Anti-Money Laundering Obligations of Lawyers in New South Wales

A new regime which comes into effect on 1 July 2026 will impose a range of obligations on New South Wales lawyers when it comes anti-money laundering and counter-terrorism financing (AML/CTF), including to register with AUSTRAC, develop AML/CTF programs, conduct checks on their own clients, report suspicious activities and transactions relating to their clients, keep records and designate a compliance officer.

But while the requirements have been welcomed by law enforcement agencies and politicians, they raise important questions about how they can be reconciled with fundamental ethical and legal obligations of lawyers, including the duty to act in the best interests of client and not to disclose confidential information obtained in the course of the lawyer/client relationship.

And although the new laws may appear to be a step forward in the fight against money laundering and terrorism financing, there is a strong argument they are a step backward in terms of protecting the sanctity of the lawyer/client relationship and ensuring clients are comfortable in making full disclosure to their lawyers with a view to obtaining accurate advice and effective representation, and may place lawyers in situations where they are ‘damned if they do and damned if they don’t’ when it comes to reporting obligations – meaning that they may be breaching the new laws if they keep certain information confidential and thereby act in the best interests of their clients, and breaching these obligations if they do not.

In any event, here’s a rundown of the forthcoming regime.

Quick snapshot — the essentials

• The Anti-Money-Laundering and Counter-Terrorism-Financing Amendment Act 2024 received Royal Assent on 10 December 2024 and expands the AML/CTF Act 2006 to cover additional high-risk services (including many legal services).
• New obligations for tranche 2 sectors (lawyers, accountants, real-estate, jewellery, etc.) commence 1 July 2026; new reporting entities will be able to enrol from 31 March 2026 and must enrol by 29 July 2026. (Some transitional rules for existing reporting entities apply from 31 March 2026.)
• The core program requirements are familiar to regulated financial firms: enrol with AUSTRAC; maintain an AML/CTF Program; carry out initial and ongoing customer due diligence (CDD); lodge Suspicious Matter Reports (SMRs); keep records; appoint a compliance officer; and conduct risk assessments and training. AUSTRAC guidance summarises these obligations. 

Why lawyers are now in scope

Australia’s 2024 amendments were designed to meet international Financial Action Task Force (FATF) standards by closing regulatory gaps in sectors historically used to move and disguise proceeds of crime. 

Law firms often provide “designated services” (trust account management, conveyancing, company or trust formation, handling client funds in transactions, acting in property or high-value transfers) that FATF identifies as higher risk — hence the extension. The legislation and AUSTRAC’s tranche-2 designations specifically target those services. 

What lawyers (and law practices) must implement — the checklist

1. Enrol with AUSTRAC when you provide a designated service. AUSTRAC will require registration/enrolment details and contact points. New reporting entities must enroll in the windows set for tranche-2.
2. Create and maintain an AML/CTF Program proportionate to your size, client base and risk profile. The program must be documented, approved by senior management and kept current. AUSTRAC’s summary lists required program elements.
3. Customer due diligence (CDD) — identify and (where required) verify the customer and any beneficial owner; conduct ongoing CDD and enhanced CDD for higher-risk matters; apply simplified CDD only where appropriate. The Amendment Act reframes and clarifies CDD obligations.
4. Suspicious Matter Reporting (SMRs) — you must lodge an SMR with AUSTRAC where you suspect a transaction or person is linked to money-laundering, terrorism financing or other serious crime. AUSTRAC guidance explains reasonable-suspicion thresholds and examples.
5. Record-keeping — retain identity documentation, risk assessments, training records and transaction records for required retention periods (AUSTRAC sets minimums).
6. Risk assessment and controls — perform firm-level ML/TF/PF risk assessments and tailor controls (trust account controls, transaction monitoring, escalation procedures).
7. Compliance officer and training — appoint a senior compliance officer; provide regular staff training and independent testing or audits of the program. 

Client legal privilege and protected information

The AML/CTF Act and AUSTRAC guidance include express protections for information subject to client legal privilege. That does not give license to ignore SMR obligations — but it does require balancing reporting duties with legitimate privilege claims. AUSTRAC guidance explains how privileged material is treated. Firms must develop processes to identify privileged material and obtain legal advice where necessary before disclosure. 

Enforcement climate — what the regulator has been doing

AUSTRAC has used fines and litigation aggressively against regulated entities (not specifically law firms yet) — recent examples show the stakes and regulatory appetite for enforcement:

• AUSTRAC’s 2023–24 Annual Report recorded approximately 396,000 suspicious matter reports (SMRs) and major increases in other report types — showing the extent of reporting and analytic workload. That report also documents AUSTRAC’s intensified supervisory and enforcement activity.
• Large civil penalties and litigation against casino and gambling operators (e.g., SkyCity penalty, proceedings against The Star; AUSTRAC proceedings against Entain and actions about clubs with huge suspicious gaming volumes) demonstrate the scale of penalties and court enforcement in recent years. These cases signal AUSTRAC’s willingness to litigate and seek very large penalties where systemic failures occur. 

Numbers and trends to know (selected data)

• SMRs: AUSTRAC reported roughly 396,000 SMRs in 2023–24 (with large year-on-year increases in some categories and substantial growth in Fintel Alliance-coded reports). That volume underscores the intensity of reporting and analysis workload.
• IFTI (International Funds Transfer Instructions): AUSTRAC reported about 1.92 million IFTI reports in 2023–24 — a large, growing feed of international payment data.
• Regulatory timeline: the 2024 Amendment Act received Royal Assent on 10 December 2024; tranche-2 obligations commence 1 July 2026 with enrolment windows opening 31 March 2026 and enrolment deadlines around 29 July 2026 for new reporting entities. (Several government and professional bodies’ guidance pages reiterate these dates.) 

Practical risk areas for NSW solicitors (high-risk practice types)

Law practices should focus extra attention on matters that historically present ML/TF risk, including:

• Conveyancing and large property transactions (especially where unusual funding patterns or opaque ownership structures are used);
• Acting in the formation or management of companies, trusts or complex legal structures;
• Handling significant cash or third-party funds through trust accounts;
• Cross-border wealth transfers and international clients from higher-risk jurisdictions;
• Acting for clients involved in high-value business sales, luxury goods, or high-risk industry sectors. 

Practical steps for NSW firms — a 90-day starter plan

1. Gap analysis — map current processes against AUSTRAC’s program requirements and the Future Law Compilation of the AML/CTF Act (how the Act will read when tranche-2 starts).
2. Senior-level project sponsorship — appoint a compliance lead and ensure board/partners buy-in.
3. Risk assessment — complete a firm-level ML/TF/PF risk assessment (client types, services, geography, payment channels).
4. Policy and procedures — draft an AML/CTF Program, CDD procedures, SMR escalation, trust-account controls and record retention rules.
5. Training and testing — train client-facing staff and run tabletop exercises; schedule an independent program review.
6. Tech and record systems — assess whether case management, ID verification and transaction monitoring tools are needed. Many vendors are already preparing tranche-2 solutions. 

Where to find authoritative guidance and keep updated

• AUSTRAC: summary of tranche-2 obligations, guidance on SMRs, CDD and the Future Law Compilation of the Act. (Primary regulator.)
• Law Society of NSW: profession-specific resources and FAQs tailored to NSW solicitors preparing for tranche-2. These pages summarise obligations and practical resources.
• Department of Home Affairs / Parliament: legislative materials, explanatory memoranda and the Amendment Act text and commencement details. 

Conflicting obligations

The extension of the AML/CTF regime to many legal services imposes a significant burden on law firms and confuses a lawyer’s obligations when it comes to acting in a client’s best interests and not disclosing matters subject to client legal privilege. 

The requirement to essentially report clients who are suspected of money laundering is contrary to a lawyer’s legal and ethical duties not to disclose confidential information and to act in a client’s best interests.

Sadly, the new regime is woefully lacking in clear guidance on the resolution to the conflicting obligations, placing lawyers in a difficult situation when it comes to maintaining their legal and ethical responsibilities.

Early preparation is important

That said, New South Wales law firms would be well advised to start preparing now — undertaking risk assessments, preparing policies and systems , and undertaking staff training — as well as engaging early with professional bodies and AUSTRAC, to ensure a smooth transition to the new regime.