By Dr Jim O’Donovan
Dr Jim O’Donovon is familiar to many from his textbooks on insolvency, corporate restructuring, guarantees, lender liability and personal property securities. Dr O’Donovan’s latest work, An AML CTF Compliance Manual for Solicitors and Legal Practices, is quite different.
Dr O’Donovan shares why he prepared a DIY AML CTF Manual and what he thinks about the new AML CTF regime and its impact on lawyers below:
Many years ago, I completed two years of articles of clerkship with a sole practitioner. After my admission, I was left in charge of the law office while my Principal took a well-earned break for a few months. Hence, I understand the difficulties that sole practitioners and small practices face every day.
I shudder to think how these small practices will cope with Tranche 2 of the AML CTF regime. This is why I created my AML CTF Compliance Manual.
My recent textbook, The New Anti-Money Laundering and Counter-Terrorism Financing Laws in Australia (Thomson Reuters, 2026), explains what solicitors and legal practices need to do to comply with the Tranche 2, but it doesn’t explain how to comply.
In contrast, my Compliance Manual provides a simple, step-by-step guide to assist sole practitioners and small legal practices to comply with the new regime without having to engage expensive external consultants and third -party service providers. In a sense, my Manual is DIY AMLCTF.
The New Anti-Money Laundering and Counter-Terrorism Financing Laws in Australia sets out the main features of the new regime and the obligations of solicitors and legal practices.
In brief, legal practices must do the following:
- Appoint a fit and competent person as Compliance Officer.
- Undertake a practice-wide assessment to determine what money laundering and terrorism financing risks the whole practice faces in dealing with its clients.
- Devise an AML CTF Program. This program has many components, including an AML/CTF Policy, an AML/CTF Process Document and Training Programs.
- Enrol with AUSTRAC, the regulator, no later than 29 July 2026, but preferably before 1 July 2026. There is a prescribed enrolment form.
- Identify their clients and verify their identities.
- Undertake an individual client/matter risk assessment. This focuses on the money laundering and terrorism financing risks posed by individual clients, transactions or matters. It is different from the Practice-Wide Assessment.
- Undertake ongoing customer due diligence for all their clients, both existing clients and new clients after 1 July 2026. It will take time to conduct due diligence in respect of existing clients. AUSTRAC expects legal practices to undertake fresh due diligence for existing clients if there are “trigger events” such as an increased risk of money laundering or terrorism financing by these clients. Where legal practices identify red flags of money laundering or terrorism financing, they must undertake enhanced due diligence. My Manual provides detailed guidance on how to spot red flags for money laundering, terrorism financing and proliferation financing.
- Lodge reports with AUSTRAC. Legal practices must provide 4 different types of reports to AUSTRAC within prescribed periods:
- Threshold Transactions Reports(TTRs) (for transactions involving $10,000 or more cash or coin (within 10 business days);
- Suspicious Matter Reports (SMRs) (where there is a reasonable suspicion of money laundering, terrorism financing, proliferation financing or other criminal activity) ( immediately for terrorism financing, or within 3 business days for other illegal activity);
- International Funds Transfer Instructions (IFTIs) Reports,(for movements of currency in or out of Australia) (within 10 business days); and
- an Annual AML CTF Compliance Report (within the first 3 months of the end of the calendar year).
- Keep records. Legal practices must make and retain records of all relevant transactions and reports for a period of 7 years in a safe, secure place. These records must be readily accessible to AUSTRAC, but secure from access by unauthorised persons.
- Conduct independent reviews. The AMLCTF Program must provide for an independent evaluation of the program at least once every 3 years. For larger practices with more complex businesses or higher-risk clients, independent evaluations must be conducted every 1-2 years. The reviewer can be someone from within the practice, provided they were not involved in the creation or development of the AMLCTF Program.
- Engage with AUSTRAC. AUSTRAC expects legal practices to respond promptly to remedial directions and notices to produce documents. Moreover, AUSTRAC expects legal practices to respond to its regular guidance updates by revising their AMLCTF Programs and procedures.
- Train staff. AUSTRAC expects all staff, not just solicitors, will be trained to identify red flags of money laundering or terrorism financing so that they can escalate suspicious matters to the Compliance Officer to determine whether to lodge an SMR. All staff must also be trained to avoid tipping off clients about suspicion of money laundering or terrorism financing. Tipping off is a criminal offence.
- Continuously improve their AMLCTF Policies and Programs. AUSTRAC expects legal practices to revise their programs regularly to respond its guidance and new money laundering and terrorism financing risks.
The Manual explains all the AMLCTF obligations in simple language. It contains how the various components of the AMLCTF Program interact and how internal controls can reinforce compliance.
The Manual provides a list of services that are and are not covered by the tranche 2 reforms. It contains clauses for costs agreements and engagement letters relating to the extra costs incurred in enhanced due diligence and provides some precedents for AML/CTF clauses in contracts of sale to protect buyers and sellers and their advisers
The Manual will also help legal practices customise their AMLCTF Programs. It provides over 400 forms, checklists and protocols to assist practices comply with every obligation and record their compliance. It is important to complete these forms because AUSTRAC expects legal practices to be able to prove that it complied with its obligations. The Tranche 2 model is based on self-assessment, but documented governance.
The Manual provides a detailed analysis of legal professional privilege. It provides examples of safe and unsafe interactions with clients to guide frontline staff how to deal with difficult or uncooperative clients.
You can obtain a copy of the manual and forms at drjimcompliance.com.au
