Tranche 2 Of AML/CTF: Are Accountants In?

The Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth) (‘AML/CTF’, ‘the Amendment’) amends the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (‘the Act’) by extending to additional services, including services provided by real estate agents, lawyers, and accountants that are high risk for money laundering and terrorism financing.

Section 5 of the AML/CTF Act defines ‘reporting entity’ as provider of designated service. To this end, section 6 of the AML/CTF Act provides an extensive list of designated services.

Accountants providing the following services fall under the definition of reporting entity:

(a) Assisting or acting on behalf of a person in a transaction to transfer real estate.

(b) Assisting or acting on behalf of a person in a transaction to transfer a body corporate or legal arrangement, or those involved in corporate restructuring.

(c) Receiving, holding and controlling or managing a person’s assets.

(d) Facilitating equity or debt financing.

(e) Transferring shelf companies.

(f) Acting as or arranging for another person to act as substitute office-holder in corporate governance (director, power of attorney, shareholder etc.).

(g) Providing a registered office address or principal place of business.

However, businesses that only or incidentally receive, hold and control or manage a person’s assets without performing any of the other designated services will not be covered. As such, routine tax/audit services or smaller firms not involved in financial management may be exempt.

What are your obligations if you are providing designated service?

The AML/CTF Act is currently scheduled to cover tranche 2 entities from 1 July 2026 and mandates the following:

I. Enrol & Register

You must enrol your business with AUSTRAC. The application must include all relevant details about your business, including approximate annual turnover and earnings, as well as a description of the designated services you provide. Some designated services like remittance providers require registration, however these services were already captured by the pre-Amendment legislation. Enrolment for tranche 2 entities opens on 31 March and must be completed by 29 July.

II. AML/CTF Program

You must implement an AML/CTF Program, which needs to include a risk assessment of how the firm could be used for money laundering or terrorism financing (‘ML/TF’). It must cover policies, procedures and controls with respect to mitigating the risks, and arrange for oversight from senior management staff. These obligations are ongoing and thus there needs to be updated mechanisms and a formal review at least once every 3 years.

The reporting entity must have an AML/CTF compliance officer who has sufficient authority to oversee and enforce the Program and is a ‘fit and proper person’ with respect to matters outlined in the Act. This individual will communicate with AUSTRAC on behalf of the reporting entity. Businesses must designate the officer within 28 days of the provision of designated services, and must notify AUSTRAC of the individual’s identity within 14 days of designation.

Under section 26F(4)(f), an independent evaluation by a qualified individual of an entity’s AML/CTF Program must take place every 3 years and be appropriate to the nature, size and complexity of the reporting entity’s business.

III. Staff training

Part 5-9 of the AML/CTF Rules provide that a reporting entity’s Program must provide employees with training on their AML/CTF policy at both initial hiring and on an ongoing basis throughout their employment. It must have regard to the particular function performed by the person and its specific AML/CTF risks.

IV. Customer Due Diligence (‘CDD’)

Part 2 of the Act outlines the CDD required in Programs.

Initial CDD

Must occur before providing designated services, unless an exemption applies. Referred to as Know Your Customer (‘KYC’) information, this includes establishing and taking reasonable steps to verify:

• The identity of the customer.
• The identity of any person on whose behalf the customer is receiving the designated service.
• The identity of any person acting on behalf of the customer and their authority to act.
• The identity of any beneficial owners of the customer if they are not an individual.
• Whether the customer, their beneficial owner or any person on whose behalf the customer is receiving the designated service is a politically exposed person, or a person designated for targeted financial sanctions.
• The nature and purpose of the business relationship or occasional transaction.
• Any other matter relating to the customer that is specified in the AML/CTF Rules.

Using the above information, the reporting entity must identify the ML/TF risk of the customer.

The beneficial owner of a customer is defined as the individual who:

(a) Directly or indirectly owns 25% or more of an entity; or

(b) Directly or indirectly controls the customer.

The definition of politically exposed person is listed in part 1-5 of the AML/CTF Rules, but in brief covers individuals in positions of public authority resulting in a higher risk of ML/TF.

Under Division 4 Section 32, if the ML/TF risk of a customer is particularly high, for example if they live in a high risk jurisdiction, are a politically exposed person or if the designated service provided is part of a nested services relationship, enhanced CDD appropriate to the risk must be applied and documented.

Ongoing CDD

Section 30 of the Amendment stipulates that CDD obligations do not cease at the initial phase of dealings, nor does an already existing business relationship ease the requirements. Reporting entities must review current customer information and continue to monitor for unusual transactions and behaviours which may give rise to a suspicious reporting matter obligation, as outlined below. Unusual transactions and behaviours are generally those not in line with your understanding of the customer. They must also review and update KYC information where there is a significant change which engenders doubt as to its adequacy.

V. Reporting Obligations

Suspicious matters

Entities must make a report to the AUSTRAC CEO if the service provider has reasonable grounds to suspect anything listed in section 41 of division 2, mostly pertaining to the customer’s identity and suspected ML/TF. Applies even where person is merely inquiring about designated services. The window for reporting is short – for more serious matters, you must make report within 24 hours after suspicion forms.

Threshold transactions

Entities must also report transactions of physical currency where the total amount is $10,000 or more, however specified amount is variable for different services.

Compliance reports

In the first three months of each calendar year, reporting entities must submit a report to the AUSTRAC CEO through their website relating to their compliance with the Act.

VI. Record Keeping

Under the Act, reporting entities must maintain records of:

• Designated services rendered.
• Documents given to the reporting entity by the customer relating to the services.
• Documents in connection with identification procedures.
• Electronic funds transfer instructions.
• The adoption of and compliance with an AML/CTF Program.

For a period of 7 years after the preparation of documents, the provision of the service or when the Program ceases to be in force.

Reporting groups

The Amendment replaces designated business groups with reporting groups, in which reporting entities may form groups with a lead entity. This lead entity can:

• Facilitate information sharing between group members.
• Establish group-wide AML/CTF policies and ensure compliance of each member.
• Monitor the individual ML/TF risks of reporting entities.
• Keep records and manage reporting entities discharging obligations for other members, such as CDD or submitting an annual compliance report for the reporting group.

It is important note however that should a group member breach a civil penalty provision, both, that member and the group leader are taken to have breached the Act.

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.