Tranche 2 anti-money laundering regime will shake up Australian accounting industry

Tranche 2 of Australia's anti-money laundering laws is nearing the end of its public consultation period. With the deadline for feedback on round two closing in September 2023, it’s time for accountants and other tranche-two entities to consider the implications of the new regime and prepare for its rollout.

The consultation paper proposes that the following services offered by accountants be covered by the new regime:

• Buying and selling of real estate
• Managing of client’s money, securities, and other assets
• Managing of bank, savings, or securities accounts
• Creation, operation, and management of companies
• Creation, operation, and management of legal persons or legal arrangements, such as trusts
• Buying and selling of business entities.

In preparation for this final phase of Australian’s new AML/CTF regime, Chartered Accountants Australia and New Zealand appeared before the Senate Legal and Constitutional Affairs Reference Committee in November 2021.

Alongside CPA Australia and the Institute of Public Accountants, they reiterated the willingness of the accountancy profession to join efforts to prevent, detect, and report money laundering and the financing of terrorism. However, the accounting professional bodies stressed that the implementation of tranche 2 should “harness, not duplicate, existing obligations on professional accountants.”

In particular, they highlighted that accountants who already belonged to professional bodies are already subject to quality and risk management requirements and that further AML/CTF obligations would duplicate requirements for little gain.

Gavin Ord, senior manager of business policy at CPA Australia, said, “The government needs to be realistic about what it’s asking accountants to do. Local accountants, especially in regional and rural areas, don’t have the resources to perform the same checks as a bank does.”

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Accounting a ‘gatekeeper’ profession‍

Australia’s accountants, lawyers, and real estate agents have been referred to as ‘gatekeeper’ professions in the context of AML and CTF. Up to now they’ve faced little scrutiny, but they’ve come under increasing pressure to fall under regulation, like the country’s tranche 1 entities (banks and other financial institutions).

The CEO of the Australian Transaction Reports and Analysis Centre (AUSTRAC), Nicole Rose, has argued that a failure to regulate these professions – also known as designated non-financial businesses and professions (DNFBPs) – could attract criticism from the Financial Action Task Force (FATF), which oversees AML and CTF standards globally.

The FATF criticised Australia in 2015 for failing to extend AML laws to cover its accounting, real estate, and legal professions. The FATF was expected to deliver another black mark over Australia’s delays in enacting tranche 2 laws in 2019-20, but the review was suspended until at least 2024.

The pressure is now on for Australia to get its AML/CTF house in order before the next round of FATF visits. Currently, it’s one of only five FATF countries that don’t have laws in place for DNFBPs, alongside Madagascar, Haiti, China, and the United States. Australia risks being added to the FATF greylist if it fails to address gaps in its AML/CTF regime.

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What the AML/CTF regime means for Accountants

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‍Expanded Due Diligence

Australia’s proposed AML/CTF regime outlines key obligations that regulated entities like accountants must comply with to protect clients from criminal activity. These require a deeper examination of client identities, the sources of funds, and business relationships.

Accountants must be prepared to implement robust processes to verify client information and conduct ongoing monitoring to detect suspicious activities. This expanded due diligence places greater responsibility on accountants to ensure compliance and mitigate the risk that they’re unknowingly facilitating money laundering or terrorist financing.

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Reporting‍

With Tranche 2, accountants will be obligated to report suspicious transactions to AUSTRAC. This requires a better understanding of red flags and indicators of illegal activities, as well as being able to identify and report suspicious transactions promptly.

Accountants must build effective internal reporting and educate their teams to ensure they comply with reporting obligations. Timely and accurate reporting is essential to safeguarding the Australian financial system from illicit funds.

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Integration of technology and automation

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To deal with the expanded due diligence and reporting obligations, accounting firms will need to leverage technology and automated solutions. Implementing advanced software and data analytics tools can streamline processes, enhance accuracy, and improve compliance efficiency.

Embracing technology will help accounting firms comply with Tranche 2 laws and help them provide more value-added services to their clients, while remaining competitive in a rapidly evolving industry.

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Accountants as gatekeepers

‍Tranche 2 acknowledges the role of accountants as key gatekeepers in detecting and preventing money laundering. As professionals with access to sensitive financial information, they are well positioned to spot discrepancies or unusual patterns that may indicate illicit financial activities.

The legislation emphasises the importance of accountants' professional judgement, ethical responsibilities, and their duty to act in the public interest. This highlights the elevated status and influence of the accounting industry in the fight against financial crime.

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Increased compliance costs and operational adjustments

‍The introduction of Tranche 2 will inevitably lead to increased compliance costs for accounting firms. Adhering to the new AML obligations will require an investment in training, technology, and compliance processes, which will impact on smaller accounting firms more.

However, this does present an opportunity for accounting firms to evaluate and strengthen their internal controls and operational processes and enhance their efficiency and effectiveness.

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Reputation and client trust

‍The introduction of Tranche 2 underlines the importance of high professional standards within the accounting industry. By complying with the new AML/CTF obligations, accounting firms can enhance their reputation as trusted advisors and demonstrate their commitment to integrity and ethical conduct.

Fostering client trust is essential in an environment where financial crime threats continue to evolve, and stakeholders want assurances that their financial affairs are handled with the highest level of care.

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‍How One AML can remove the stress from your AML auditing‍

Australia's Tranche 2 AML laws represent a big step towards combating money laundering and terrorism financing more effectively. By extending the scope of regulated entities to include the accounting, the aim is to create a more robust and comprehensive AML/CTF framework.

By taking steps to comply with the new laws, affected businesses and organisations can help protect the integrity of the Australian financial system and contribute to the fight against money laundering and terrorist financing.

If your business is affected by Tranche 2, One AML can help you understand and meet your AML/CTF obligations. We provide robust, cost-effective, and seamless solutions. Get in touch today.