Hanging out the dirty laundry

Significant changes are afoot for the regulation of lawyers, accountants, and real estate agents as part of the proposed changes to Australia’s Anti-Money Laundering and Counter Terrorism legislative regime. In 2022 the Australian Government introduced the Anti-Money Laundering and Counterterrorism Financing Amendment (Increased Financial Transparency) Bill 2022 seeking to amend the Anti-Money Laundering and Counter -Terrorism Financing Act 2006 to include businesses and professions such as lawyers, real estate agents and accountants. The Bill has not been passed but is expected to be reintroduced to Parliament.

The regime currently regulates professions such as banks, credit unions, other authorised deposit taking institutions, money remittances, digital currency exchanges, gambling service providers (including casinos and totalisator agency boards) and gold bullion dealers, but the proposed changes seek to extend the regulation to what are referred to as second tranche entities.

It is argued Australia is an increasingly attractive destination for laundering illicit funds due to the failure to reform the regime to respond to the changing threat environment and evolving international standards. It is further suggested that if left unaddressed, Australia’s financial system remains vulnerable to criminal exploitation through the use of professional services, weakening the overall integrity of Australia’s regime. Proponents for the reforms suggest, as the rest of the international community strengthens regulation of the sectors, Australia could continue to fall further behind and could be perceived as a weak link in the international response to financial crime, damaging its reputation and attractiveness as a business destination and increasing the cost for Australian businesses operating globally. Accordingly, it is suggested that the failure to extend the regulation to second tranche entities, will have direct negative effects on Australia’s economic standing.

The Federal Government released a consultation paper on 20 April 2023 on reforms to simplify and modernise the regime and address risks in the second tranche professions. The government sought submissions on the proposed reforms by 16 June 2023.

The Law Council of Australia made a submission in response to the consultation paper on 27 June 2023, commissioning an independent vulnerabilities analysis of the national legal profession.

Whilst the Law Council’s submission argued that the proposed changes would add cost to legal firms and are either unnecessary or duplicate existing regulatory schemes, the analysis did highlight various areas in which it could be argued the legal profession did not meet the requirements under the existing Anti-Money Laundering regime, including in respect to customer identity and verification of the customer’s risk profile throughout the entire course of the business relationship.

Significantly the proposed regime mandates compliance with the Australian Transaction Reports Analysis Centre (AUSTRAC) identification procedures which include, amongst other things, identifying the following:

• the beneficial owner(s) of a customer;
• the nature, size and complexity of your business;
• control structures of non-individual customers;
• types of services provided;
• the foreign jurisdictions the entity deals with; and
• customers’ sources of funds and wealth.

According to the Law Council’s consultation paper, the majority of practitioners considered that it was not their place to make these enquiries. They were concerned about how their clients might react if they were to do so and expressed discomfort at the prospect of making such enquiries.

From a commercial perspective, practitioners asking what may be considered intrusive or insulting questions without a legislative or other justification for doing so, may be justifiably concerned about losing business to practitioners who do not do so.

Some practitioners found it unnecessary where either they had acted for the client and/or the client’s family for many years, or where understanding that information was essential to providing the legal advice sought.

It is a significant burden to ask an already heavily self-regulated profession to undertake further regulatory obligations, especially obligations which may incur more costs for clients or require lawyers to spend further time on administrative tasks which may reduce the time spent on legal work. It might be argued that it is a small price to pay when weighed against the risk to Australia’s financial reputation globally. However, the political and economic imperative for reform will likely outweigh the arguments against reform.

This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.


Co-Author

Name: Irini Kourakis

Position: Lawyer

Practice: Disputes