Navigating the AML/CTF reforms: Extending the regime to Tranche 2 entities

The Australian Parliament passed the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth) (the Bill) on 29 November 2024.

As well as simplifying the current AML/CTF regime, the Bill expands the regime’s application to services provided by certain high-risk businesses and professions (‘Tranche 2 entities’), including:

• real estate professionals and developers;
  
  
• professional services providers such as lawyers, accountants, insolvency and restructuring practitioners, consultants; and
  
  
• dealers in precious metals and stones.

When the Tranche 2 entities’ provisions commence on 1 July 2026, the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) will apply to approximately 70,000 additional businesses, bringing the total reporting entities to 90,000.

The Tranche 2 entities amendments to the AML/CTF Act aim to close regulatory gaps and bring Australian law in line with international standards set by the Financial Action Task Force. Currently, the absence of AML/CTF requirements for Tranche 2 entities is seen as a weakness in Australia’s AML/CTF framework, leaving these industries vulnerable to money laundering and terrorism financing risks.

How the AML/CTF Act will apply to Tranche 2 entities

Rather than listing specific types of businesses, the Bill introduces new ‘designated services’ to define the scope of entities caught by the regime. Any entity providing such a service with a geographical connection to Australia will be subject to the AML/CTF Act.

The following designated services will be subject to the AML/CTF Act:

Real Estate

The following real estate and real estate services will not be captured:

• residential tenancy agreements; 
  
  
• leasehold interests of 20 years or less (excluding options to extend);
  
  
• property management; 
  
  
• leasing of commercial real estate; and 
  
  
• auctioneer services (unless the auctioning services are provided by the seller’s agent alongside the sale of the real estate).

Dealers in precious metals and stones

‘Precious metals’ are defined as gold, silver, platinum, iridium, osmium, palladium, rhodium, ruthenium or an alloy substance with at least 2% in weight of any of these.

‘Precious stones’ are defined as a substance that has gem quality and market-recognised beauty, rarity and value, irrespective of whether it is natural, synthetic or reconstructed. ‘Precious stones’ include beryl, corundum, diamond, garnet, jadeite jade, opal, pearl and topaz.

‘Precious products’ include jewellery, a watch, an object of personal adornment or an article of goldsmiths’ or silversmiths’ wares made up of or containing a precious metal or stone.

The AML/CTF Act will not apply to:

• precious metal, precious stone or precious products transactions below $10,000;
  
  
• precious metal, precious stone or precious products transactions above $10,000 made by payments other than physical currency or virtual assets, such as payments by debit card or credit card, BPAY or PayPal; and
  
  
• businesses that decide not to accept any physical currency or virtual asset payments equal to or above $10,000.

Professional services providers

What entities need to do if they are caught

If businesses provide one or more designated services, they must put in place measures to identify, detect and mitigate money laundering, terrorism financing and proliferation financing (ML/TF/PF) risk in their business. To do so, Tranche 2 entities will be required to comply with the following key AML/CTF Act obligations.

Reporting entity obligations

Compliance requirements

1. Enrol with AUSTRAC: Businesses offering a designed service will need to enrol with AUSTRAC.
   
   
2. Develop and maintain an AML/CTF policies tailored to your business: AML/CTF policies must be in place before a business can provide designated services, and the business must conduct a risk assessment of its ML/TF/PF risk.
   
   
3. Appoint an AML/CTF Compliance Officer: Businesses providing a designated service must appoint an AML/CTF compliance officer to oversee the operation of the entity’s AML/CTF policies and updates.
   
   
4. Conduct customer due diligence: Tranche 2 entities will need to conduct initial customer due diligence, which includes the collection and verification of a customer’s identity as well as customer risk rating.
   
   
5. Conduct ongoing customer due diligence: Tranche 2 entities will need to collect, review and update ‘Know Your Customer’ (KYC) information, as well as monitor their customers for unusual transactions and behaviours that may give rise to a suspicious matter reporting obligation. They will also be required to conduct enhanced customer due diligence for high risk customers (such as politically exposed persons).
   
   
6. Report certain transactions and suspicious activity: Tranche 2 entities will be required to report certain matters to AUSTRAC, including suspicious matter reports, threshold transaction reports and international value transfer services.
   
   
7. Make and keep records: Tranche 2 entities will need to keep certain records of the designated services provided to customers. In particular, business must keep records of KYC information and of relevant transactions for up to seven years after they have been concluded.

Next steps and what Tranche 2 entities should do to prepare

Many aspects of the obligations on Tranche 2 entities under the AML/CTF Act will be set out in updated AML/CTF Rules, to be developed and made now that the Bill has been passed. AUSTRAC has confirmed that it will conduct extensive consultations on these Rules.

Businesses that provide the ‘designated services’ above will need to put in place procedures and processes to comply with the AML/CTF Act from the time these reforms commence on 1 July 2026. As initial steps, entities that fall within the categories of business identified above should:

• confirm whether and which parts of their business provide a ‘designated service’ and will therefore be subject to the new AML/CTF regime;
  
  
• if they are subject to the regime, develop an ML/TF risk assessment and AML/CTF policies, considering the AML/CTF Rules and AUSTRAC guidance;
  
  
• establish customer due diligence processes and procedures;
  
  
• identify and obtain capability statements from technology providers for the purposes of conducting customer due diligence and complying with AUSTRAC reporting requirements;
  
  
• appoint a suitably trained AML/CTF Compliance Officer, and assess that they are a ‘fit and proper’ person; and
  
  
• develop staff AML/CTF training materials.