How will the Tranche 2 Reforms Affect TCSPs?

Australia is strengthening its financial crime defences by implementing significant modifications to its Anti-Money Laundering and Counter-Terrorism financing (AML/CTF) laws. These revisions will subject more enterprises, known as “Tranche 2 entities”, to AML/CTF regulations. The new AML/CTF rules will affect Tranche 2 entities such as lawyers, accountants, trust and company service providers (TCSPs), real estate agents, and precious metals and stone dealers.  

AML/CTF Risks for TCSPs

The nature of the services provided by trust and company service providers (TCSPs) makes them especially vulnerable to money laundering and terrorism financing. These vulnerabilities stem from several major factors:  

• TCSPs can be used to conceal the origins of criminal funds by establishing legal entities such as corporations and trusts that obscure beneficial ownership.  
• Money launderers might employ the complex layers of legal company structures afforded by TCSPs to conceal the genuine owners of assets, making it harder for authorities to trace criminal proceeds.  
• TCSPs frequently conduct cross-border operations, making it easier for money launderers to transfer illicit cash worldwide and exploit states with lax AML standards.  
• Money launderers may use TCSP services to avoid paying taxes and take advantage of known tax shelters, thereby advancing their criminal financial schemes.  
• Money launderers seek for TCSPs because they have specialised skills, technological proficiency and knowledge that can help them with sophisticated money laundering operations.  

Tranche 2 AML Compliance for TCSPs 

Here are the key impacts these reforms will have on TCSPs: 

1. Enrolment with AUSTRAC: TCSPs will be required to enrol with the Australian Transaction Reports and Analysis Centre (AUSTRAC) as ‘reporting entities’ under the AML/CTF Act. 
2. Development of AML/CTF Programs: TCSPs must develop and maintain an AML/CTF program that is tailored to their specific business operations. This involves identifying, assessing and mitigating the risks associated with money laundering and terrorism financing. 
3. Customer Due Diligence (CDD): TCSPs will need to perform risk-based customer due diligence both at the onset of a business relationship and on an ongoing basis. This includes verifying the identity of clients, understanding the nature of the business relationship, and identifying beneficial owners of legal entities. 
4. Conduct Ongoing Due Diligence: As reporting entities, TCSPs are required to update their customers’ risk profile and identify unusual or suspicious behaviour. This also includes monitoring their customers’ transactions and understanding the reasons behind a customer’s change in behaviour. 
5. Reporting Obligations: TCSPs must report any suspicious transactions or activities to AUSTRAC. Transactions above $10,000 will need to be reported to AUSTRAC, ensuring large sums of money are closely monitored. 
6. Record Keeping: TCSPs will be required to maintain comprehensive records of their CDD processes, transactions, and any reports made to AUSTRAC. These records must be kept for a minimum of seven years. 

Summary 

These regulations seek to address the fact that criminals use the services of TCSPs and other professions to launder money and fund terrorism. The measures aim to make it more difficult for criminals to exploit the services of the regulated professionals, as well as to reduce the vulnerability of the Australian financial system to financial crime 

FAQs 

What is the Tranche 2 Reforms?  

The Tranche 2 Reforms are a package of proposed legislative changes aimed at widening the scope of Australia’s anti-money laundering and counter-terrorism financing laws to include more enterprises and occupations.  

Which industries will be impacted by the Tranche 2 Reforms?  

The Tranche 2 Reforms will affect real estate agents, precious metals dealers, lawyers, trust and company service providers and accountants. 

When will the Tranche 2 Reforms take effect?  

The actual timeline for implementing the Tranche 2 Reforms is determined by the legislative procedure. Stakeholders should monitor announcements from appropriate government authorities, such as the Australian Transaction Reports and Analysis Centre (AUSTRAC), for dates and transitional periods following the Act’s passage.  

Why are the Tranche 2 Reforms necessary?  

The Tranche 2 Reforms must align with global standards established by the Financial Action Task Force (FATF), which recommends that countries regulate DNFBPs within their AML/CTF frameworks and strengthen Australia’s ability to detect, prevent, and combat money laundering and terrorism financing activities.  

What steps should regulated entities take to comply with the Tranche 2 Reforms?  

Regulated entities must conduct thorough risk assessments, develop and implement strong AML/CTF programs, ensure that employees receive adequate training on AML/CTF obligations and the entity’s compliance program and establish systems for reporting suspicious activity and maintaining records in accordance with regulatory requirements.