The second round of consultation for significant proposed changes to Australia’s AML/CTF regime is open with submissions due by 13 June 2024.  The first round of consultation took place in 2023 with more than 142 submissions received.

At Dentons, our team is involved in providing submissions, specifically in key focus areas for our clients, for example, on the proposed changes to the definition of designated services for certain digital asset and remittance activities and the proposed changes to the tipping off prohibitions. If you would like to know more about the proposed reform changes, please reach out to Partner, Michelle Segaert or Associate, Jen Chen and we would be happy to discuss them with you.

Overview of second round consultation of Australia’s AML/CTF regime

On 2 May 2024, the Commonwealth Attorney-General’s Department (AGD) released the Second Consultation Paper to uplift Australia’s anti-money laundering and counter-terrorism financial laws in line with international standards recommended by the Financial Action Task Force (FATF). The materials have been released across six separate Papers entitled ‘Reforming Australia’s anti-money laundering and counter-terrorism financing regime’ (with relevant different sub-headings for each paper).

The proposed reforms cover broadly three areas:

1. inclusion of ‘Tranche 2 entities’ within the regime, including real estate professionals, professional service providers such as lawyers, accountants, trust and company services providers, consultants, financial advisors and business brokers as well as dealers in precious metals and stones (the subject of Papers 1-3). The reforms proposed in this second consultation process expand on the category of professional services providers and the types of activities to be caught under the new regime. For lawyers, there are proposed exceptions for litigation and purely advisory work where there is no underlying transaction and for all professional service providers, the provision of in-house services is also excluded.  Also, for lawyers, the reforms propose to include a definition of legal professional privilege (LPP) and provide protections that information covered by LPP will not be compelled to be disclosed;
2. reforms proposed specifically for digital currency exchange providers (DCEPs), remittance service providers and financial institutions including defining additional designated services with respect to digital assets and remittance activities as well as to update the travel rule obligations to be extended to the remittance and digital asset sectors (the subject of Paper 4); and
3. reforms aimed at streamlining and modernising Australia’s AML/CTF laws and rules to improve the effectiveness of the regime by clarifying and simplifying the requirements, including (amongst other things):

• having board and management oversight of an outcome and risk-focused AML/CTF program (and removing the need for Part A and B and simplifying into a single program);
• providing risk ratings for customers;
• implementing outcome-focused core obligations for initial and ongoing customer due diligence (CDD);
• creating some flexibility in the tipping off prohibitions for organisations to be able to share relevant transaction information for business efficacy where this would not prejudice or likely prejudice an investigation; and
• instigating an exemption regime to allow financial institutions to keep customer accounts open to assist law enforcement investigations without being in breach of the AML/CTF Act (the subject of Paper 5).

Each of the Papers highlights that Australia’s AML/CTF regime will be next comprehensively assessed by the FATF over 2026-2027, when Australia will be assessed against strengthened standards.  This provides the impetus and timeframe for the AGD to be likely to be pushing for legislation for these proposed reforms by the end of 2024 following the conclusion of this consultation process. These reforms are far-reaching and will result in significant changes for the new in-scope ‘Tranche 2 entities’ and for existing reporting entities as to how they will be required to implement their AML/CTF programs under the proposed updated AML/CTF Act and rules.

If you would like to understand further how these proposed reforms may affect you or if you wish to provide any specific submissions, we are happy to talk to you.