Stage two anti-money laundering reforms on accountants’ agenda

This article was current at the time of publication.

Legislation requiring Australian accountants to be more active in identifying potential money laundering and terrorist financing has been tabled in Parliament. 

The Office of the Attorney General has finally unveiled the Bill that will bring professional service providers such as accountants, lawyers and real estate agents into the anti-money laundering (AML) and counter terrorism financing (CTF) regime.

Tabled in September after two rounds of consultation, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024, shows service providers (also known as tranche two entities), will become a “reporting entity” if they provide one or more of nine designated services.

Reporting entities will be obligated to have an AML/CTF program which sets out the risk assessment process required for both themselves and their clients and to report any “suspicious matters” to the Australian Transaction Reports and Analysis Centre (AUSTRAC). They will also be obligated to conduct “customer due diligence” as part of the program’s governing policies and procedures. 

Onus on accountants to vet clients

Belinda Zohrab-McConnell, Regulation and Standards Lead for CPA Australia, says the proposed legislation introduces a simplified customer due diligence approach which will benefit many Tranche 2 entities. 

“The Bill uses the word ‘customer’, but, obviously, we use the word ‘client’. As a reporting entity, accountants must do a risk assessment of their client and the client’s activities and the services they are performing for a client. 

“If that assessment means your client is a low risk of participating in money laundering or terrorism financing activities, then only this higher-level of due diligence known as ‘simplified customer due diligence’ is then required.

“In the circumstance where you know your clients well, you’ve carried out all the know-your-client activities already, you've assessed them as low risk, then you don't have to jump through so many hoops, as if they were high risk.

“In other words, there's not a one-size-fits-all approach to meeting the due diligence obligation.”

Deciding factor: service, not size of practice

Zohrab-McConnell has been reviewing the Bill and says the wording around what makes a “designated service” is “very broad” and businesses who think “they’re out” are mistaken. 

“Anything to do with any sort of transaction, even in the contemplation of a transaction, may well be found to be a designated service. 

“It’s not about the size of your practice or the size of the deals or how large your clients are. It's about the type of services you provide. And that can be something as basic as providing advice about the purchase or sale of real estate property or an entity like a company.”

Zohrab-McConnell is still evaluating the finer points of the Bill but says it’s already clear the amended legislation will operate in contemplation of potentially conflicting existing obligations, including the Privacy Act.

It’s also evident Australian businesses will need to invest in a formalised program to ensure they fulfil the vetting and reporting now legally required of them.

The New Zealand experience

New Zealand practitioners, who have already experienced AML stage 2 legislation, warn their counterparts across the ditch that there are costs involved.

Angus Ogilvie FCPA, managing director of Auckland-based Generate Accounting Group Ltd, says New Zealand businesses were generally unprepared for the cost when their AML/CTF protocols were introduced.

“The New Zealand experience has been vexing for many practitioners,” he says. “While we all agree that accountants should conduct due diligence on clients, the extent of that due diligence can be time consuming and costly.

“Training requirements for team members can also be costly and practices must ensure they keep current, particularly with changes from regulators.”

Having experienced first-hand how the New Zealand AML/CTF program for each practice requires detailed policies, Ogilvie advises Australian public practices get “third party assistance in drawing up the policy documents”.

“It is quite possible to outsource due diligence, but this comes with additional costs. Practitioners should shop around and consider insourcing due diligence, if they are small and do not routinely take on new clients. 

“In the case of trusts, due diligence may include the need to determine ‘source of funds’ information dating back many years. Due diligence may be performed on the settlor, trustees and beneficiaries, regardless of age.”

Tread carefully

Ogilvie further stresses: “The legislation is complex and a risk. These [policies] should be seen as living documents and updated regularly. In New Zealand, the program is routinely audited, another imposition in terms of cost.

“Reporting suspicious activities can also be problematic as the software is far from user friendly. Accountants are often aware of transactional information flowing through entities they manage but often have no knowledge of personal transactions that do not create tax liabilities.”

Timing for bedding in of legislation

CPA Australia lobbied for non-duplication of obligations already in place for accountants, recognition that “one size does not fit all” and for a reasonable time for members to prepare for the Bill.

Zohrab-McConnell says the amended legislation reflects most of the member body’s concerns.

“It looks like they’ve taken into account the fact that many of our members already have substantial obligations to know their client, retain documentation and to be cognisant of anything illegal or inappropriate.

“The Bill will not take effect for our members, substantially, until 1 July 2026, so that gives us the time that we wanted to get our members up to speed and compliant.”

Webinars and other resources are being prepared to support members.

CPA Australia will also continue to work with AUSTRAC, which now has the power to require accountants to disclose information about clients and conduct investigations, as necessary.