Navigating the AML/CTF reforms: Extending the regime to Tranche 2 entities

The Australian Parliament passed the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth) (the Bill) on 29 November 2024.

As well as simplifying the current AML/CTF regime, the Bill expands the regime's application to services provided by certain high-risk businesses and professions ('Tranche 2 entities'), including:

real estate professionals and developers;
professional services providers such as lawyers, accountants, insolvency and restructuring practitioners, consultants; and
dealers in precious metals and stones.

When the Tranche 2 entities' provisions commence on 1 July 2026, the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) will apply to approximately 70,000 additional businesses, bringing the total reporting entities to 90,000.

The Tranche 2 entities amendments to the AML/CTF Act aim to close regulatory gaps and bring Australian law in line with international standards set by the Financial Action Task Force. Currently, the absence of AML/CTF requirements for Tranche 2 entities is seen as a weakness in Australia's AML/CTF framework, leaving these industries vulnerable to money laundering and terrorism financing risks.

How the AML/CTF Act will apply to Tranche 2 entities

Rather than listing specific types of businesses, the Bill introduces new 'designated services' to define the scope of entities caught by the regime. Any entity providing such a service with a geographical connection to Australia will be subject to the AML/CTF Act.

The following designated services will be subject to the AML/CTF Act:

Real Estate

Service provider	Designated Service
Real estate agents	Brokering the sale, purchase or transfer of real estate on behalf of a buyer, seller, transferee or transferor in the course of carrying on a business
Real estate developers	Selling or transferring real estate in the course of carrying on a business selling real estate, where the sale or transfer is not brokered by an independent real estate agent

The following real estate and real estate services will not be captured:

residential tenancy agreements;
leasehold interests of 20 years or less (excluding options to extend);
property management;
leasing of commercial real estate; and
auctioneer services (unless the auctioning services are provided by the seller's agent alongside the sale of the real estate).

Dealers in precious metals and stones

Notice

Potential requirements

Bullion dealers

Buying or selling bullion, where the buying or selling is in the course of carrying on a bullion-dealing business

Dealers in precious metal and stones

Buying or selling one or more of the following items, whether involving cash or virtual assets where the value of the transaction is $10,000 or more:

precious metal
precious stones
precious products

'Precious metals' are defined as gold, silver, platinum, iridium, osmium, palladium, rhodium, ruthenium or an alloy substance with at least 2% in weight of any of these.

'Precious stones' are defined as a substance that has gem quality and market-recognised beauty, rarity and value, irrespective of whether it is natural, synthetic or reconstructed. 'Precious stones' include beryl, corundum, diamond, garnet, jadeite jade, opal, pearl and topaz.

'Precious products' include jewellery, a watch, an object of personal adornment or an article of goldsmiths' or silversmiths' wares made up of or containing a precious metal or stone.

The AML/CTF Act will not apply to:

precious metal, precious stone or precious products transactions below $10,000;
precious metal, precious stone or precious products transactions above $10,000 made by payments other than physical currency or virtual assets, such as payments by debit card or credit card, BPAY or PayPal; and
businesses that decide not to accept any physical currency or virtual asset payments equal to or above $10,000.

Professional services providers

Service Provider	Deseignated Service	Customer
Professional services providers, including lawyers, accountants, trust and company services providers, consultants and restructuring professionals	Assisting a person to sell, buy or transfer real estate.	The Person
	Assisting a person to sell, buy or transfer a body corporate or legal arrangement.	The Person
	Receiving, holding and controlling (including disbursing) or managing a person's: money accounts securities and securities account virtual assets other property.	The Person
	Assisting in equity or debt financing relating to: a body corporate (or proposed body corporate) a legal arrangement (or proposed legal arrangement)	The Person
	Selling or transferring a shelf company	The Buyer or transferee
	Assisting a person in the creation or restructuring of: a body corporate, other than a corporation under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 legal arrangement	The person and : if the body corporate is a company and the service is creating the company - the beneficial owners and directors of the company; or if the legal arrangement is an express trust and the service is creating the express trust - the trustee, settlor and benefeciaries of the trust
	Acting as, or arranging for another person to act as, any of the following, on behalf of a person (the nominator): a director or secretary of a company a power of attorney of a body corporate or legal arrangement a partner in a partnership a trustee of an express trust a position in any other legal arrangement that is functionally equivalent to the above positions	The nominator
	Acting as, or arranging for another person to act as, a nominee shareholder of a body corporate or legal arrangement, on behalf of a person (the nominator).	The nominator
	Providing a registered office address or principal place of business the person to whom the service is provided	The person to whom the service is provided

Legal Professional Privilege

Lawyers engaging in the services set out above will be subject to AML/CTF Act from 1 July 2026. This raises questions around how legal professional privilege (LPP) will interact with obligations under the AML/CTF Act, including the requirement to report suspicious matters to AUSTRAC.

The Bill proposes the following protections for LPP:

the Bill does not abrogate LPP and preserves the right of a person to refuse to give information subject to LPP;
a reporting entity is exempt from filing a suspicious matter report (SMR) if it reasonably believes the relevant information is subject to LPP;
if a person has provided a description of information or a document to AUSTRAC, then that does not, of itself, constitute a waiver of LPP; and
if a person receives a request to provide information or a document to AUSTRAC and they reasonably believe the document or information is subject to LPP, the person can refuse to provide it on that basis. If a person does so, they must send a prescribed LPP Form to the AUSTRAC CEO setting out the basis for the LPP claim. There is no requirement to submit an LPP Form where an SMR has not been filed.

The AML/CTF Act distinguishes between solicitors and barristers, and provides that barristers acting on the instructions of a solicitor will not be caught by the regime.

What entities need to do if they are caught

If businesses provide one or more designated services, they must put in place measures to identify, detect and mitigate money laundering, terrorism financing and proliferation financing (ML/TF/PF) risk in their business. To do so, Tranche 2 entities will be required to comply with the following key AML/CTF Act obligations.

Reporting entity obligations

Compliance requirements

Enrol with AUSTRAC: Businesses offering a designed service will need to enrol with AUSTRAC.
Develop and maintain an AML/CTF policies tailored to your business: AML/CTF policies must be in place before a business can provide designated services, and the business must conduct a risk assessment of its ML/TF/PF risk.
Appoint an AML/CTF Compliance Officer: Businesses providing a designated service must appoint an AML/CTF compliance officer to oversee the operation of the entity's AML/CTF policies and updates.
Conduct customer due diligence: Tranche 2 entities will need to conduct initial customer due diligence, which includes the collection and verification of a customer's identity as well as customer risk rating.
Conduct ongoing customer due diligence: Tranche 2 entities will need to collect, review and update 'Know Your Customer' (KYC) information, as well as monitor their customers for unusual transactions and behaviours that may give rise to a suspicious matter reporting obligation. They will also be required to conduct enhanced customer due diligence for high risk customers (such as politically exposed persons).
Report certain transactions and suspicious activity: Tranche 2 entities will be required to report certain matters to AUSTRAC, including suspicious matter reports, threshold transaction reports and international value transfer services.
Make and keep records: Tranche 2 entities will need to keep certain records of the designated services provided to customers. In particular, business must keep records of KYC information and of relevant transactions for up to seven years after they have been concluded.

Next steps and what Tranche 2 entities should do to prepare

Many aspects of the obligations on Tranche 2 entities under the AML/CTF Act will be set out in updated AML/CTF Rules, to be developed and made now that the Bill has been passed. AUSTRAC has confirmed that it will conduct extensive consultations on these Rules.

Businesses that provide the 'designated services' above will need to put in place procedures and processes to comply with the AML/CTF Act from the time these reforms commence on 1 July 2026. As initial steps, entities that fall within the categories of business identified above should:

confirm whether and which parts of their business provide a 'designated service' and will therefore be subject to the new AML/CTF regime;
if they are subject to the regime, develop an ML/TF risk assessment and AML/CTF policies, considering the AML/CTF Rules and AUSTRAC guidance;
establish customer due diligence processes and procedures;
identify and obtain capability statements from technology providers for the purposes of conducting customer due diligence and complying with AUSTRAC reporting requirements;
appoint a suitably trained AML/CTF Compliance Officer, and assess that they are a 'fit and proper' person; and
develop staff AML/CTF training materials.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.


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