House of Representatives

Explanatory Memorandum

(Circulated by authority of the Attorney-General, the Hon Mark Dreyfus KC MP)

SCHEDULE 4 - LEGAL PROFESSIONAL PRIVILEGE

403. Schedule 4 addresses the treatment of information subject to legal professional privilege for the purposes of the reporting and information disclosure obligations throughout the AML/CTF Act.

404. Amendments made by Schedule 4 are intended to preserve the important common law doctrine of legal professional privilege and statutory client privileges in the Evidence Act 1995. The amendments will ensure that client information that is subject to legal professional privilege is handled appropriately, and reporting entities can nevertheless comply with their reporting and information disclosure obligations under the AML/CTF Act.

405. The policy intent of the amendments in Schedule 4 is that the AML/CTF Act would not require the disclosure of information or a document as part of any reporting and information disclosure obligations where the reporting entity or notice recipient reasonably believes that the information or document is subject to legal professional privilege. The reporting entity or notice recipient would be required to fulfil their reporting or information disclosure obligations to the extent possible without disclosing the privileged information or document.

Anti-Money Laundering and Counter-Terrorism Financing Act 2006

Item 1 – Section 5

406. Item 1 inserts a definition of 'legal professional privilege' into section 5 of the AML/CTF Act. This clarifies the kinds of information to which the items in this schedule would apply, by making explicit that 'legal professional privilege' includes, but is not limited to, privilege under Division 1 of Part 3.10 of the Evidence Act 1995.

407. The inclusion of a definition of 'legal professional privilege' in section 5 responds to stakeholder feedback received during the consultation process. It is intended to provide greater clarity and certainty regarding the meaning of legal professional privilege under the AML/CTF Act. It is not intended to create a new definition or category of legal professional privilege, or to deviate from the common law understanding. This outcome is achieved by referencing the relevant Part of the Evidence Act 1995, and by ensuring that the definition in the AML/CTF Act definition is inclusive in nature, allowing the AML/CTF Act to recognise ongoing developments of the common law related to the doctrine of legal professional privilege.

408. Importantly, common law and statutory privilege is not extended to information or documents made for a purpose that is contrary to the public interest; that is, where the communication is made in furtherance of an illegal or improper purpose. The illegal or improper purpose principle covers all forms of fraud or dishonesty, including fraudulent breach of trust, fraudulent conspiracy, trickery and 'sham' contrivances, as well as cases of fraud by third parties. For the purposes of the illegal or improper purpose principle, the relevant distinction is between a communication made in furtherance of an illegal or improper purpose, which is non-privileged communication, as compared with a communication made for the purpose of seeking advice in relation to a criminal or other matter at law, which may be privileged.

409. Privilege also does not apply to documents lodged or provided to a lawyer simply for the purpose of obtaining immunity from production where the dominant purpose of the communication was not to obtain or provide legal advice, or for actual or reasonably anticipated litigation. The mere fact that a lawyer has drafted or possessed a communication will not in itself substantiate a claim for legal professional privilege. For example, a list of clients and CDD undertaken in respect of those clients will not normally be subject to privilege, nor will a conveyancing file, except to the extent that the file contains legal advice provided to a client.

410. Item 1 also inserts a definition of the new term 'LPP form' into section 5 of the AML/CTF Act. An 'LPP form' is a written notice in a form approved by the AUSTRAC CEO that specifies the basis on which any relevant information or document is privileged from being given or produced on the ground of legal professional privilege. AUSTRAC, as the AML/CTF regulator, requires full access to facts to determine what supervisory or enforcement action to take with respect to reporting entities' obligations under the regime. Part of that role is to determine claims of legal professional privilege, particularly when made in response to a formal notice. For AUSTRAC to make an informed decision, it requires information about the legal professional privilege claim. The LPP form presents a balanced approach to addressing assertions of privilege, and facilitates the common law position that a person asserting legal professional privilege is required to particularise their claim for privilege in the context of a response to a compulsory information gathering power exercised by a statutory authority. The LPP form is also anticipated to dissuade reckless or potentially reckless claims of legal professional privilege.

411. The particulars of the LPP form are not included in the Bill (and therefore the amended AML/CTF Act), consistent with other approved forms in the AML/CTF regime. This also provides flexibility and ensures that the form is adaptable and responsive to different contexts and assertions of legal professional privilege. The LPP form may, for example, contain fields requiring reporting entities to provide the name of the privilege holder, the title or subject line of the document, and the type of document (for example, contract, advice, invoice), and any other supporting information. It is expected that a reporting entity completes the form to the extent possible, however there may be circumstances where not all of the particulars can be provided. The LPP form will be available on the AUSTRAC website and via the online reporting platform, along with a range of guidance to support a person in considering legal professional privilege issues. For clarity, the LPP form is to be provided in lieu of any relevant information that may be subject to legal professional privilege; there is no requirement or expectation for privileged information to be provided to AUSTRAC in the LPP form or otherwise.

412. Civil penalties would apply under Division 2 of Part 15 of the AML/CTF Act for failure to provide an LPP form in accordance with these amendments. This approach is consistent with existing approaches in the Commonwealth, for example, in section 89 of the Financial Accountability Regime Act 2023. It is also consistent with protocols and procedural approaches taken by other regulators such as the ATO and the Australian Competition and Consumer Commission.

413. The maximum civil penalty under the AML/CTF Act is set at the highest amount allowed, which is 100,000 penalty units for a corporation and 20,000 penalty units for individuals. While the penalties can be substantial, AML/CTF enforcement actions can involve serious systemic failures by a reporting entity where the number of contraventions is immeasurable. The amount of any civil penalty will be determined by the court. Courts will decide the appropriate penalty (subject to the statutory maximum) based on the circumstances of a contravention. In determining the appropriate amount for a civil penalty, the courts will consider the impact of these violations on the Australian community, the financial system, and law enforcement efforts.

Items 2 and 3

414. Item 2 inserts a new subsection 26Q(2A) in the AML/CTF Act, which provides an obligation to provide an LPP form where information specified in a notice to produce, under new section 26Q (to be inserted by Item 24 in Schedule 1), is withheld from the issuer of the notice on the grounds that the recipient reasonably believes the information is subject to legal professional privilege. The LPP form would be given in substitution of withheld information.

415. Item 2 also inserts a note after new subsection 26Q(2A) of the AML/CTF Act referring to new sections 242 and 242A of the AML/CTF Act (to be inserted by Item 30 of this Schedule). New subsection 242(1) preserves the right for a person to refuse to give information or produce documents that are subject to legal professional privilege.

416. Item 3 provides that a person may be subject to a civil penalty in accordance with Division 2 of Part 15 of the AML/CTF Act if they do not comply with a notice requirement under new subsection 26Q(2), or if they do not comply with the obligation to provide an LPP form under new subsection 26Q(2A) when information is withheld on the basis that the notice recipient reasonably believes the specified information is subject to legal professional privilege.

417. The maximum civil penalty under the AML/CTF Act is set at the highest amount allowed, which is 100,000 penalty units for a corporation and 20,000 penalty units for individuals. While the penalties can be substantial, AML/CTF enforcement actions can involve serious systemic failures by a reporting entity where the number of contraventions is immeasurable. The amount of any civil penalty will be determined by the court. Courts will decide the appropriate penalty (subject to the statutory maximum) based on the circumstances of a contravention. In determining the appropriate amount for a civil penalty, the courts will consider the impact of these violations on the Australian community, the financial system, and law enforcement efforts.

Items 4 to 8

418. Items 4, 5, 6, 7 and 8 provide a mechanism for a reporting entity to be exempted from providing certain information in order to comply with suspicious matter reporting obligations in Division 2 of Part 3 of the AML/CTF Act. A reporting entity is exempt to the extent that they reasonably believe that information that is required to be contained in a SMR is subject to legal professional privilege.

419. Item 4 clarifies that paragraph 41(2)(a) of the AML/CTF Act, which specifies the time period in which a SMR must be given if a SMR obligation arises under section 41, only applies where new paragraph 41(2)(aa) does not apply.

420. Item 5 inserts new paragraph 41(2)(aa) in the AML/CTF Act. Paragraph 41(2)(aa) provides that where a SMR obligation arises for a reporting entity, and the reporting entity reasonably believes that information required to be contained in a SMR is subject to legal professional privilege belonging to a person other than the reporting entity, the reporting entity has a total of 5 business days in respect of the requirement to give the AUSTRAC CEO a SMR, unless the SMR relates to financing of terrorism. This is an additional 2 days to the existing requirement for reporting entities to submit a SMR.

421. The intent of this extended timeframe in new paragraph 41(2)(aa) is to allow additional time for reporting entities to consider whether privilege, that does not belong to them, applies to information required to be contained in a SMR. This is also intended to reduce inadvertent disclosures of privileged information by alleviating the time pressures associated with suspicious matter reporting under section 41.

422. Current paragraph 41(2)(a) provides that this extended timeframe in new paragraph 41(2)(aa) does not apply where the suspicion relates to financing of terrorism. Due to the national security considerations associated with terrorism financing suspicions, the timing remains 24 hours after the time the relevant suspicion is formed.

423. Item 5 at new subparagraph 41(2)(aa)(iii) further establishes that this extended timeframe is only available where the legal professional privilege, if it exists, belongs to a person other than the reporting entity themselves, for example a client of a law firm or accounting practice. Such reporting entities therefore may require more time to consider whether legal professional privilege attaches to relevant information, as they are not the privilege holder.

424. Item 6 inserts new subsection 41(2A) that establishes that a reporting entity may refuse to give a SMR if they reasonably believe that all of the information comprising the grounds on which they hold the relevant suspicion is privileged from being given on the ground of legal professional privilege. The reporting entity is also not required to give the AUSTRAC CEO an LPP form in this case.

425. The intention of this amendment is that a reporting entity is not required to give a 'blank' (or 'shell') SMR and accompanying LPP form to AUSTRAC in circumstances where the entire grounds for suspicion is composed of information that the reporting entity reasonable believes is subject to legal professional privilege. The intention of this amendment is to minimise the regulatory burden for reporting entities associated with submitting 'blank' SMRs. This exception ensures that reporting entities do not attract a civil penalty liability for failing to give the AUSTRAC CEO a SMR under subsection 41(2) of the AML/CTF Act in this circumstance.

426. Item 6 frames the exception to the requirement to give the AUSTRAC CEO a report on a suspicious matter as a right to refuse, so that the reporting entity would attract protections under the AML/CTF Act if the reporting entity makes a report under subsection 41(2), where the grounds of suspicion are based on privileged information but disclosed in the SMR with the consent of the privilege holder (where obtaining such consent would not reasonably prejudice an investigation or would fit within the 'crime prevention' exception of the tipping off offence in subsection 123(4) of the AML/CTF Act). For example, a SMR made under these circumstances may arise if the customer of the reporting entity is a victim of a serious crime such as fraud, or if the suspicions that are the subject of the SMR relate to a counterparty of a customer's transaction.

427. A reporting entity would still be required to comply with other obligations in the Bill that are triggered by the SMR obligation in subsection 41(1), even if they have refused to give a report on the suspicious matter under subsection 41(2) on the ground of legal professional privilege. These obligations include:

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monitoring for unusual transactions or behaviour that may give rise to a SMR obligation as part of ongoing CDD under new paragraph 30(2)(a)

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if the reporting entity has a business relationship with a customer – reviewing and updating the identification and assessment of the customer's ML/TF risk if there are unusual transactions and behaviours that may give rise to a SMR obligation as part of ongoing CDD under new subparagraph 30(2)(b)(ii)

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applying enhanced CDD measures if a SMR obligation arises about a customer and the reporting entity proposes to continue to provide a designated service or services to the customer under new section 32, and

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undertaking initial CDD for a pre-commencement customer if a SMR obligation arises about the customer pursuant to new subsection 36(4).

428. Item 7 inserts new paragraph 41(3)(aa) of the AML/CTF Act, which provides that a reporting entity must provide an LPP form to the AUSTRAC CEO at the same time as providing a SMR under subsection 41(3).

429. Item 8 inserts a note in subsections 41(3) of the AML/CTF Act referring to new sections 242 and 242A of the AML/CTF Act, inserted by Item 30 of this Schedule. New subsection 242(1) preserves the right for a person to refuse to give information or produce documents that are subject to legal professional privilege.

Items 9 and 10

430. Item 9 inserts new paragraph 43(3)(aa) of the AML/CTF Act, which provides that if a reporting entity reasonably believes information required to be contained in a threshold transaction report under section 43 of the AML/CTF Act is subject to legal professional privilege, they must provide an LPP form to the AUSTRAC CEO in relation to the privileged information at the same time as providing a threshold transaction report under subsection 43(3).

431. Item 10 inserts a note into subsection 43(3) of the AML/CTF Act referring to new sections 242 and 242A of the AML/CTF Act. New subsection 242(1), inserted by Item 30 of this Schedule, preserves the right for a person to refuse to give information or produce documents that are subject to legal professional privilege.

Items 11 to 14

432. Items 11 to 14 insert an obligation to provide an LPP form where information specified in a notice to produce under sections 49 or new section 49B (inserted by Schedule 9 of this Bill) is withheld from the issuer of the notice, or from the report, on the grounds that the recipient reasonably believes the information is subject to legal professional privilege (in accordance with the right to refuse to give privileged information in new subsection 242(1) to be inserted by Item 30 of this Schedule).

433. New subsection 49(3) provides that a person may be subject to a civil penalty in accordance with Division 2 of Part 15 of the AML/CTF Act if they do not comply with a notice requirement under section 49(2), or if they do not comply with the obligation to provide an LPP form under new subsection 49(4) when information is withheld on the basis that the notice recipient reasonably believes the specified information is subject to legal professional privilege.

434. The maximum civil penalty under the AML/CTF Act is set at the highest amount allowed, which is 100,000 penalty units for a corporation and 20,000 penalty units for individuals. While the penalties can be substantial, AML/CTF enforcement actions can involve serious systemic failures by a reporting entity where the number of contraventions is immeasurable. The amount of any civil penalty will be determined by the court. Courts will decide the appropriate penalty (subject to the statutory maximum) based on the circumstances of a contravention. In determining the appropriate amount for a civil penalty, the courts will consider the impact of these violations on the Australian community, the financial system, and law enforcement efforts.

435. Item 11 inserts new subsection 49(4) in the AML/CTF Act that provides that a person receiving a notice under subsection 49(1) must provide an LPP form to the AUSTRAC CEO if withholding information specified to be given in a response to the notice on the basis that the person reasonably believes the information is subject to legal professional privilege. The LPP form would be given in substitution of providing the privileged information.

436. Item 12 inserts new paragraph 49B(5)(aa) that requires a notice to set out the effect of new subsection 49B(6A) (which is inserted by Item 13 below). Requiring the notice to set out the effects of this section makes it clear to the person receiving the notice what their obligations are in providing information or documents to the AUSTRAC CEO, that is, that they must provide an LPP form in certain circumstances.

437. Item 13 inserts a new paragraph 49B(6A), which provides that a person receiving a notice under section 49B must provide an LPP form to the AUSTRAC CEO if withholding information specified to be given in a response to the notice on the basis that the person reasonably believes the information is subject the legal professional privilege. The LPP form would be given in substitution of providing the privileged information.

438. Item 13 also inserts a new note at the end of section 49B referring to new sections 242 and 242A of the AML/CTF Act. New subsection 242(1), inserted by Item 30 of this Schedule, preserves the right for a person to refuse to give information or produce documents that are subject to legal professional privilege.

439. Item 14 inserts a new subsection 49B(7), which provides that a person may be subject to a civil penalty in accordance with Division 2 of Part 15 of the AML/CTF Act if they do not comply with a notice requirement under subsection 49B(6), or if they do not comply with the obligation to provide an LPP form under subsection 49B(6A) when information is withheld on the basis that the notice recipient reasonably believes the specified information is subject to legal professional privilege.

Item 15 – After paragraph 50(6)(a)

440. Item 15 inserts a new paragraph 50(6)(aa), which provides that a reporting entity must provide an LPP form to the AUSTRAC CEO or Commissioner of Taxation (as applicable) in relation to any legally privileged information withheld from a report under section 50 at the same time as providing a report under subsection 50(4) or 50(5). The LPP form would be given in substitution of providing the privileged information.

Item 16 – Subsection 50(6) (note)

441. Item 16 clarifies the existing note in section 50 of the AML/CTF Act is note 1.

Item 17 – At the end of subsection 50(6)

442. Item 17 inserts a new note 2 at the end of section 50 of the AML/CTF Act referring to new sections 242 and 242A of the AML/CTF Act. New subsection 242(1), inserted by Item 30 of this Schedule, preserves the right for a person to refuse to give information or produce documents that are subject to legal professional privilege.

Items 18 and 19

443. Items 18 and 19 insert new subsections 75N(3) and 76Q(3) in the AML/CTF Act that provide that, where a person reasonably believes that the information requested under sections 75N or 76Q is subject to legal professional privilege, the person has an obligation to provide an LPP form to the AUSTRAC CEO in relation to any information withheld from the response to the request. The LPP form would be given in substitution of providing the privileged information.

444. New subsections 75N(4) and 76Q(4) clarify that a person may be subject to a civil penalty in accordance with Division 2 of Part 15 of the AML/CTF Act if they do not comply with the obligation to provide an LPP form under subsections 75N(3) or 76Q(3).

445. These penalties are outlined in Division 2 of Part 15 of the AML/CTF Act. The maximum civil penalty under the AML/CTF Act is set at the highest amount allowed, which is 100,000 penalty units for a corporation and 20,000 penalty units for individuals. While the penalties can be substantial, AML/CTF enforcement actions can involve serious systemic failures by a reporting entity where the number of contraventions is immeasurable. The amount of any civil penalty will be determined by the court. Courts will decide the appropriate penalty (subject to the statutory maximum) based on the circumstances of a contravention. In determining the appropriate amount for a civil penalty, the courts will consider the impact of these violations on the Australian community, the financial system, and law enforcement efforts.

446. This Item also inserts a new note at the end of sections 75N and 76Q referring to new sections 242 and 242A of the AML/CTF Act. New subsection 242(1), inserted by Item 30 of this Schedule, preserves the right for a person to refuse to give information or produce documents that are subject to legal professional privilege.

Items 20 to 22

447. Items 20 to 22 make amendments to section 167 of the AML/CTF Act relating to the obtaining of information or a document by an authorised officer.

448. Item 20 inserts 'etc.' at the end of the heading of subsection 167(4) of the AML/CTF Act to connote that subsection 167(4) is being amended to reflect legal professional privilege in addition to the requirement to set out the effect of offence provisions in the notice.

449. Item 21 inserts new paragraphs 167(4)(aa) and (ab) that require a notice to set out the effect of new subsections 167(5) and (6) (which are inserted by Item 22 below). Requiring the notice to set out the effects of this section makes it clear to the person receiving the notice what their obligations are in providing information or documents to the AUSTRAC CEO, that is, that they must provide an LPP form in certain circumstances.

450. Item 22 inserts new subsection 167(5) in the AML/CTF Act that provides that where a person reasonably believes that the information, document or copy required to be given pursuant to a notice under subsection 167(2) is subject to legal professional privilege, the person has an obligation to provide an LPP form to the AUSTRAC CEO in relation to the information, document or copy withheld from the authorised officer, within the period specified in the notice. The LPP form would be given in substitution of providing the privileged information.

451. New subsection 167(6) clarifies that a person may be subject to a civil penalty in accordance with Division 2 of Part 15 of the AML/CTF Act if they do not comply with the obligation to provide an LPP form under subsection 167(5).

452. Item 22 also inserts a new note at the end of section 167 referring to sections 242 and 242A of the AML/CTF Act. New subsection 242(1), inserted by Item 30 of this Schedule, preserves the right for a person to refuse to give information or produce documents that are subject to legal professional privilege.

Items 23 to 27

453. Items 23 to 27 insert new text in section 184 of the AML/CTF Act to the provide that new subsections 26Q(2A), 49(4), 49B(6A), 50(4), 50(5), 75N(3), 76Q(3), 167(5) and 202(5) of the AML/CTF Act are 'designated infringement notice provisions' for the purposes of the AML/CTF Act.

Items 28 and 29

454. Item 28 inserts a new subsection 202(5) in the AML/CTF Act that provides that, where a person given a notice under subsection 202(2) reasonably believes that the information or document specified in the notice to be given is subject to legal professional privilege and the person decides to withhold the information or document (in accordance with the right to refuse to give privileged information in new subsection 242(1), detailed at Item 19 of this Schedule, see below), the person has an obligation to provide an LPP form to the AUSTRAC CEO in relation to the information or document within the period specified in the notice. The LPP form would be given in substitution of providing the privileged information.

455. Item 28 also inserts a new subsection 202(6) that clarifies that a person may be subject to a civil penalty in accordance with Division 2 of Part 15 of the AML/CTF Act if they do not comply with the obligation to provide an LPP form under subsection 202(5). These penalties are outlined in Division 2 of Part 15 of the AML/CTF Act. The maximum civil penalty under the AML/CTF Act is set at the highest amount allowed, which is 100,000 penalty units for a corporation and 20,000 penalty units for individuals. While the penalties can be substantial, AML/CTF enforcement actions can involve serious systemic failures by a reporting entity where the number of contraventions is immeasurable. The amount of any civil penalty will be determined by the court. Courts will decide the appropriate penalty (subject to the statutory maximum) based on the circumstances of a contravention. In determining the appropriate amount for a civil penalty, the courts will consider the impact of these violations on the Australian community, the financial system, and law enforcement efforts.

456. Item 28 also inserts a new note at the end of section 202 referring to sections 242 and 242A of the AML/CTF Act. New subsection 242(1), inserted by Item 30 of this Schedule, preserves the right for a person to refuse to give information or produce documents that are subject to legal professional privilege.

457. Item 29 inserts new paragraph 203(ea) that requires a notice to set out the effect of new subsections 202(5) and 202(6). Requiring the notice to set out the effects of this section makes it clear to the person receiving the notice what their obligations are in providing information or documents to the AUSTRAC CEO, that is, that they must provide an LPP form in certain circumstances.

Item 30 – Section 242

458. Item 30 replaces existing section 242 of the AML/CTF Act with new sections 242 and 242A. Existing section 242 of the AML/CTF Act already provides that the AML/CTF Act does not affect the common law relating to legal professional privilege. However, the Bill provides stronger protections with regard to the disclosure of information or documents subject to legal professional privilege once services which are frequently provided by legal practitioners become regulated as provided for in this Bill. This approach also response to stakeholder feedback.

459. New section 242 establishes a general framework for the protection of legal professional privilege across the AML/CTF Act. A person may choose not to rely on the right to refuse to disclose information or documents that is subject to legal professional privilege and will still receive protections offered by the AML/CTF Act, such as if a reporting entity determines it may advantage its virtual asset service provider (VASP) registration application if privileged information is disclosed, or if a privilege holder consents to privileged information being included in a SMR. Protections under the AML/CTF Act include, for example:

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sections 51 and 172 which provides that a person will not be regarded as being in possession of information for the purposes of Division 400 (money laundering offences) and Chapter 5 (Security of the Commonwealth) of the Criminal Code, or

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section 235 which provides reporting entities and persons acting on their behalf, protection in any action, suit or proceedings (whether criminal or civil) in relation to anything done, or omitted to be done in good faith by reporting entities or people acting on their behalf in fulfillment of a requirement or purported requirement under the AML/CTF Act.

460. New section 242A provides an ability for the Minister administering the AML/CTF Act to make guidelines about the making or dealing with claims or assertions of legal professional privilege in relation to information or documents to be given under or for the purposes of the AML/CTF Act. Any guidelines issued under section 242A are to be made by notifiable instrument.

461. It is intended that the guidelines on legal professional privilege would recommend an approach which will best assist AUSTRAC in deciding whether to accept, review or challenge a legal professional privilege claim, processes to be undertaken relating to privilege when warrants are executed, and dispute resolution processes to review or challenge claims of privilege. The guidelines will contain information relevant to legal practitioners and non-legal practitioners generally, and to all claims of privilege regardless of the business structure of the reporting entity. Noting that informal resolution of review or challenges of privilege is preferable to all parties involved, the guidelines will emphasise alternative dispute pathways, with the option of progressing disputes to court to be an avenue of last resort.