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Anticipating Tranche 2 In Australia

Friday 16 March 2018


Following the media storm of the ‘Panama Papers’ in 2016, Anthony Quinn, Founder of Regtech start-up, Arctic Intelligence, asked whether tranche 2 will ever happen. While it is known for a fact that it will, it remains a matter of when.

Quinn writes:


There is little logic in the argument that AML laws should be strengthened for existing regulated businesses, whilst simultaneously precluding gatekeepers.

Now tranche 2 is a matter of when, however, there is an urgent need to look at the potential impact of the regulatory regime on existing standard operating procedures.

In February, InfoTrack held an AML Experts Panel discussion to examine the impact that tranche 2 regulation will have on Designated Non-Financial Businesses and Professions (DNFBPs).

InfoTrack CEO, John Ahern, who hosted the event at the InfoTrack office, said there has been an increasing amount of pressure to implement tranche2 of the AML/CTF Act, and that is expected to happen some time this year.

There has been speculation as to whether the introduction of tranche 2 will be similar to the approach currently being taken in New Zealand.

“What can we learn from New Zealand is that speed is of the essence,” said panel member and FTI Consulting of Forensic, Litigation and Consulting Managing Director, Geoffrey Peck. “There is not a lot of time to do the work. It requires risk assessments; it requires putting programs in place, and educating your customers; it requires learning how to implement processes to report suspicious matters and suspicious transactions.”

The time frame for compliance in New Zealand is short.

But what impact will the expanded capture of the AML/CTF Act present here? Will it constitute further risk to remittances and money services that have already struggled with de-risking from banks in the past?


Conflict of interest for law firms?

A strategic analysis brief published in 2015 and focused on legal practitioners noted: Legal practitioners, either wittingly or unwittingly, may provide or offer their technical expertise and know-how to a client, which can facilitate money laundering. Services that are susceptible to money laundering include:

  • managing clients’ finances, investments and other assets
  • debt recovery
  • buying and selling real estate 
  • establishing and administering complex domestic and foreign legal entity structures (such as trusts and companies) and accounts.

The document states that the use of legal practitioners to facilitate the laundering of significant funds is an established international practice.

What traditional relationships have to be questioned?

For law firms, the challenge exists around client privilege and whether mandatory breach obligations compromise traditional relationships with the client.

According to Alexia Houston, panellist and Head of Insurance and Risk at Clayton Utz, one solution to the challenges posed by this traditional lawyer-client relationship is to encourage clients to be open about certain types of information.

“The role of trusted advisor actually starts to fall away because you may find yourself caught up suspicious matter reporting (SMR),” Houston said. “On the other hand, if this were to occur, it does mean law firms would be helping to reduce money laundering and terrorist financing in the Australian financial system.”

This, of course, highlights the purpose of this regulation as a means to protect the Australian financial system.

Consultation and Regulation

Panellist and Clayton Utz Project Manager for AML, Ronald Daliya, believes implementation will not make sense until after the details have been worked out for the ‘gatekeepers’.

It will be difficult, said Daliya, to know what will need to change within the existing regulatory regime until the final version of that regulation is rolled out.

Possibly the first thing to be considered is how any new ‘heavy-weight’ regulatory regime will translate to the legal industry.

“As you get into the next part, it’s really going to deal with reconciliation,” said Daliya. “The AML/CTF changes, when they come for our industry, have to convince the leadership. The essence here is that this has to be driven from the top down.”

Certainly, the need for leadership to be on-board with risk and compliance is not a new concept, nor is it mutually exclusive to the area of financial crime compliance. Those who are going to be captured by tranche 2 regulation only need look at local and international news stories to see the regulatory implications for institutions that have failed to meet the requirements of their respective AML/CTF regimes.

Speaking as an attendee, Aub Chapman, of Aub Chapman Consulting Services and consultant to the working group behind writing the amendments for the AML/CTF regulation, said the changes would capture digital currencies. “We do not have long to wait for the new regulation to come in before we can start considering what the risk and compliance regulatory regime might look like.”