The Australian landscape for Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) is on the cusp of significant change with the forthcoming “tranche 2″ reforms. These reforms come at a critical time, as global regulatory authorities such as the Financial Action Task Force (FATF) continue to emphasise the need for robust AML measures to mitigate risks associated with money laundering and terrorist financing.
The proposed AML reforms, the themes emerging from submission responses, and the potential repercussions for non-compliance are key discussion points. This article sheds light on the proposed legislation changes, and the solutions available to entities grappling with tranche 2 AML obligations, ensuring readiness for the Australian Transaction Reports and Analysis Centre’s (AUSTRAC) enforcement measures.
What is tranche 1 and tranche 2?
The term ‘tranche 1‘ refers to businesses regulated by the Australian AML/CTF Act 2006, identified as posing a money laundering, terrorism financing or proliferation financing (ML/TF/PF) risks. These include financial, gambling, remittance, digital currency exchange providers (updated term being virtual asset services), and bullion sectors that provide designated services listed in the AML/CTF Act.
The Act established AML requirements for tranche 1 reporting entities who provide designated services, covering AML compliance, regulatory oversight, and reporting requirements to help prevent money laundering and the financing of terrorism.
The term, ‘tranche 2‘ is the term used for the business sectors that will be regulated under the AML/CTF Act from 1 July 2026. Tranche 2 entities include legal professionals, accountants, real estate agents, conveyancers, trust and company service providers, dealers in precious stones, metals and products.
Including tranche 2 businesses in AML/CTF regulations will significantly broaden the scope of AUSTRAC’s regulatory oversight.
Tranche 2 AML/CTF Bill reforms
With the introduction of the AML/CTF Bill, the focus on extending regulations to tranche 2 entities signals Australia’s commitment to strengthening its financial defences.
The key obligations tranche 2 entities will be required to follow are:
- Enrol and register with AUSTRAC – entities must enrol with AUSTRAC
Develop and maintain an AML/CTF programme – entities must identify and assess the ML/TF/PF risks their business face in providing designated products and/or services in relation to the nature, size and complexity of your business.. The programme must detail the policies, procedures, systems and controls to mitigate and manage those risks. - Conduct customer due diligence – entities must assess the risk each customer poses, and check and verify a customer’s identity, including PEP and sanctions checks before conducting business.
- Conduct ongoing customer due diligence – entities must continue to conduct due diligence throughout the relationship with customers. This should include transaction monitoring for suspicious behaviours and activities, and enhanced due diligence where necessary.
- Report certain transactions and suspicious activities – entities must report all suspicious matters to AUSTRAC. This includes all cash transactions of A$10,000 or more, all instructions for the transfer of value sent into or out of Australia, and cross border movements of monetary instruments. An annual report summarising AML/CFT obligations for the previous year must be submitted.
- Adopt effective record keeping – entities must make and keep records of customer due diligence, transactions, compliance information, and activities relevant to AML/CTF obligations. Records must be kept for at least seven years.
This move is in line with international best practices and aims to close gaps in the existing AML/CTF regime, rendering it more difficult for criminal activity to go undetected.
However, the impact of these changes on businesses is anticipated to be significant, especially for small to midsize entities grappling with the resource demands of implementation.
To help mitigate the impact, get prepared early and understand what the requirements are so you’re ready for the regulation changes.
How tranche 2 entities can prepare
Start by evaluating your current processes to identify gaps in compliance. Understand your risks to being targeted by money launderers and terrorism financing and tailor your AML programme and compliance activities accordingly.
- Compliance obligations: Developing a comprehensive AML/CTF compliance programme is essential. This may involve investing in robust technology and processes to facilitate customer due diligence and monitoring activities.
- Resource allocation: You will need to allocate adequate resources and expertise to adapt to the new requirements. This could mean additional training for employees, ensuring they understand how to identify ML/TF/PF risks, carry out due diligence and manage compliance activities. You will also need to appoint a fit and proper person as an AML/CTF compliance officer.
- Cost considerations: Implementing the tranche 2 reforms may entail additional costs associated with compliance activities, technology investments, and operational changes. Assess the financial impact of these reforms early.
- Seek expertise: Getting help from an AML specialist can help you navigate the complexities of compliance. and can assist in the implementation of compliance programmes to ensure you meet AUSTRAC’s requirements.
There’s no denying this can be a daunting amount of work for many businesses. It is hoped the proposed July 2026 deadline, and the $167.8m allocated in the Federal Budget to support the AML reforms will go some way in providing enough time and support to help businesses dealing with the new Bill requirements.
Enforcement and penalties for non-compliance
Like many AML regulatory bodies around the world, AUSTRAC has a number of enforcement actions available to them:
- Civil penalty orders: A civil penalty order is a court ordered fine. These can be up to 20,000 penalty units, or up to 100,000 penalty units for a body corporate.
- Enforceable undertakings: This is a written undertaking setting out how you will comply with the AML/CTF Act. You may have to commit to take, or not take, specific actions.
- Infringement notices: These are issued for breaching specific parts of the AML/CTF Act, and can result in financial penalties.
- Remedial directions: These directions will instruct you in writing to take specific actions to comply with certain parts of the AML/CTF Act.
Being used for money laundering may not seem like something that could impact you, but as a reporting entity it can be a very real reality.
In August 2024 the Australian Federal Police seized seven Queensland properties worth an estimated A$12.96 million following a money laundering investigation. It is alleged the purchase of properties was used to launder funds.
And the FATF has their own way of issuing penalties for non-compliance. As only one of five jurisdictions that doesn’t regulate tranche 2 entities, Australia is at risk of being grey listed. This can have significant consequences for the economy and financial stability of the country.
The FATF’s next formal assessment is scheduled for late 2026 which put pressure on the Bill to be passed into law and implemented by businesses.
Tranche 2 AML Australia timelines
All entities must enrol with AUSTRAC. Enrolment will be open to tranche 2 entities from 31 March 2026.
AML/CTF obligations will apply to tranche 2 entities from 1 July 2026.
Conclusion
For the Australian government, implementation of Australia’s tranche 2 AML/CTF reforms will be a significant milestone in the nation’s fight against financial crime, and assist with a positive outcome at the next FATF assessment.
For tranche 2 entities however, it will represent both a challenge and an opportunity. A challenge which may become an administrative burden as entities deal with additional costs, training, and resource requirements, as they strive to meet compliance standards. And an opportunity for businesses to reinforce their reputation through strengthened trust and credibility.
Given the huge task ahead, it’s clear that a collaborative approach between the government and industry stakeholders (and ongoing training and support) will be required to ensure a seamless transition for affected entities.
Client case study – Ray White
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About the author
Nicolas Charles
Nick has a background in financial services for nearly 10 years. During his time in retail finance and banking, he was directly involved in the application of AML verification and compliance, which gave him valuable skills for his current role as Head of Operations and Finance at tic company.
