multiple accounts to disguise the real purpose of a property transaction and disguise the true ownership;
  • Buying and leasing properties, but providing the tenant with illicit funds to pay the rents;
  • Buying a property using illicit funds with the intention of conducting further criminal activity at the property; and
  • Using illicit funds to renovate properties.

Businesses within the real estate industry that will be captured by the AML/CTF Act must ensure they conduct a comprehensive ML/TF risk assessment to identify, assess, mitigate, and manage ML/TF risk exposures. This is a critical first step in complying with the AML/CTF Act and AML/CTF Rules.

Legal services

What legal services may be covered by AML/CTF obligations?

Services offered by lawyers and conveyancers that may be included as designated services under the AML/CTF Act include:

  • Acting as a formation agent of legal persons or legal arrangements;
  • Acting as, or arranging for a person to act as, a nominee director or nominee shareholder or trustee in relation to legal persons or legal arrangements;
  • Providing a registered office or a business address, a correspondence address, or an administrative address for a company, or a partnership, or for any other legal person or arrangement;
  • Managing client funds (other than sums paid as fees for professional services), accounts, securities, or other assets;
  • Engaging in a transaction on behalf of any person in relation to the buying, transferring, or selling of a business or legal person (for example, a company) and any other legal arrangement;
  • Engaging in a transaction on behalf of a customer in relation to creating, operating, and managing a legal person (for example, a company) and any other legal arrangement;
  • Engaging in or giving instructions on behalf of a customer to another person for any conveyancing to affect the grant, sale, or purchase or any other disposal or acquisition of real estate or an interest in land; and 
  • The transfer of a beneficial interest in land or other real property.

If you offer or provide one or more of the above services, your business will be subject to AML/CTF obligations.

Why will the legal profession have AML/CTF obligations?

  • Legal practitioners and conveyancers provide services that operate as a gateway to property and financial markets, financial institutions and other regulated professionals.
  • These ‘gatekeepers’ provide financial and business services that can be abused to disguise beneficial ownership, conceal the origins and purposes of financial transactions, facilitate tax evasion and, ultimately, launder the proceeds of crime. Operating through or behind a professional adviser can provide a veneer of legitimacy to criminal activity.
  • Legal practitioners can be used to create complex (but legal) structures that can create distance between criminals and their illicit wealth. Conveyancers facilitate a process that allows for the transfer of ownership of property, a high-value asset that provides ideal opportunities for laundering large volumes of illicit funds.

Risks faced by the legal profession

Aspects of the legal profession are identified as being attractive to criminals wanting to launder the proceeds of crime and to finance terrorism. The Money Laundering and Terrorist Financing (ML/TF) risks associated with the legal profession include:

  • Obscuring ultimate ownership through complex layers and legal entity structures;
  • Evading tax and exploiting known tax shelters;
  • Evading regulatory controls;
  • Providing a veneer of legitimacy to criminal activity;
  • Creating distance between criminal entities and their illicit income or wealth by using complex business and corporate structures; and
  • Avoiding the detection and confiscation of assets, and hindering law enforcement investigations.

Businesses within the legal profession that will be captured by the AML/CTF Act must ensure they conduct a comprehensive ML/TF risk assessment to identify, assess, mitigate, and manage ML/TF risk exposures.  This is a critical first step in complying with the AML/CTF Act and AML/CTF Rules.

Accountants

What services offered by accountants may be covered by AML/CTF obligations?

Based on the International Standards and equivalent activity in other countries, the following services offered by accountants and bookkeepers may be included as designated services under the AML/CTF Act.

  • Acting as a formation agent of legal persons or legal arrangements;
  • Acting as, or arranging for a person to act as, a nominee director or nominee shareholder or trustee in relation to legal persons or legal arrangements;
  • Providing a registered office or a business address, a correspondence address, or an administrative address for a company, or a partnership, or for any other legal person or arrangement;
  • Managing client funds (other than sums paid as fees for professional services), accounts, securities, or other assets;
  • Engaging in a transaction on behalf of any person in relation to the buying, transferring, or selling of a business or legal person (for example, a company) and any other legal arrangement; or
  • Engaging in a transaction on behalf of a customer in relation to creating, operating, and managing a legal person (for example, a company) and any other legal arrangement.

If you offer or provide one or more of the above services, your business will be subject to AML/CTF obligations.

Why will the accountancy profession have AML/CTF obligations?

  • The services offered by accountants and bookkeepers are vulnerable to money laundering activities due to their link to financial transactions, such as money transfers and trust account deposits, as well as the establishment of legal entities to hold assets.
  • Some services provided by accountants and bookkeepers may be attractive to criminals seeking to avoid detection and may raise red flags when accessing the financial system.
  • The services offered by accountants and bookkeepers may also have become more attractive to criminals over the past few years as the financial sector has implemented comprehensive AML/CTF measures.

Risks faced by the accountancy profession

Aspects of the services offered by the accountancy profession are identified as being attractive to criminals wanting to launder the proceeds of crime and to finance terrorism.  The Money Laundering and Terrorist Financing (ML/TF) risks associated with the accountancy profession include:

  • Criminals may seek to conduct their financial activity through an accountant to disguise their criminal involvement;
  • Criminals may seek out accountants as gatekeepers to the financial system to give the impression of respectability and legitimacy;
  • Criminals may misuse accountants’ trust accounts for deposits or international wire transfers to avoid detection; and
  • Criminals may seek the assistance of accountants to establish companies or trusts which they use to obscure who really owns or controls the funds and assets.

Businesses within the accountancy profession that will be captured by the AML/CTF Act must ensure they conduct a comprehensive ML/TF risk assessment to identify, assess, mitigate and manage ML/TF risk exposures.  This is a critical first step in complying with the AML/CTF Act and AML/CTF Rules.

Our analysis of the AGD’s and insights into the implications of the proposals can be accessed below.

Grant Thornton is uniquely positioned to help you understand what the proposed AML reforms may mean for your business

We have detailed knowledge and real-world experience of the likely Tranche 2 requirements, how they may impact each profession, and what can be done to mitigate their impact.

We have been at the forefront of the reform agenda proposed by the Federal Government, and directly supported many New Zealand legal practices, accountancy firms, and real estate business when they were brought into the AML/CTF regime in 2018.

If you would like to have an initial conversation about what AML reforms will mean for your business, and to download our AML Reform white papers, please fill in the form below:

AML Reforms white papers for download

Our AML Reform white papers will provide you with an overview of the ADG's approach to simplifying and modernising Australia’s AML/CTF regime, ML/TF risks in the real estate sector and risks in the legal, accountancy, and trust company service provider professions.

Helping you mitigate your AML and CTF risks

Grant Thornton can assist you to review and mitigate your AML/CTF risk profile by: 

  • Supporting the preparation of submissions, including proposing practical, proportionate and pragmatic approaches based on the actual experience of implementing AML/CTF compliance within all sizes of business. 
  • Helping you understand impacts in countries that have already implemented equivalent reforms, and how existing business processes can be adapted to meet AML/CTF compliance requirements.
  • Supporting your business in preparing for the upcoming changes. 
  • Prepare AML/CTF programs and other necessary documents to ensure AML/CTF compliance that is appropriately tailored to your business 
  • Supporting the development and delivery of the AML/CTF systems and controls needed to implement AML/CTF compliance across your organisation, including adapting or repurposing existing processes.
Neil Jeans
Partner
Neil Jeans
Katherine Shamai
Partner
Katherine Shamai