Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth) – what’s new and its likely place in the disciplinary context
Background
On 10 December 2024, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth) (the AML Amendment Act) received Royal Assent, and with it, commenced relevant amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act).
To say this has caused some disruption and disquiet in the legal community would be an understatement.
As part of consultation on the initial Bill, the Victorian Bar had sought complete exemption from the new laws, whilst the NSW Bar had accepted they should apply where barristers are briefed directly by clients. It was reported in the AFR that legal advice commissioned by the Victorian and NSW Bar associations was to the effect that the application of anti-money-laundering laws to barristers could be ‘unconstitutional and lead to a swath of unsafe convictions’.
These submissions carried weight. Amendments were adopted prior to the passing of the Act excluding barristers from the scope of “designated services” regulated by the Act.
For its part, the Law Council of Australia expressed similar strong reservations, noting on 14 November 2024: “this Bill will critically impact access to justice in this country because of the regulatory burden it will place on the legal profession and the fact that it will limit a person’s ability to trust and confide in their lawyer…Under this Bill, lawyers will be forced to become covert informers on their clients.”
So, what is all the fuss about?
The intent of the amendments (the majority of which take effect in 2026 – for existing reporting entities on 31 March 2026, and for Tranche 2 reporting entities on 1 July 2026) are to modernise Australia’s regulatory system, ensuring it can deter, detect, and disrupt financial crimes like money laundering and terrorism financing. The amendments are part of Australia’s commitment to align with the Financial Action Task Force (FATF) standards.
The AML Amendment Act seeks to do this in several ways:
- it introduces new definitions and concepts which significantly expand the scope of the Act and imposes new obligations on reporting entities. This includes by overtaking current carve-outs which exist under the current AML/CTF Rules managed by AUSTRAC;
- it repeals existing definitions in the Act, aimed at streamlining the operation of the Act; and
- it regulates additional high-risk services by expanding the definition of “designated services” provided by “Tranche 2 entities” to include new categories such as real estate services, dealings in precious metals and stones, and a broader range of professional services. These additions subject more businesses, including law firms, to the Act’s requirements.
This reach into the operations of law firms will crystalise in a number of ways:
- firms will need to comply with more stringent customer due diligence requirements. They must now verify the identity of not just their clients but also anyone acting on their behalf, to understand the nature and purpose of their clients’ transactions, and identify beneficial owners. This expanded scope aims to prevent money laundering and terrorism financing by scrutinizing a wider range of activities;
- it introduces additional reporting obligations for law firms, including reporting on “suspicious matters” and “threshold transactions.” The definition of “suspicious matters” has been broadened to include “unusual transactions and behaviours” which necessitates ongoing monitoring of clients and their activities. A failure to comply with these reporting obligations can lead to civil penalties and reputational damage;
- the concept of “reporting groups” introduces complexities for law firms structured as partnerships or part of larger legal networks. The Act defines “control” within a business group, making it essential to determine if such a group exists and who the “lead entity” is. This assessment will impact how obligations under the Act are managed and shared within a group;
- it introduces specific provisions on “legal professional privilege,” acknowledging its importance in legal practice. However, navigating these provisions may require careful consideration, especially when responding to requests for information or documents from AUSTRAC (the Australian Transaction Reports and Analysis Centre, the government financial intelligence agency responsible for monitoring financial transactions to identify money laundering, organised crime, tax evasion, welfare fraud and terrorism financing). Firms will need to balance their obligations with their duty to protect client confidentiality. There are various carve outs provided for Suspicious Matter Reporting where the material giving rise to the suspicion derives in whole or in part from privileged information.
Additionally, the amendments to the Act impose positive obligations upon firms, including:
- that firms designated as “reporting entities” are mandated to develop, document, and comply with an Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) program. This program must include a Money Laundering/Terrorism Financing (ML/TF) risk assessment and policies to manage and mitigate these risks. The program must be appropriate to the firm’s size, nature, and complexity;
- reporting entities, including law firms, must proactively undertake a risk assessment to identify potential money laundering, terrorism financing, and proliferation financing risks they might face while providing designated services. The assessment must consider the types of services offered, customer profiles, and geographic locations. The assessment should be reviewed and updated regularly, especially after any significant changes in the firm’s business;
- that firms must develop and maintain AML/CTFpolicies to manage and mitigate risks identified in their ML/TF risk assessment. These policies should include procedures for customer due diligence, suspicious matter reporting, record-keeping, and staff training;
- firms must designate a Compliance Officer to oversee and coordinate the firm’s compliance with the Act and AML/CTF obligations. This individual should have sufficient authority and resources to perform their duties effectively;
- the placing of responsibilities on the governing body of the law firm to exercise ongoing oversight of the firm’s AML/CTFprogram, ensuring compliance with the relevant policies, the Act itself, and related instruments. The governing body must take reasonable steps to guarantee the firm effectively identifies, assesses, manages, and mitigates money laundering, terrorism financing, and proliferation financing risks; and
- firms are obliged to keep records that demonstrate compliance with their AML/CTF obligations for seven years.
The enforcement regime in respect of these obligations is primarily structured around a mix of civil and criminal sanction, and also potential reputational risk:
- Many provisions, particularly those related to AML/CTF program requirements, are designated as “civil penalty provisions”;
- More significantly, certain actions or omissions are considered criminal offences, carrying potentially more severe consequences than civil penalties. These include:
- Failing to comply with a notice issued by AUSTRAC for information or document production. This can lead to imprisonment for six months or 30 penalty units, or both.
- Failing to comply with a requirement to appear before an examiner for questioning. This can result in imprisonment for two years or 100 penalty units, or both.
- Intentionally or recklessly refusing or failing to answer questions during an examination. This can result in imprisonment for two years.
- Additionally, AUSTRAC has significant powers to ensure compliance, including:
- to request a reporting entity to produce documents related to their AML/CTF program;
- to issue written notices requiring a reporting entity to undertake specific actions related to their AML/CTF program, such as conducting or updating their risk assessment or developing and updating their AML/CTF policies; and
- authority to examine individuals under oath to gather information related to potential non-compliance.
- More significantly, certain actions or omissions are considered criminal offences, carrying potentially more severe consequences than civil penalties. These include:
Further, the Act criminalises the disclosure of information that could prejudice an investigation or alert a customer to a suspicion of money laundering or terrorism financing. This provision underscores the seriousness of maintaining the confidentiality of investigations and the importance of secure reporting procedures within law firms.
Interaction with professional duties
But, how does this interact with the disciplinary regime which applies to us as solicitors? What can we expect?
The expansion of the Act into the realm of professional standards has been long-anticipated.
As the Queensland Law Society noted in its Guidance Statement No.13 Proceeds of crime compliance and Anti-Money Laundering (Guidance Statement 13):
“The AML/CTF did not originally intend to deal with lawyers generally as designated service providers, given the expectation a second tranche of provisions would later be introduced to deal with the profession specifically. These provisions were never enacted but indicate a growing concern that lawyers are increasingly being considered as ‘gatekeepers’. It is not unlikely future reforms may see greater obligations imposed and therefore potential liability for legal practitioners.”
The Law Council of Australia has provided similar prescient guidance in its Anti-money Laundering Guide for Legal Practitioners dated April 2016, updated in July 2024 to reflect the (then anticipated form of the) Act.
The Law Council’s position has been that the extension of requirement for suspicious transaction reporting (if extended to lawyers) would impact on the client-lawyer relationship, client confidentiality and client legal privilege.
With the Act now passing, the formal cross-over of these principles into the realm of professional standards arrives.
Again, as the Queensland Law Society has noted in its Guidance Statement 13:
2.1. General ethical principles
Solicitors have a duty of honesty, integrity and professional independence, as well as an obligation to not do anything which would be prejudicial to, or diminish public confidence in, the administration of justice or bring the profession into disrepute. Solicitors have both a legal and ethical duty to comply with the law.
For these reasons, solicitors should take great care to avoid the risk of participation, even unwitting, in money laundering activities or receiving the proceeds of crime. This risk may be reduced by following the recommendations proposed in clause 2.5 of this Guidance Statement.
Solicitors can consider if rule 13 of the Australian Solicitors Conduct Rules 2012 (‘ASCR’) applies. See also Guidance Statement No. 8 – Termination of a retainer.
Clearly, there is an anticipated clash between our duties, such as may give rise to a need to consider termination of our client retainer in certain circumstances.
Guidance from the United Kingdom
Some guidance of what can be expected in the professional standards realm can be taken from how similar regimes have been applied in overseas jurisdictions, and particularly the United Kingdom.
There, the Solicitors Regulation Authority (SRA) maintains a stringent regulatory regime around ensuring law firms comply with their AML (structured around the Money Laundering Regulations 2017) responsibilities, which were replaced by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017).
The SRA undertakes a rolling programme of firm reviews and has been extremely proactive in enforcing the compliance of the legal sector, acting against firms ranging from the world’s largest (by number of lawyers) to sole practitioners. Failure to comply with AML responsibilities can have serious consequences for both firms and those individuals involved.
In the United Kingdom, to ensure compliance, the MLR 2017 place several obligations upon all law firms and their employees (including unqualified staff). These include requiring law firms to have in place:
- a firm wide anti-money laundering risk assessment
- client and matter level risk assessments
- an effective approach to carrying out customer due diligence and
- anti-money laundering policies, controls and procedures.
Under the Proceeds of Crime Act 2002 (Cth) and the Terrorism Act 2000 (Cth), firms also have a duty to report potentially suspicious anti-money laundering activity to the National Crime Agency (NCA).
Several recent decisions have suggested that a breach found to be “serious, reprehensible and culpable” would be likely to amount to professional misconduct. But, a breach that “was entirely inadvertent” may not necessarily fall within the categorisation of professional misconduct.
However, paragraph 7.1 of the Code of Conduct for Solicitors, Registered European Lawyers and Registered Foreign Lawyers, requires individuals to keep up to date with and follow the law and regulation governing the way in which they work. Failing to do so, may result in a disciplinary investigation and/or disciplinary proceedings being brought before the Solicitors Disciplinary Tribunal (SDT).
Paragraphs 2.1(a) and 2.5 of the Code of Conduct for Firms requires all regulated law firms to have appropriate policies and procedures in place to protect it from being used for money laundering and terrorist financing.
The SRA expects all regulated firms and individuals to comply with money laundering legislation and to be aware of, and act properly upon, warning signs that a transaction may be suspicious. A failure to comply with either the MLR 2017 or any SRA issued warning notice, may lead to disciplinary action, criminal prosecution, or both.
As set out above, the SRA undertakes a rolling programme of firm reviews. As a result, an SRA disciplinary investigation can be triggered by non-compliant firms and investigations are usually undertaken where the conduct involves:
- evidence of money laundering;
- failure to carry out customer due diligence;
- failure to have in place a firm wide risk assessment;
- out of date anti-money laundering policies; or
- weak controls or a lack of controls.
Several large international law firms have been subject to disciplinary proceedings before the SDT in the UK for failing to comply, adequately or at all, with the relevant Anti-Money Laundering Regulations.
The SRA have alleged that such conduct can be in breach of the SRA’s Principles and Code of Conduct, which may result in findings of professional misconduct.
The SDT have imposed financial penalties against firms of up to £500,000 (even in instances where the conduct was not deliberate or caused by any blameworthy motivation), to set a meaningful deterrent for the profession. For larger firms, the SDT have also considered firm’s size and resources when imposing financial penalties by applying a percentage uplift to larger firms, to ensure any financial penalties are fair.
For its part, the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) in its fifth annual report handed down on 23 September 2024 – Anti-Money Laundering Supervision by the Legal and Accountancy Professional Body Supervisors: Progress and themes from our 2023/2024 supervisory work – has found that while most Professional Body Supervisors (PBS) are complying with money laundering regulations, how they supervise is still not consistently effective.
What to expect?
On 11 December 2024, AUSTRAC released the Consultation paper on the new AMLCTF Rules, and First Exposure Draft of the General Rules for the first round of public consultation. This consultation period finishes on 14 February 2025. It is expected that there will be two rounds of consultation with a further Exposure Draft issued reflecting feedback gathered in the course of the first round.
The position which AUSTRAC has taken in formulating the First Exposure Draft is that the Current Rules (as set out in Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No.1)) are too prescriptive. The intent of the updated regime is, as AUSTRAC has described it:
“[to] provide current and future reporting entities with more detail on their AML/CTF obligations, allow them greater flexibility in how they meet their obligations, reduce regulatory impacts and support them to better detect and prevent financial crime.”
Part of the rationale of the new Rules is to shift to an outcomes-based system. This is, as AUSTRAC has defined it (and more in keeping with contemporary regulatory best-practice), intended to frame “the outcome to be achieved while affording flexibility to meet this outcome”.
As it stands, and taking guidance from the United Kingdom position, we may expect that non-compliance with the final form of AML/CTF obligations, including as reflected in the updated rules, will in time crystallise in professional disciplinary implications.
Should you have any further questions around the above, our professional regulatory team of Michael Lucey and Rebekah Lines would be very pleased to assist you.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.