The image of money laundering usually involves pulp-fiction bad guys such as Elmore Leonard's Miami bookie Harry Arno moving cash around and stashing illicit loot, and casino gamblers creatively seeking to sidestep the taxman. But under rules operating in Australia since December 2006 and tightened at the end of last year, it's far more prosaic - and far more serious - than that.

Since 9/11 and worldwide attempts to stop the flow of funds to terrorists, as well as concerted attempts to snare tax evaders and shut down tax havens (heightened since the global financial crisis hit a year ago), anti-money laundering legislation has altered the way many companies do business.

At the heart of monitoring the movement of money is the Australian Transaction Reports and Analysis Centre (AUSTRAC), which is evolving from an educational role (to which the incoming Rudd Government at the end of 2007 allocated $13 million for a "public awareness" campaign) to one of ever tighter enforcement, providing lawyers with a wider array of challenges.

AUSTRAC regulates and enforces compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) the final limb of the first tranche of which came into force in December last year. The first tranche mainly covered the financial sector - including banks, credit unions, building societies and trustees, and providers of gambling services.

The second tranche will add real estate agents, dealers in precious metals and stones, and a wider range of "non-financial transactions" by groups including accountants, lawyers and trust administrators. The timing of the second tranche remains unclear. (Although draft legislative provisions to implement the second tranche of reforms were publicly released in August 2007, the AUSTRAC website notes: "The Government proposes to reconsider the implementation process ... in December 2009.")

AUSTRAC casts wider net

"These days a company just can't supply goods without being mindful of AML provisions and consequences"

Jim Bulling, partner, Middletons

"The educational phase… naturally morphs into a phase of enforcement as the regulator needs to take steps to deal with those who are still failing to comply”

Alan Peckham, partner, Freehills

"I have a broad range of clients and I don’t advise bullion dealers or gamblers”

David Jacobson, partner, Langes Lawyers

The current situation has resulted in law firms of all sizes advising on a range of issues which include helping to write new chapters of a company's compliance manual and helping to provide in-house training.

These are just two of the added tasks for Middletons Melbourne partner Jim Bulling, who describes his role as complementing AUSTRAC's "constructive rapport with industry to prevent money laundering". Bulling, the head of his firm's banking and financial services group, explains that tougher regulations now require all companies, especially those in financial services, to have effective AML programs.

"Stricter government oversight has resulted in more work in the compliance area, especially for Australian companies trading overseas," he says.

"More than ever, such companies need to verify the credentials of those entities with which they're dealing - especially counterparties such as agents, brokers and other representatives. These days a company can't just supply goods without being mindful of AML provisions and consequences."

Bulling points to the many tentacles of AML concerns which have expanded from countering the financing of terrorism and illicit cash flows to isolating tax havens and rogue states.

Thus an AML due diligence needs to be aware of international sanctions against particular countries by, for example, the United Nations, the European Union or the US.

"The simple fact is that one cannot trade with whomever one likes, and many parts of the world are out of bounds right now," says Bulling, who acts for a range of entities in the financial services and funds management industries, including trustees of superannuation funds, wholesale and retail investment trusts, securities dealers and friendly societies.

Bulling cites the case of the ANZ Bank, which in August was fined $US6.95 million ($7.91 million) by the US Treasury for its dealings in Sudan and Cuba, two nations subject to American sanctions.

"Cases like this highlight the need for careful assessment about where one can do business, especially where deals are arranged through third parties," he says.

"We're in a new era of checks and measures to ensure that payments to overseas entities don't contravene the laws of Australia or any other nation."

AUSTRAC is putting increasing pressure on banks to track the electronic flow of money. Among its targets have been Britain's Barclays Bank and Taiwan's Mega International Commercial Bank.

A cross-disciplinary role

In light of the change of regulatory approach by AUSTRAC, more people are seeking advice on how to respond to its audits, observes Freehills Melbourne partner Alan Peckham. As head of the firm's consumer financial services team, Peckham acts for a ASX-listed companies across a range of industry sectors.

"Our AML work is not restricted to any specific industry sector," he says. "While the first tranche of the legislation did focus on financial services, it isn't just financial institutions that might provide designated financial services."

Also preparing for whatever the next phase may bring are mid-tier firms such as Langes Lawyers. Its Brisbane partner David Jacobson advises on AML matters in fields including corporate governance, mergers and acquisitions and financial processes like capital issuance.

Jacobson has 30 years' experience in business compliance and training and is a fellow of the Australian Institute of Company Directors. He notes that AML work involves aiding clients, especially in financial services, to "deal with regulators and respond to statutory notices, information requests, and audit findings from regulators (including AUSTRAC)".

"Regardless of their size, companies must comply with complex regulations and risk penalties and damage to their reputation if compliance obligations aren't met," he says.

"We provide advice on the implementation of the AML/CTF Act in relation to transaction reporting and monitoring, as well as compliance programs.

"We're there to help our clients take steps to respond to notices from AUSTRAC and to set up systems within a company to enable it to comply with the Act. We also advise on how to deal with allegations by AUSTRAC that there hasn't been compliance."

The linking of strands

As AUSTRAC flexes its muscles, lawyers are helping clients understand the implications of the legislation. New AML rules are regularly being issued which exempt certain activities or clarify the application of the legislation in certain circumstances.

For example, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2009 (No. 4) contains rules which cover such things as: the definition of "certified copy" and "certified extract"; corporate treasuries; threshold transaction reporting by authorised deposit-taking institutions; the sale of shares for charitable purposes; and premium funding loans for general insurance policies.

There are a number of draft rules still in the pipeline. As Bulling observes, these various strands of AML are all linked, and companies and traders need to be aware that the days of established tax havens are numbered and that tough international sanctions are being rigidly enforced.

Peckham sees the changing approach of AUSTRAC as part of the "natural evolution" of a regulator's role with respect to new legislative regimes.

"The educational phase - during which AUSTRAC helped people to understand their obligations under the legislation, assisted with interpretation and clarification of the legislation and encouraged compliance - naturally morphs into a phase of enforcement as the regulator needs to take steps to deal with those who are still failing to comply with provisions which have, in some respects at least, now been in effect for two years," he says.

Thus, in the expanding universe of AML, the scams and adventures of spivs such as Harry Arno are very small beer in the melange of money movement and it's an area which may affect many areas of corporate activity.

Typical of the new breed in the new era is Jacobson, who proclaims of his widening workload: "I have a broad range of clients and don't advise bullion dealers or gamblers."

>> Click here to read more articles from our Practice Profile series