Second stage of the consultation on the reform of Australia’s AML/CTF regime – Part 1: Incorporation of Tranche 2 entities

06 June 2024

On 2 May 2024, the second stage of the consultation process on the reform of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime commenced with the release by the Attorney-General’s Department (Department) of five consultation papers outlining various proposals for reform of the regime which follows the first stage of consultation that ran from April to June 2023 (available here). The Department is seeking feedback on the proposed reforms by 5:00 pm AEST Thursday 13 June 2024.

As we explained in our article on the first stage of the consultation (available here), the Department is consulting (among other things) on the extension of the AML/CTF regime to various professionals (including real estate professionals, solicitors and accountants) and precious stone dealers, among others. These entities are often described as ‘Tranche 2’ entities. The second stage consultation papers include detail of proposed reforms in relation to the Tranche 2 entities and examples of how AML/CTF risks may arise in relation to those entities and the industries in which they operate.

This article deals with the proposed reforms regarding the Tranche 2 entities, which are addressed in the second stage consultation papers as follows:

  • Paper 1: Further information for real estate professionals;
  • Paper 2: Further information for professional service providers; and
  • Paper 3: Further information for dealers in precious metals and precious stones.

Proposed additional designated services

Entities are regulated under the Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth) (AML/CTF Act) where they provide services specified in the Act as ‘designated services’. Each of the above consultation papers outline the additional designated services proposed to be included in the Act, the effect of which will be to bring parties providing those services within the operation of the AML/CTF Act. We summarise these additional proposed designated services below.

Paper 1 (real estate professionals): Designated Services
1.Brokering the sale or transfer of real property on behalf of one or more sellers, in the course of carrying on a business.
2.Brokering the purchase, or transfer of real property on behalf of one or more buyers, in the course of carrying on a business.
3.Selling real property in the course of carrying on a real property selling business without the involvement of a real estate agent.
Paper 2 (professional service providers): Designated Services
1.Preparing for or carrying out transactions on behalf of a person, to buy, sell or transfer real property, in the course of carrying on a business.
2.Preparing for or carrying out transactions on behalf of a person to buy, sell or transfer legal entities in the course of carrying on a business.
3.Receiving, holding and controlling or disbursing:
• money (other than sums paid as fees for professional services);
• accounts;
• securities or securities accounts;
• digital assets (including private keys); or
• property.
on behalf of another person, in the course of carrying on a business, but excluding:
• pre-payment for goods and services provided by the business;
• property management activity; and
• prescribed disbursements.
4.Preparing for, carrying out, or organising transactions for contributions for the creation, operation or management of legal entities, on behalf of a person in the course of carrying on a business.
5.Formation, creation, operation or management of a legal entity (excluding a testamentary trust), on
behalf of a person, in the course of carrying on a business.
6.Acting as, or arranging for a third person to act as:
• a director or secretary of a company;
• a power of attorney for a legal entity;
• a partner of a partnership;
• a trustee of an express trust, or performing the equivalent function for another form of legal entity, but excluding as executor or administrator of a deceased estate; or
• a similar position in relation to other legal entities on behalf of another person in the course of carrying on a business.
7.Acting as, or arranging for a third person to act as, a nominee shareholder, in the course of carrying on a business on behalf of a person.
8.Providing a registered office address, principal place of business address, correspondence address or administrative address for a:
• company;
• partnership; or
• any other legal entity
on behalf of a person, in the course of carrying on a business.
Paper 3 (precious metals and precious stones): Designated Services
1.Accepting or paying $10,000 or more in physical currency or digital assets for the sale or purchase of precious metals or precious stones (including jewellery or accessories made up of, or having precious stones or precious metals attached) to a person in the course of carrying on a business.

Given the breadth of the proposed additional designated services set out above, the proposed reforms will bring a substantial number of professionals within the operation of the AML/CTF regime including real estate agents, buyer’s agents, property developers, lawyers, conveyancers, accountants, corporate advisors, investment bankers, fund managers and others.

Obligations to be imposed on Tranche 2 entities

Each of the papers also includes a summary of the six key obligations that an entity that provides designated services (reporting entity) is required to do under the AML/CTF Act (some of which are the subject of other proposed reforms), namely:

  1. enrol with the Australian Transaction Reports and Analysis Centre (AUSTRAC) for the purpose of reporting to AUSTRAC;
  2. develop and maintain an AML/CTF program to design and implement required measures tailored to the reporting entity’s business to mitigate AML/CTF risks faced by the reporting entity;
  3. conduct customer due diligence to identify and verify the identity of the customer before providing a designated service to the customer;
  4. conduct ongoing customer due diligence to monitor the customer’s behaviour to determine whether their behaviour is unusual or suspicious so as to necessitate an update of their risk rating, including transaction monitoring;
  5. report Threshold Transactions and Suspicious Matters to AUSTRAC; and
  6. make and keep specified records.

The reform of the AML/CTF laws to incorporate these Tranche 2 entities will impose reporting and compliance obligations on those entities to assist in the detection and prevention of the misuse of their sectors and products by criminals seeking to launder money and fund terrorism. The failure to comply with these obligations may carry the risk of significant reputational damage and financial cost and penalties.

Timing

As noted above, the current consultation period is open for feedback until 13 June 2024.

The government has not announced when it is proposed that the amendments will come into effect, although it has stated that if the proposed reforms become law, new regulated entities would be given time to make arrangements and prepare before being regulated under the AML/CTF regime.

We will continue to monitor and provide updates in relation to the consultation process and proposed reforms. You can read other publications from us about other reforms proposed to the AML/CTF regime here.

This article was written by Polat Siva, Partner, and Neil Perl, Special Counsel.

Neil Perl

Special Counsel | Melbourne

Subscribe to HWL Ebsworth Publications and Events

HWL Ebsworth regularly publishes articles and newsletters to keep our clients up to date on the latest legal developments and what this means for your business.

To receive these updates via email, please complete the subscription form and indicate which areas of law you would like to receive information on.

Contact us