AML/CTF Bill pushed through

Despite the legal profession’s concerns about risks to fundamental ethical, fiduciary and professional duties, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 passed late last night with minimal changes.

The Federal Government’s guillotine motion in the Senate, with assistance from the crossbench, allowed it to expedite the passing of 31 bills currently before the Upper House.

The Law Council of Australia (LCA) has said while it would have preferred more time to ensure the new regime addressed risk without detrimental impact on access to justice, it will now turn its focus to implementation and support for the profession.

Queensland Law Society has been working closely with the Law Council as the AML/CTF legislation has progressed. QLS will continue to do so to ensure Queensland practitioners are supported as the AML/CTF regulations and rules are developed.  

“We support efforts to disrupt money laundering and the atrocious crimes connected with it,” Law Council President Greg McIntyre said today. “Therefore, we were never opposed to the objectives of this Bill.

“Our concerns, which have been well ventilated, centre on aspects of the Bill that will damage the trusted relationship lawyers must be able to have with their clients and the substantial regulatory costs these changes will cause.

“The Law Council will now work with the Government to ensure the changes wrought by this Bill are implemented as effectively as possible and the cost burden for legal practitioners and clients is minimised.

“We will continue to seek to limit the extent to which the new regime interferes with a lawyer’s obligation to the court and their client.

“And we will support the profession to prepare for and familiarise themselves with the new requirements and update their compliance processes.”

On 13 November 2024, the Senate Legal and Constitutional Affairs Legislation Committee published its report on the Bill, recommending it be passed with some minor amendments.

The amending legislation amends the list of ‘designated services’ to new activities including real estate services and professional services. Providers of such services will need to register with the regulator AUSTRAC as ‘reporting entities’ and meet compliance obligations in the Act.  Further details about this Bill are available here.

The majority of the committee’s members supported the government’s position on these reforms, despite the concerns raised by legal and other stakeholders, such as the Law Council. QLS is a constituent body of the LCA and contributed to the LCA submission.

The report supports:

• An exemption for barristers acting under the instructions of a solicitor
• An exemption for entities providing custodial, depository or safe deposit box services without an underlying transaction.

Some of the key concerns of the legal profession were dealt with as follows:

• Suspicious matter reporting: The LCA submitted that lawyers be exempt from the ‘suspicious matter reporting’ (SMR) requirements on the basis that they would require a lawyer to report on something which may be relevant to an investigation, which may not have even commenced yet, in respect of a wide array of potential offences. This conflicts with the duty owed by legal practitioners to the courts and their clients. Requiring a lawyer to breach their duty of confidentiality and report on something suspicious, to what may potentially be a prosecuting authority, undermines the ability of the lawyer to provide full and frank advice, especially when the SMR provision is read in conjunction with the tipping off provision in section 123.

Despite these significant concerns, the Committee referred to evidence from the Attorney-General’s Department (AGD) that while the intersection with a legal professional’s fiduciary or other duties may be complex, the issues are not irreconcilable. According to the AGD, the Bill and the AML/CTF Act provide a clear legislative basis for the obligation to report suspicious matters about a client and these requirements supersede a fiduciary duty to a client. It was also noted that lawyers in other jurisdictions already comply with these requirements. Finally, the AGD submitted that the Explanatory Memorandum sets out a ‘range of disclosures that would not constitute tipping off—this includes disclosure to a legal or professional regulator’. It was noted that AUSTRAC was willing to collaborate with industry to develop suitable guidance on suspicious matter reporting obligations and tipping off offence.

• Tipping off offence: Concerns were raised about the operation of the tipping off offence (s 123) including the proposal for the Rules to qualify or define the meaning of the term “reasonable suspicion”. The LCA submitted this was a fundamental breach of client fiduciary duties and the paramount duty to the courts. Unfortunately, this submission was not addressed by the Committee.

However, the Committee recommended an amendment so that the tipping off offence will commence on 31 March 2025 which might be before the commencement of the provisions in the Bill. This amendment has been included in the final Act. 

• Client due diligence: It was submitted that the client due diligence (CDD) requirements were prescriptive and onerous, and would lead to duplication of processes that lawyers already undertake. The Committee heard evidence from the AGD that there is flexibility within these requirements, including in relation to the type of ‘Know Your Customer’ (KYC) information a reporting entity can collect about a customer and how they verify that KYC information, so long as it is appropriately based on the customer’s money laundering and terrorism financing risk.

• Keep open notices: A ‘keep open notice’ allows a reporting entity to refrain from undertaking some CDD obligations if they reasonably believe this would alert the customer to the existence of a criminal investigation. The LCA sought an exemption for legal services on the basis that the legal profession should not be asked to facilitate or support the policing arm of the executive branch of government. However, the AGD’s evidence was that these requirements ensure consistency with international standards and that reporting entities will retain the discretion to choose whether to continue to provide a designated service to a customer after receipt of a keep open notice. The AGD advised the Bill would create a safe harbour from liability from certain provisions for a reporting entity that continues to provide a customer with designated services so long as it conforms with the requirements of the AML/CTF Act, AML/CTF Rules and the details in the keep open notice.

• Civil penalties and burden of proof: Concerns about the reversal of the burden of proof and the scope and scale of penalties were also not considered by the Committee.

After being passed in the Senate, the changes to the Bill include:

• Commencement of the new tipping off offence on 31 March 2025

• Clarification that barristers are generally excluded from the regime. The amendments note that a barrister providing a service is not a designated service if the service is provided in the course of legal practice on the instructions of a solicitor, if the instructions are given in connection with the provision of a designated service.

• Clarification that the rule-making powers can specify certain activities that are exempt from the regime. The example provided is that a law firm keeping client documents like original wills, title deeds or contracts in their firm’s safe would not need to carry out AML/CTF obligations in relation to that service, provided there is no underlying transaction posing money laundering or terrorism financing risks. 

• Clarification of an exception for sales, purchases or transfers of ‘real estate’, a body corporate or ‘legal arrangement’, which are pursuant to, or resulting from, an order of a court or tribunal. The intention is to enable exceptions for:
  • real estate transfers from a deceased estate following court ordered grants of probate or letter of administration
  • family lawyers’ involvement in sales, purchases or transfers of real estate arising from a property settlement following separate when ordered by a court, including by consent orders
  • a trustee in bankruptcy selling, purchasing or transferring real estate, a body corporate or legal arrangement to a creditor

• Exclusion of a leasehold interest for a term (excluding options for further terms) of 30 years or less from the definition of ‘real estate’. This was added in response to feedback so as to ensure a minimum term of 30 years would continue to exclude ordinary commercial leases under the AML/CTF regime

• Changes to the new section 29 to enable a reporting entity to commence providing a designated service to a customer before conducting initial customer due diligence (CDD) in certain circumstances.

• New rule making powers conferred on the AUSTRAC CEO in relation to determining membership of a “reporting group”