I INTRODUCTION

Australia is undergoing its most significant anti-money laundering and counter-terrorism financing reform in two decades. The enactment of the Anti-Money Laundering and Counter Terrorism Financing Amendment Act 2024 (Cth) implements the long-anticipated “Tranche 2” reforms, marking a significant expansion of regulatory obligations beyond traditional financial institutions. The reforms extended the scope of the Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth) (‘AML/CTF Act’) to capture ‘gate-keeper’ professions, recruiting legal, accounting and real estate services as integral participants in the prevention of financial crime.

Historically, these professions successfully lobbied for exemptions from the AML/CTF Act, citing concerns surrounding legal professional privilege (‘LPP’) and confidentiality. This resistance placed Australia among a limited group of jurisdictions, alongside China, Haiti, Madagascar and the United States, that had not adopted the standards of the Financial Action Task Force (‘FATF’). FATF is an intergovernmental body that sets international standards and monitors compliance to address money laundering, terrorist financing, and related threats to the global financial system. However, increasing global pressure, including the risk of being grey-listed by FATF, coupled with recognition of the role of professionals as enablers in facilitating illicit financial flows, has driven the enactment of the 2024 amendments to address longstanding regulatory deficiencies.

II THE JURISDICTIONAL SCOPE: WHO IS CAPTURED?

The central mechanism of the Tranche 2 reforms is the concept of “designated services”. Rather than subjecting professionals to regulation across all aspects of practice, the obligations are only triggered when providing specific services identified as “high-risk” for money laundering and terrorism financing. Pursuant to the newly inserted Table 6 of s 6 of the AML/CTF Act, the regime is enlivened if a professional assists in real estate transactions, the structuring or restructuring of legal entities, and the management of client funds or assets, thereby targeting areas of vulnerability to illicit financial flows. Tranche 2 entities captured have up to 29 June 2026 to enrol with AUSTRAC to avoid penalties.

The reforms also recalibrate the identification of “customer” to encompass professional clients, capturing transactions irrespective of consideration to prevent concealment of beneficial ownership. This reflects an intentional shift from formalistic distinctions towards a substance‑based approach to risk. Notably, barristers are largely exempt when acting on instructions from solicitors who are already the primary reporting entity. However, this does not apply where barristers accept instructions from other professionals, including accountants.

III THE COMPLIANCE PILLAR: AML/CTF PROGRAMS

Once a professional provides a designated service, they assume the status of a reporting entity and are required to enrol with the Australian Transaction Reports and Analysis Centre (‘AUSTRAC’) within 28 days. A central obligation is the establishment and maintenance of an AML/CTF compliance program. Whereas the previous legislative framework distinguished obligations between Part A (risk management) and Part B (customer identification), the 2024 reforms consolidate these into a unified, risk‑based model.

A compliant program must incorporate a comprehensive ML/TF risk assessment tailored to the nature, size and complexity of the reporting entity’s practice. Reporting entities are further required to appoint a Compliance Officer who satisfies the prescribed “fit and proper” criteria, possesses sufficient authority and is ordinarily resident in Australia. Recognising the compliance burden, especially for smaller practices, AUSTRAC has published guidance materials as a ‘Starter Kit’ to assist the transition to developing and operationalising compliant AML/CTF frameworks.

IV CUSTOMER DUE DILIGENCE: RISK, IDENTIFICATION, AND VERIFICATION

For many practitioners, the most immediate impact will arise in heightened client onboarding requirements under ss 28-32 of the AML/CTF Act. Customer due diligence or ‘Know Your Client’ (‘KYC’) obligations will be elevated to align with international standards, necessitating verification of not only the identity of the client but also the beneficial owners exercising ultimate control over legal entities or arrangements. In addition, reporting entities must undertake screening procedures for Politically Exposed Persons (‘PEPs’) and individuals subject to financial sanctions.

These obligations extend beyond initial verification. The statutory framework imposes continuing due diligence requirements, obliging continuous monitoring of business relationships for changes in clients’ risk profiles, ownership structure or transactional behaviour that give rise to suspicion. Failure to undertake the required due diligence before the provision of a designated service may expose the entity to severe civil penalties. In the 2020 case of AUSTRAC v Westpac, the Federal Court imposed a pecuniary penalty of $1.3 billion for multiple breaches of AML/CTF legislation, including failures to report 19.5 million international funds transfer instructions.

V SUSPICIOUS MATTER REPORTING AND TIPPING-OFF PROHIBITION

Among the contentious features of the reforms is the obligation to file Suspicious Matter Reports (‘SMRs’) under s 41 of the AML/CTF Act. An SMR must be lodged where a professional forms reasonable grounds to suspect that a client or transaction is linked to criminal activity, proceeds of crime or tax evasion. This threshold is objective, requiring an assessment of whether a reasonable person apprised of the available facts and circumstances would form such a suspicion.

The obligation is reinforced by stringent ‘tipping-off’ prohibitions under s 123, which generally preclude disclosure that an SMR has been made or revealing any information that could reasonably enable a client to infer that a report has been made to AUSTRAC. These give rise to a pronounced ethical tension. A lawyer’s fiduciary obligation of loyalty and confidentiality owed to the client may conflict directly with the statutory obligation to maintain secrecy of communications to AUSTRAC. Although limited exceptions exist, including for dissuading a client from committing a crime or for obtaining independent legal advice, the prohibition nevertheless poses significant constraints on professional relationships.

VI LEGAL PROFESSIONAL PRIVILEGE

The extension of the regime has raised sustained concern regarding the preservation of legal professional privilege (‘LPP’). As a fundamental common law protection, LPP facilitates the administration of justice by promoting full and frank communication between client and lawyer. The 2024 amendments have expressly provided that the Act does not abrogate LPP under s 242.

Notwithstanding this preservation, the administration of LPP has become considerably more complex. Under the reforms, where a legal practitioner believes information triggering an SMR is wholly privileged, no report is required. To regulate such claims, the amendments introduced a formalised ‘LPP Form’ which must be completed in response to an AUSTRAC notice or specifies the basis of the claim. The limits of LPP remain critical, particularly the communications made for the purpose of facilitating fraud, dishonesty or other unlawful conduct. Accordingly, under s 125 of the Evidence Act 1995 (NSW), where there is prima facie evidence of such an improper purpose, the privilege is displaced, and the information becomes liable to disclosure.

VII DIRECTOR LIABILITY AND THE ‘STEPPING STONES’ APPROACH

While the AML/CTF Act does not expressly impose personal liability on directors or senior management for corporate contraventions, regulators have increasingly relied on an ‘stepping stone’ approach to establish accountability. Pursuant to s 180 of the Corporations Act 2001 (Cth), directors are required to exercise their powers with reasonable care and due diligence. The Australian Securities and Investment Commission (‘ASIC’) has deployed this provision to contend that directors who expose their corporation to systematic breaches of AML/CTF obligations may constitute a breach of directors’ duties, effectively linking corporate non-compliance to personal liability.

Recent enforcement actions, including those involving the Star Entertainment Group, demonstrate that the increasing intolerance of passive approaches to compliance is no longer tenable. In this case, the Federal Court found the senior executives of the company to have breached their duties under s 180 by failing to adequately manage and escalate money laundering risks associated with high‑risk junket operations and internal compliance deficiencies. Whilst non-executive directors were not found liable, the case confirms the possibility of management incurring personal liability where oversight deficiencies expose the company to systemic AML/CTF breaches. The matter now proceeds to the penalty phase, with disqualification and pecuniary sanctions under consideration.

Boards and senior management are now expected to exercise active oversight, ensuring that frameworks are properly resourced, continuously reviewed, and responsive to emerging risks. This reflects a broader shift towards embedding compliance within corporate governance rather than treating it as a discrete operational function. These developments underscore the growing importance of fostering an institutional risk-culture in which AML/CTF compliance is assumed as a core operational role rather than a delegable administrative responsibility.

VIII IMPLEMENTATION CHALLENGES: COMPARATIVE LESSONS FROM ABROAD

Comparative experiences in jurisdictions such as New Zealand and the United Kingdom provide a useful perspective on the practical implications of Tranche 2 reforms in Australia. In New Zealand, the staged extension of obligations to real estate agents resulted in a reported 153 per cent increase in SMRs within two years, increasing financial intelligence available to enforcement agencies. However, these regulatory gains were accompanied by substantial initial and ongoing compliance costs, particularly for small and medium-sized enterprises. These New Zealand agencies reported initial implementation costs averaging NZD 25,000-35,000.

A principal risk inherent in risk-based regulatory models, as experienced in the United Kingdom, is the phenomenon described as ‘defensive reporting’. Faced with potential criminal and civil liability, reporting entities may adopt an overly cautious approach by submitting high volumes of low-value or speculative reports that risk reducing the utility of the regime. Closely related concerns arise in the context of professional liability and corporate governance, discouraging experienced professionals from assuming leadership roles within regulated sectors.

A further structural challenge is the practice of ‘de-risking’. Reporting entities may become overly risk-averse and withdraw from higher-risk client groups altogether. This could result in entities declining services to entire classes of customers perceived to present elevated compliance risks. Such practices may disproportionately affect vulnerable or emerging sectors, including refugees, indigenous communities and Fintech start-ups. Such outcomes undermine the inclusivity of professional and financial services emphasise the need for regulators to ensure the risk-based framework remains operative rather than exclusionary.

IX LOOKING AHEAD: TIMELINE FOR CHANGE

The transition to the reformed AML/CTF framework has been implemented on a phased basis, reflecting the scale and complexity. Current reporting entities became subject to the modernised obligations from 31 March 2026, while the core Tranche 2 obligations applicable to lawyers, accountants, conveyancers, real estate professionals, and other newly regulated sectors commence on 1 July 2026. By this date, entities must be enrolled with AUSTRAC and have implemented compliant AML/CTF programs, including customer due diligence and reporting systems.

In anticipation of these milestones, practitioners should adopt a proactive systems-based approach to compliance. This includes conducting an early assessment of whether services provided fall within the expanded s 6 definition of ‘designated services’, reviewing engagement terms to cover statutory reporting and modified confidentiality, and engaging with emerging regulatory guidance. Professional associations and AUSTRAC have issued extensive preparatory materials aimed at supporting the transition to the new regime.

X CONCLUSION

The Tranche 2 reforms signal a decisive shift in the regulation of professional services in Australia, embedding gatekeeper professions within the broader framework of financial crime prevention. While the administrative and ethical burdens are substantial, the expansion of the AML/CTF Act to capture ‘gatekeeper’ professions seeks to strengthen the resilience of the professional sector against exploitation by organised crime. The transition requires a reconceptualisation of professional responsibility, whereby these obligations are understood as integral to professional integrity and market confidence. As the commencement of Tranche 2 approaches, the regulatory expectation is clear: passive approaches to compliance are no longer viable. Instead, institutional accountability, sustained vigilance, and the integration of compliance into everyday professional decision‑making will be essential.

XI FOOTNOTES

Andrea Beatty and Tom Murdoch, ‘We are in the “tranches” now: major reform on the horizon for Australia’s anti-money laundering and counter-terrorism financing laws’ (2023) 22(5) Financial Services Newsletter 75, 75.

Anti-Money Laundering and Counter Terrorism Financing Amendment Act 2024 (Cth) (‘AML/CTF Amendment Act’).

Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth) (‘AML/CTF Act’).

Nuncio D’Angelo, ‘Business ethics and the practice of law: An "inherent tension"’ (2025) 99(6) Australian Law Journal 437, 438.

Beatty and Murdoch (n 1) 77.

Brendon Murphy, ‘An Update on Australia's Anti- Money Laundering Act’ (2025) 99(5) 388, 388-389.

D’Angelo (n 4) 438.

AML/CTF Act (n 3) s 6.

AML/CTF Amendment Act (n 2).

David Chaikin, ‘Past Promises and Future Directions: Anti-Money Laundering Regulation and The Legal Profession’ (2025) 48(1) University of New South Wales Law Journal 237, 255.

Wendy Yang, ‘AML/CTF reforms the legal profession prepares for change’ (2026) 15 Law Society of New South Wales 34, 37.

Isabelle Nicolas, ‘Striking the balance: anti-money laundering goals and legal privilege in Australia’ (2025) 37(2) Current Issues in Criminal Justice 208, 217.

Juliana Warner, ‘Anti-money Laundering and Counter Terrorism Legislation: Tranche 2 entities’ (2025) 273 Law Society of the Act Journal 16, 17.

Murphy (n 6) 397.

Yang (n 11) 37.

Matthew Leighton-Daly, ‘AML regulation of accountants and lawyers’ (2026) 60(8) Taxation in Australia 444, 444.

Ibid.

Justin Simpkins, ‘Australia’s regulation of money laundering and terrorism financing’ (2024) 32(1) Australian Risk Management 138, 149; Yang (n 11) 46.

Australian Transaction Reports and Analysis Centre, ‘Program starter kits’ (Web Page) < https://www.austrac.gov.au/industry-and-business/obligations-and-guidance/program-starter-kits>

AML/CTF Act (n 3) ss 28-32; D’Angelo (n 4) 439.

AML/CTF Act (n 3) s 37; Chaikin (n 10) 270-271.

Simpkins (n 18) 149.

Ibid 145-146.

AML/CTF Act (n 3) pt 15.

Chief Executive Officer of the Australian Transaction Reports and Analysis Centre v Westpac Banking Corporation [2020] FCA 1538.

AML/CTF Act (n 3) s 41; Chaikin (n 10) 257-258.

Yang (n 11) 37; Chaikin (n 10) 258.

Chaikin (n 10) 258.

AML/CTF Act (n 3) s 123; Simpkins (n 18) 149.

Chaikin (n 10) 258-259.

AML/CTF Act (n 3) s 123 ss 4-6; Chaikin (n 10) 258-259.

Chaikin (n 10) 267-269.

Ibid.

AML/CTF Act (n 3) s 242.

Matthew Leighton-Daly, ‘AML regulation of accountants and lawyers’ (2026) 60(8) Taxation in Australia 444, 446-447.

Leighton-Daly (n 16) 448.

Murphy (n 6) 399.

Evidence Act 1995 (NSW) s 125; Nicolas (n 12) 212-213.

Doron Goldbarsht, ‘Adapting director liability to modern AML/CTF compliance: risks and regulatory implications in Australia’ (2025) 37(2) Current Issues in Criminal Justice 228, 228.

Corporations Act 2001 (Cth) s 180 (‘Corporations Act’).

Goldbarsht (n 39) 228.

Australian Securities and Investments Commission v Bekier (Liability Judgment) [2026] FCA 196.

Ibid [1944]-[1945]; Corporations Act (n 40) s 180.

Ibid.

Ibid.

Goldbarsht (n 39) 234-235.

Ibid 228.

Doron Goldbarsht and Elizabeth Sheed, ‘Money Laundering and the Risk in the Risk- Based Approach: The Australian Context’ (2024) 50(1) Monash University Law Review 31, 39-41.

Monique Buksh, ‘No place like laundered home — real estate under the 2024 AML/CTF spotlight’ (2025) 29(2) Inhouse Counsel 27, 29.

Ibid.

Ibid.

Goldbarsht and Sheed (n 48) 34-35.

Chaikin (n 10) 263.

Goldbarsht (n 39) 236-237.

Ibid 237-238.

Ibid.

Ibid.

Ibid 237.

Ibid 237-238.

AML/CTF Amendment Act (n 2).

AML/CTF Amendment Act (n 2).

AML/CTF Amendment Act (n 2).

Juliana Warner, ‘Anti-money Laundering and Counter Terrorism Legislation: Tranche 2 entities’ (2025) 273 Law Society of the Act Journal 16, 17.

AML/CTF Act (n 3) s 6; Chaikin (n 10) 277.

Australian Transaction Reports and Analysis Centre (n 19).

AML/CTF Amendment Act (n 2).

AML/CTF Amendment Act (n 2).

Yang (n 11) 47.