In recent history, Australia has trailed behind other jurisdictions, leaving the legal profession outside its anti-money laundering framework. The Financial Action Task Force (FATF) established standards in 2003 that "gatekeeper" professions such as lawyers should be covered within anti-money laundering regimes.[1] However, Australian governments had not fulfilled their obligations. The Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Amendment Act 2024 (Cth) (‘Amended Act’) finally addresses that gap.[2] From 1 July 2026, legal practices providing one or more "designated services" become reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (‘The Act’), supervised by Australian Transaction Reports and Analysis Centre (‘AUSTRAC’).[3]

This does represent a striking shift whereby reforms are repositioning solicitors from acting as advisers for financial crimes compliance to being tasked to report against it in a manner. Hence raising issues with regards to the tension between client legal privilege and the new reporting obligations which this article seeks to examine.

I DESIGNATED SERVICES

The Amended Act's central discipline is that it does not regulate lawyers as such, however it regulates designated services, as per Table 6 of the Act.[4] A law firm falls within scope only where it provides one of those services linked to Australia, in the course of their practice. For law firms the relevant items generally occur with transactional and structural work. Items 1 and 2 of Table 6 relate to assisting a client to buy, sell or otherwise transfer real estate, body corporates or legal arrangements.[5] However, both items only deal with transactions “not pursuant to, or resulting from, an order of a court or tribunal” which may explain why some legal work falls outside the scope.[6]

Item 3 includes receiving, holding, controlling, disbursing, or managing a client's money, securities, accounts, virtual assets, or other property as part of a transaction which will likely target the general trust account activity for firms.[7]Item 4 further includes assisting with equity or debt financing for a body corporate or legal arrangement.[8] Item 5 further includes selling or transferring a shelf company whilst Item 6 deals with creating or restructuring a body corporate or legal arrangements.[9] Item 7 involves “acting as, or arranging for another person to act as” certain roles within a corporate entity, whilst Item 8 addresses “nominee shareholder” directly.[10] Item 9 further includes “providing a registered office address or principal place of business address of a body corporate or legal arrangement”.[11]

The limitation on the new changes hinges on the term “assisting” whereby Items 1, 2, 3, 4 and 6 of Table 6 of the Act would only be classified when the assistance advances the outcome of a matter rather than merely providing certain advice which may not be captured under these items.[12] Similarly, many of the assisting based Items in Table 6 would be considered to only apply for progressing matters rather than matters dealing with past completed transactions. Solicitors must also consider the implications dependant on the type of client which they interact with and how that may apply to the changes.

II PRIVILEGE

The reporting obligations placed on firms in this reform demonstrate the point of contention and reservation when analysed through the lens of privilege. However, the Act addresses it through establishing that legal professional privilege is not removed and a legal practitioner's obligation to give information to AUSTRAC does not extend to privileged material as per s 41(2A) and s 242(1) of the Act and practitioners must instead submit a legal professional privilege form instead of the requested information.[13]

This protection is however not as broad as it may appear under s 5 of the Act which includes privilege from Division 1 of Part 3.10 of the Evidence Act 1995 (Cth). However, this section does not limit and may preserve common law principles that guide production outside court proceedings.[14] The Amended Act creates no new or broader category and legal professional privilege is narrower than general confidentiality which generally has exceptions where disclosure is required by law. The Act also does not protect communications made for an illegal purpose.

Practically, the mechanism introduces ‘Suspicious Matter Reports’ (‘SMR’) and ‘Legal Professional Privilege Form’ (‘LPP Form’).[15] If a solicitor is obligated to report suspicious matter to AUSTRAC, if all of the information forming such suspicion in an SMR is protected by legal professional privilege, then neither an SMR nor an LPP Form need to be submitted.[16] When only some material alleged suspicion in the SMR is privileged, then solicitors must submit the SMR with the non-privileged material and an LPP Form outlining what was withheld without breaching privilege.[17]

Through this expansion, AUSTRAC has slightly eased on certain restrictions such as extending the general 3 business day window to 5 days in certain cases as outlined in the Act.[18]  However, it could be argued that there is still underlying discomfort with the upcoming changes where AUSTRAC acknowledges that whether information attracts legal professional privilege is a question of law on which reasonable minds can sometimes differ.

A further element explains how the reporting obligation operates in practice with respect to the tipping-off offence. Under s 123 of the Act, it is a criminal offence for a solicitor to disclose that an SMR has been submitted, or that information has been provided to AUSTRAC in response to a notice, where such could reasonably be expected to prejudice an investigation.[19] This offence has been in force since 31 March 2025 prior to the Tranche 2 framework being implemented, however applies to legal practitioners from 1 July 2026.[20] A breach of s 123 of the Act may carry a penalty of up to two years of imprisonment.[21] This provision does not prevent internal discussion within firms such as with compliance officers, however solicitors cannot inform the client who is the subject of report by AUSTRAC.

This does present a paradoxical situation where a solicitor is prohibited from revealing that a report has been made, it is likely that they may have to continue to act for such clients as an abrupt withdrawal may potentially harm the investigation by acting as a tip off.

This is a difficult situation for solicitors to navigate as if continuing to act for the client, would itself advance the suspected conduct such as money laundering, withdrawal from the case is required in accordance with the professional conduct rules and as legal professional privilege would not apply in this circumstance as per s 125 of the Evidence Act 1995 (Cth).[22]

This presents potential issues dealing with the interaction between the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 and the Act as the Tranche 2 changes are implemented.

III OBLIGATIONS

The changes establish requirements including but not limited to requiring practitioners to enrol with AUSTRAC, appointing a compliance officer at management levels, developing, and maintaining an AML/CTF program.[23] The core aspect of the changes deals with reporting with SMR and LPP Forms and timeframes whilst also having to place consideration on factors such as legal professional privilege.

These processes require increased judgement from solicitors when doing due diligence such as through verifying ownership and scrutinising client’s sources of funds especially for high-risk clients. The changes will likely have a greater impact on small firms and sole practitioners.

Therefore, Tranche 2 repositions solicitors from advising clients on AML obligations to being bound by such obligations themselves where they are accountable for the quality of their judgement for their clients.

 
IV FOOTNOTES

[1] Financial Action Task Force (FATF), Horizontal Review of Gatekeepers’ Technical Compliance Related to Corruption (FAFT Report, July 2024).

[2] Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth).

[3] Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).

[4] Ibid sch 3 pt 3 s 10.

[5] Ibid items 1-2.

[6] Ibid.

[7] Ibid item 3.

[8] Ibid item 4.

[9] Ibid item 5.

[10] Ibid items 7-8.

[11] Ibid item 9.

[12] Ibid items 1-4,6.

[13] Ibid sch 3 pt 3 s 10; Australian Government, ‘Legal professional privilege (Reform)’, AUSTRAC (Website, 25 March 2026) <https://www.austrac.gov.au/industry-and-business/obligations-and-guidance/your-amlctf-program/reporting-us/legal-professional-privilege-reform>.

[14] Evidence Act 1995 (Cth) div 1 pt 3.10.

[15] Australian Government, ‘Legal professional privilege (Reform)’, AUSTRAC (Website, 25 March 2026) <https://www.austrac.gov.au/industry-and-business/obligations-and-guidance/your-amlctf-program/reporting-us/legal-professional-privilege-reform>.

[16] Ibid.

[17] Ibid.

[18] Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) s 41(2)(a).

[19] Ibid s 123.

[20] Australian Government, ‘New tipping off offence now in effect’, AUSTRAC (Website, 31 March 2025) <https://www.austrac.gov.au/new-tipping-offence-now-effect>.

[21] Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).

[22]Evidence Act 1995 (Cth) s 125.

[23] Gary Hughes, ‘AML Regulation looms over the profession’(The Law Society of New South Wales, 23 April 2025)  <https://www.lawsociety.com.au/aml-regulation-looms-over-profession>.