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Wednesday, 1 July, marks the beginning of a new compliance era for Australia’s legal profession. With many firms still grappling with the reforms, Lawyers Weekly breaks down everything lawyers need to know, what it requires, and the consequences of non-compliance.
For nearly a year, the legal profession has been on notice of the anti-money laundering and counter-terrorism financing (AML/CTF) reforms, yet many firms remain unprepared for the fundamental shift in how legal services will be delivered, documented, and regulated.
At the time of writing, a Lawyers Weekly poll found preparedness for the changes remains mixed, with 22 per cent of respondents saying they are not at all prepared and 11 per cent unsure. Only 19 per cent described themselves as “fully prepared”, 36 per cent said “mostly prepared”, and the remaining 11 per cent were “somewhat prepared”.
Concerned over this lack of readiness, the Law Council of Australia (LCA) called on AUSTRAC to delay the rollout for 12 months. Alternatively, LCA president Tania Wolff asked for a 24-month transitional period focused on educating law firms about any enforcement action.
“Despite the best efforts of the profession and significant work by the regulator, a lack of clarity in the legislation means it is still not clear what legal services are caught up in the regime. Even now, practitioners and firms across the country cannot determine whether they provide a ‘designated service’ and therefore face prescribed obligations from 1 July,” Wolff said earlier this month.
AUSTRAC has acknowledged the challenging time frames facing firms, particularly given that it was deliberately condensed to meet a timeline imposed by the Financial Action Task Force (FATF). Madeleine Porter, global legal vertical lead at iManage, said it means the regulator understands “few firms will be flawless from day one”.
“What they expect is genuine, demonstrable effort that firms are working to meet their obligations and are enforcing their internal policies and procedures from the outset, even as they refine them.”
Provided law firms are across the following, they are likely to avoid fines and other enforcement action for non-compliance.
Who is covered and what services are affected?
As flagged by Wolff, many practitioners are feeling significant anxiety over whether their practice would count as a “designated service”, listed in subsection 6(5b) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. For completeness, they are:
Breaking it down even further, the changes affect lawyers who are involved in the buying, selling, or transferring of real estate and legal entities (including companies or trusts); managing client funds, shelf company transfers, company restructures; acting as or arranging for another person to act as a director, secretary, or nominee shareholder; or providing a registered office or usual place of business or corporate financing, including equity and debt financing.
In practice, firms with property, commercial, corporate, M&A, trust, or managed investment services are most likely to fall within the expanded regime, whereas firms focused on litigation, criminal law, or personal injury may have few or no designated services.
Lawyers providing these services must be enrolled with AUSTRAC.
In earlier discussions with Lawyers Weekly, Porter explained the regime will not regulate professions, but rather a designated set of activities: “You are not captured because you are a law firm or an accountancy practice; you are captured when, and to the extent that, you provide one of these services while carrying on a business.”
For legal practices providing the designated services above, the changes will require that they verify their clients’ identification, understand the purpose and nature of each engagement, conduct ongoing monitoring, assess and document any money-laundering risks, and report suspicious activities to AUSTRAC.
There are also several exclusions to note:
The common challenges firms may face early on
Once firms have overcome the challenge of identifying whether their activities are considered a “designated service”, the next major hurdle will be navigating the escalation processes and tipping-off provisions, according to InfoTrack’s chief operating officer, Lee Bailie.
“Knowing when to escalate a matter internally, when additional customer due diligence is required, and how to manage suspicious activity without inadvertently tipping off a client will be one of the biggest learning curves during the first few months,” Bailie said.
Law Institute of Victoria’s chief executive, Adam Awty, said that in addition to reporting any suspicious activity to AUSTRAC, lawyers will also have to consider whether they can continue to act for the client.
“This legislation demands closer scrutiny of clients and their source of funds. Clients need to be aware that lawyers will have intrusive know-your-customer obligations,” Awty said.
Firms will also have to be prepared to distinguish between the low and high-risk transactions and determine the level of due diligence that is required. For example, Porter explained the lower end would include longstanding clients with transparent funding sources, whereas the higher end could involve high-risk jurisdictions or clients that have complex and opaque ownership structures.
Ashurst partner and financial crime expert Hong-Viet Nguyen said the strategies for meeting these challenges head-on should start in the boardroom. The executive leadership team should be asking key questions, such as: “How are we facilitating crime?”
“Organisations will need to ensure they are carefully scrutinising dealings with countries on the FATF grey and blacklists as part of their ongoing risk management,” Nguyen said.
“Organisations need to be across both the global and the local impacts of money-laundering and terrorism financing infringements and mitigate these with robust risk management protocols and compliance with AUSTRAC regulations. This is an ongoing task.”
To assist these conversations, Ashurst identified five key areas: new technology systems that may enable financial abuse; electronic pathways; payment systems; identity theft, such as stolen credit cards and scams; and tax evasion and money laundering using cash.
Hand in hand with this challenge is validating client information. While there are reliable external data sources available, Porter stressed that firm leaders will need to ensure the vendor they have chosen is appropriate for their particular firm’s services.
Next comes the communication with clients. With more information needed from them, Porter said an effective explanation of compliance onboarding and process changes will ensure the practitioner has “managed expectations and prevented misunderstandings”.
“A firm letter or email to all existing and new clients is recommended so that they are aptly prepared and aware of the changes and why they have been introduced into Australia,” Porter said.
Explaining why identity documents, source of funds or wealth, and beneficial ownership details are required “will become an important part of the onboarding conversation”, Bailie added.
What firms should have in place from day one
From 1 July, documentation and record keeping will be “critical pillars” of the AML/CTF regime, Porter explained.
“Firms need to meet their legal obligations whilst maintaining detailed records that clearly demonstrate how compliance decisions are made, including the rationale behind complex or escalated matters. This evidentiary trail is essential for defending the firm’s actions if scrutinised by AUSTRAC,” Porter said.
The documentation must include records of customer due diligence, risk assessments, AML/CTF programs, policies, training, personnel due diligence, and ongoing monitoring activities. Bailie said good record keeping will be one of the things AUSTRAC looks for.
Firms should also ensure their staff are prepared to recognise any of the “major red flags” through regular training sessions that utilise practical case studies. This, Porter added, will ensure that staff remain “up to date on the AML/CTF policy and correct procedures”.
It will be particularly important during uncomfortable conversations with clients in high-risk categories, and especially existing clients.
“Therefore, it is important to ensure that you train your staff to be cognisant of the risks involved, understand how to communicate clearly and effectively with clients (especially in cases that may lead to tipping off), and be aware of internal escalation protocols,” she said.
InfoTrack mirrored this, with Bailie explaining: “We’ve found the firms transitioning most successfully are those using technology to guide staff through a consistent onboarding process, rather than relying on individual knowledge or manual checklists.”
All reporting entities will need to appoint an AML/CTF compliance officer who will be responsible for overseeing and coordinating the effective operation of, and compliance with, policies, Nguyen said.
“We would highlight the fact that AML/CTF experience is required for the AML/CTF compliance officer role and note that there may be a shallow pool of candidates in Australia at the moment,” she said.
“Organisations are going to need people trained in understanding how their industry is used to perpetrate money laundering or terrorism financing and ensuring all the right prevention measures are in place.”
The consequences of non-compliance
Enforcement action for non-compliance can include civil penalty orders and/or injunctions, accepting enforceable undertakings, issuing infringement notices, or issuing remedial directions.
AUSTRAC can also apply for a civil penalty order from the Federal Court, which could be up to 100,000 penalty units for a body corporate and up to 20,000 penalty units for others.
But there’s no need to panic, especially if practitioners can show they have made genuine, demonstrable efforts to ensure their firms are working to meet their obligations and are enforcing internal policies and procedures from the very outset, Porter said.
As mentioned above, this hinges on good record keeping.
“Failure to maintain robust records significantly increases the risk of being found non-compliant. Remember, you must not only comply with the new regime but [also] show that you have complied with the new regime; defensibility is paramount,” Porter said.
Still unsure? Start here
For practitioners who still feel unsure or as if they may fall behind, Porter has one piece of advice: “It is never too late to start.”
AUSTRAC has created sector-specific kits, templates, and step-by-step instructions to help small and low-complexity firms build and implement their AML/CTF program. The Law Society of NSW has also built an AML/CTF resource hub containing articles, explainers, webinars, and a compliance guide tailored for small firms.
There is a suite of webinars, technology products, and practical support from platforms like iManage and InfoTrack, and Lawyers Weekly has also written a comprehensive guide here.
Bailie recommended starting with the fundamentals, including enrolling with AUSTRAC, completing a firm-wide risk assessment, establishing the AML/CTF program, training staff, and implementing a compliant process for onboarding new clients.
There is also no need to do everything manually, with the right technology available to guide lawyers through each step, Bailie said.
“Most importantly, don’t delay because the reforms feel overwhelming. Once the foundational pieces are in place, compliance becomes much more manageable than many firms initially expect,” he said.
Given that the AML/CTF regime operates in an evolving and ever-changing landscape, Porter said it is important to remember that it is never too late to seek advice or speak with trusted vendors.
“This next period of AML/CTF compliance will involve the trial and error of procedures, policies, and technology, so never be afraid to pivot, update, or seek improvements,” Porter said.
“The firms that fare best won’t be the ones that got everything right the first time, but the ones that are willing to learn and adapt as the regime matures.”
