How lawyers will need to comply with Australia’s Tranche 2 AML/CTF laws
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Tranche 2 of Australia's Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) reforms significantly impact lawyers and conveyancers. They now fall into the category known as Tranche 2 reporting entities that provide certain designated services.
Some of the high-risk designated services offered by legal professionals include:
- Managing clients’ funds, securities, and other assets
- Helping buy and sell real estate and businesses
- Creating, operating, and managing companies or trusts
- Providing a registered business address for clients
- Nominee services, like acting as a director, trustee, secretary, power of attorney, or shareholder.
If you offer any of these designated services or others not listed, you will have compliance obligations. If so, you need to meet two key deadlines:
- Enrol with AUSTRAC (Australian Transaction Reports and Analysis Centre) by 31 March 2026.
- Comply with all Tranche 2 obligations by 1 July 2026.
If you’re impacted and need advice, talk to our team today.
Tranche 2 AML/CTF requirements for lawyers
AUSTRAC outlines the obligations that lawyers will need to comply with. Here’s a summary:
1. Appoint an AML/CTF Compliance Officer: This role must be at management level and it’s responsible for making sure your business complies with its AML/CTF obligations. If you’re a sole trader or small business, you can get help or advice from an independent adviser like One AML, but you remain responsible for AML/CTF compliance.
2. Develop an AML/CTF Program: All reporting entities must develop, implement, and maintain a tailored AML/CTF Policy and Risk Assessment.
3. Conduct staff AML/CTF training: All reporting entities, including lawyers, must implement AML/CTF risk awareness training for employees who provide designated services and whose roles pose a money laundering (ML) or terrorism financing (TF) risk.
4. Enrol with AUSTRAC: Reporting entities must enrol from 31 March 2026 and ensure their information remains up to date. Check that you need to enrol with AUSTRAC, then get in touch with our team.
5. Perform Customer Due Diligence (CDD) and Know Your Customer (KYC): When onboarding clients, lawyers must have processes in place to ensure they understand who their customers are and can effectively manage money laundering (ML) and terrorism financing (TF) risks.
6. Monitor and report certain activities to AUSTRAC: With Tranche 2, lawyers will be obligated to report suspicious transactions to AUSTRAC. This requires a better understanding of red flags and indicators of illegal activities, as well as being able to identify and report suspicious transactions promptly.
7. Keep AML/CTF records: You must make and maintain accurate and complete records for at least seven years. These provide evidence of your due diligence, risk management practices, and compliance with AML/CTF obligations.
8. Maintain ongoing compliance and training: Lawyers are expected to set up and maintain robust AML/CTF compliance programs tailored to their specific business risks. You’re also required to provide regular employee training on AML awareness and reporting obligations.
9. Conduct independent AML/CTF evaluations: These are required every three years to assess the effectiveness of your AML/CTF program. This will help identify any weaknesses or deficiencies in your program and make sure it remains up-to-date and aligned with regulatory requirements.
See our Tranche 2 compliance timeline and roadmap
Lawyers as gatekeepers
Legal professionals in Australia provide services that could act as a gateway for organised criminals to access the local property and financial markets, as well as financial institutions. In this role, lawyers and conveyancers provide business and financial services that can be abused by criminals to hide beneficial ownership, evade tax, conceal the origin of financial transactions, and launder the proceeds of crime.
Organised criminals seek to operate through or behind a professional adviser, like a legal professional, to provide legitimacy to their illegal activities.
For example, legal professionals can be used to create a legal, but complex, structure to distance criminals from their illicit wealth. The legal sector also facilitates the process of transferring the ownership of property, which is a high-value asset that gives criminals an ideal opportunity to launder large amounts of illicit funds.
Embrace Tranche 2 obligations and safeguard Australian legal and financial system
With Tranche 2 of Australia's AML/CTF legislation drawing closer, legal professionals must prepare without delay to comply with the expanded regulatory framework. The increased CDD requirements, reporting requirements and compliance costs may be challenging. However, these measures are important for safeguarding the integrity of the Australian legal and financial system and enhancing the nation's reputation as a responsible global player.
The Australian legal industry has a pivotal role to play in helping neutralise financial crime by embracing the new AML/CTF obligations, investing in the necessary resources, and communicating the upcoming changes with their customers.
Red flags for Tranche 2 entities
Under Australia's Tranche 2 AML/CTF reforms, lawyers, real estate agents, and accountants will soon be on the front lines of detecting and reporting suspicious financial activity. These suspicious matters are often referred to as red flags, and they could indicate money laundering (ML) or terrorism financing (TF).
Understanding potential red flags is important for these ‘gatekeeper’ professions to meet their new obligations and avoid facilitating financial crime.
While AUSTRAC is expected to release detailed guidance, a range of red flags based on international standards and existing AML/CTF knowledge can already be identified. Here are some general red flags, based on Financial Action Task Force (FATF) guidance and AUSTRAC:
- Unusual or unexplained large transactions, especially those inconsistent with a client’s known profile or business activity.
- Use of complex ownership structures, such as shell companies, trusts, or offshore accounts, to obscure the source or ownership of funds.
- Reluctance by clients to provide complete information or supporting documentation for transactions or the source of funds.
- Clients seeking to avoid reporting or identification requirements or requesting unusual levels of secrecy.
- Transactions involving high-risk countries or jurisdictions known for weak AML/CTF controls.
- Frequent or unexplained movement of funds between unrelated entities or accounts.
Red flags for lawyers and conveyancers
- Requests to create complex legal structures, for example, trusts or companies, with no clear commercial purpose.
- Involvement in transactions where the client is evasive about the source of funds or the ultimate beneficial owner.
- Handling funds through client accounts without a clear link to legal services being provided.
- Assisting in property or asset transfers between unrelated parties, especially where the transaction lacks a clear business rationale.
- Clients seeking advice on how to avoid reporting or regulatory scrutiny.
How One AML can help lawyers prepare for the Tranche 2 AML/CTF laws
If your business is affected by Tranche 2, One AML can help you understand and meet your AML/CTF obligations. Get in touch today, as advisory resources are limited and time is short. We provide robust, cost-effective, and seamless solutions.