Australian AML/CTF: Finally movement on tranche 2 and other matters

  • Legal update

    25 May 2023

Australian AML/CTF: Finally movement on tranche 2 and other matters Desktop Image Australian AML/CTF: Finally movement on tranche 2 and other matters Mobile Image

On 20 April 2023, the Australian Government commenced the first of two public consultations on proposed reforms to their anti-money laundering and counter-terrorism financing (AML/CTF) regime. Broadly, the reforms propose to extend the AML/CTF regime to cover “tranche 2”entities, and to generally simplify and modernise the Australian AML/CTF.

Our colleagues at MinterEllison in Australia have discussed the consultation in more detail, and submissions can be made to the Attorney-General’s Department online until 16 June 2023.

Who needs to read it and why?

The proposals will be relevant to New Zealand businesses looking to deal with Australian reporting entities, as it will impact the compliance requirements that will overlay those dealings. The proposals will also be relevant to New Zealand businesses who also carry on business in Australia.

Given the extended territorial scope of the Australian AML/CTF regime, there may also be entities operating only in New Zealand that become subject to it. For example, if they are owned by an Australian reporting entity.

What does it cover?

The consultation takes into account the Mutual Evaluation of Australia by the Financial Action Task Force (FATF) in 2015. 

Tranche 2: The “tranche 2” entities which the proposed expansion would cover include what are described as high-risk entities currently outside the regime, such as lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious metals and stones (plus, potentially, providers of property management and leasing services). Australia is playing catch up in this regard as those entities are already within comparable regimes in many countries – in New Zealand’s case, these entities were included into our own regime from 2018 to 2019 with our Phase 2 reforms. 

Simplifying and modernising: The Australian regime was originally enacted back in 2006, pre-dating New Zealand’s legislation by three years, and in many ways it represents the 1.0 version of anti-money laundering internationally. The Australian Treasury is therefore also consulting on a range of proposals aiming to modernise and clarify the AML/CTF regime to “align with international standards and best practice, reduce its complexity and the regulatory burden imposed on industry, ensure it remains fit-for-purpose, and harden Australian businesses and sectors against exploitation”. The proposals include the following objectives (see the MinterEllison Australia newsletter for more detail): 

  • Streamlined requirements for an AML/CTF Program – consolidating Parts A and B
  • Changes to the way risk is assessed and mitigated
  • Customer due diligence – greater clarity and overall objectives
  • Lowering the reporting threshold for the gambling sector
  • Amending tipping-off offence
  • Regulation of digital currency exchanges 
  • Amending the 'travel rule’
  • Streamlined exemption for assisting in the investigation of a serious offence
  • Covid flexible customer verification measures made permanent on amended basis
  • Objective: Repeal the Australian FTR Act

However, this is only a consultation, and the proposals are by no means final.

Our view

We see the proposal as being a closer alignment of the Australian and New Zealand regimes, although material differences would remain and compliance with one will not mean automatic compliance with the other. 
The expansion to “tranche 2” entities is to be welcomed and would involve Australia catching up with New Zealand and much of the developed world. From our own experience it is Australian based clients who express the most surprise when New Zealand lawyers require them to comply with our AML requirements. Once they are used to lawyers being in the regime in Australia, we expect greater acceptance of the New Zealand regime too.

Many of the modernising changes will bring a closer alignment of the Australian and New Zealand regimes requirements. But in many aspects, Australia is taking the opportunity to jump ahead, even of the changes proposed but not yet implemented in New Zealand’s Statutory Review of the AML/CFT Act, tabled in our Parliament in [November 2022] – see our newsletters here, here and here

However, neither the Australian nor New Zealand reform proposals include any mutual recognition system or even mechanisms for that to be achieved. In our view that this is regrettable given the high degree of integration between our financial sectors and the long standing Closer Economic Relations trade framework. As a result, entities carrying on business in both jurisdictions would still need to comply with both sets of requirements, leading to significant inefficiency and cost. 

What next?

Submissions on this Australian consultation can be made to the Australian Treasury until 16 June 2023. Those submissions will then be used in drafting the second consultation paper, intended to be released later in the year. Entities with interests on both sides of the Tasman may want to at least raise the potential benefits to Australia of their AML/CTF regime allowing for a degree of mutual recognition of the New Zealand AML/CFT regime, under their Act. 

New Zealand reporting entities may also wish to raise options for a greater degree of mutual recognition in relation to the proposals to introduce legislation amending the New Zealand AML/CFT following the Statutory Review (expected next year).

If you have any questions in relation to the New Zealand anti-money laundering and countering financing of terrorism, please contact one of our experts.


This article was co-authored by Sam Short (Senior Solicitor) and William Ma (Law Clerk) in our Banking and Finance team.