House of Representatives

Explanatory Memorandum

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

SCHEDULE 3 - REGULATING ADDITIONAL HIGH-RISK SERVICES

295. Parts 1, 2 and 3 of Schedule 3 of the Bill inserts new and amends the designated service tables in section 6 of the AML/CTF Act to extend the AML/CTF regime to certain, high-risk services provided by real estate professionals, dealers in precious metals and stones, and professional service providers. This closes regulatory gaps in Australia's AML/CTF regime that were initially flagged with the introduction of the AML/CTF Act in 2006.

296. Updates to the bullion table (table 2) at subsection 6(3) of the AML/CTF Act would be made by the Bill to reflect a broader category of dealers in precious metals, precious stones and precious products. New table 5 brings real estate services into the scope of the AML/CTF regime, and new table 6 introduces services provided by a range of professions and businesses, including accountants, legal practitioners, conveyancers, professional trustees and company secretariat services into section 6.

297. Tables 2, 5 and 6 at Items 2, 6 and 10 of this Schedule respectively set out designated services, which are the triggers for a person to become regulated under the regime. A reporting entity is a person who provides any designated service set out in section 6 of the AML/CTF Act, and has a geographical link to Australia. Key obligations under the AML/CTF regime apply when a person is a reporting entity.

298. The tables in section 6 of the AML/CTF Act also specify that the customer of a designated service is the person to whom the designated service is provided by the reporting entity. The definition of 'customer' in section 5 of the AML/CTF Act further clarifies that this term explicitly includes a prospective customer. The specification of the customer is relevant to the definition and operation of key concepts throughout the AML/CTF regime, such as CDD.

Part 1 – Real estate

Anti-Money Laundering and Counter-Terrorism Financing Act 2006

299. Part 1 of Schedule 3 of the Bill extends the AML/CTF regime to certain services provided by real estate professionals who conduct the buying and selling of real estate. This Part would improve the compliance of Australia's AML/CTF regime with FATF Recommendation 22(b), which requires AML/CTF obligations to apply to real estate professionals when they are involved in transactions for their client concerning the buying and selling of real estate.

Item 1 – Section 5

300. This Item inserts new definitions of 'land', 'land use entitlement' and 'real estate' in section 5 of the AML/CTF Act. These definitions are intended to accompany the inclusion of the new real estate designated services in table 5, and to clarify the kinds of real estate transactions that would be captured under the regime.

301. The term 'land' is defined for the purposes of the definition of 'real estate', which includes 'land', whether in Australia, a foreign country, or whether the land is subject to any 'subdivision arrangement'.

302. The term 'land use entitlement' is also defined for the purpose of the 'real estate' definition in item 1 and is further explained below in this item.

303. The definition of 'real estate' is intended to create a definition that will enable table 5 in section 6 of the AML/CTF Act to regulate the sale, purchase and transfer of ownership of 'real estate'. Consistent with the Encyclopaedic Australian Legal Dictionary general usage definition of 'real estate', the definition connotes land and buildings as a physical entity but does not seek to include intangible interests in land. The definition of 'real estate' is intended to characterise the concept of ownership of land including long term leases akin to land ownership, and ownership in land that is the subject of various forms of subdivision of a fee simple interest, a leasehold interest or a land use entitlement (arising from the ownership of shares for instance) in land that is the subject of these subdivision arrangements.

304. The definition of 'real estate' includes leasehold interests of 20 years or more not including options for further terms. This minimum term of 20 years would exclude ordinary commercial leases from regulation under the AML/CTF regime, while also ensuring that regulation applies consistently across the AML/CTF Act, for example, where land rights are granted as leasehold interests or estates in place of fee simple estates (such as in the Australian Capital Territory).

305. The definition of 'real estate' also includes 'land use entitlements'. This reflects that the nature of the rights giving rise to ownership like entitlement are not leasehold or fee simple rights, rather they may be based on exclusive rights to use the relevant property. 'Land use entitlement' is defined to refer to an entitlement to occupy land conferred through an ownership of shares in a company or units in a unit trust scheme, or a combination of a shareholding or ownership of units together with a lease or licence. However, the company constitution may as an incident of that shareholding confer on shareholders occupation rights in property owned or leased by the company. This could be by lease or licence embedded in the terms of the company's constitution or referenced in them (with separate lease or licence agreements then entered into between the land holding company and the relevant shareholder).

306. Terms included in the definition of 'real estate' such as 'leasehold' and 'fee simple' are intended to take their ordinary meaning. Specifically, the definition is not intended to capture the following:

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incorporeal hereditaments (for example easements, profits à prendre and rent charges)

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registered or unregistered interests in land that do not reflect ownership, such as mortgages, easements, covenants or caveats

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native title, or

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dwellings (such as mobile and modular homes) not attached to land that are sold as chattels, where the land the dwelling is located on is leased in caravan parks and retirement villages (that is, the resident owns the dwelling but leases the land).

307. Paragraph (h) of the definition of 'real estate' creates a regulation making power so that the definition can remain flexible in order to reflect any new interests or estates in land, or land use entitlements that may emerge in the future.

308. The term ''subdivision arrangement' is defined for the purpose of paragraph (b) of the definition of 'land'. Paragraph (a) of 'subdivision arrangements' covers arrangements (commonly referred to as 'strata title') that exist under a State or Territory law, which incorporate the following features:

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the title to land (leasehold or freehold) is subdivided into different portions of land each with their own separate legal title, or where particular units of a single building are attached to separate legal titles (or a combination of the two), and

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the common areas are owned or managed by a body corporate (such as an owner's corporation).

309. State and Territory laws have various names for these arrangements, such as 'strata title', 'community title', 'unit title', 'cluster title' or some other term that reflects the features above.

310. Paragraph (b) of the definition of 'subdivision arrangement' covers arrangements (commonly referred to as 'company title') involving an interest in land, whether leasehold or freehold, owned by a body corporate and for which a holder of shares in the body has or may be granted a right to occupy or use some or all of the land. The body corporate is typically a company registered under the Corporations Act.

311. Paragraph (c) of the definition of 'subdivision arrangement' covers collective property arrangements that are structured by trust. Under these arrangements:

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An interest in land, whether freehold or leasehold, is held on trust and the trustee is a body corporate.

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The holder of an interest in the trust has or may be granted a right to occupy or use part of the land, under the terms of the trust.

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There are at least two distinct parts of the land under the terms of that trust.

Item 2 – After subsection 6(5)

312. This Item inserts a new designated services table in section 6 of the AML/CTF Act. These services bring persons who operate businesses that buy or sell 'real estate' into the AML/CTF regime.

313. Item 1 of table 5 creates a new designated service of brokering a sale, purchase or transfer of real estate on behalf of a person in the course of carrying on a business. This designated service primarily relates to real estate agents and businesses that represent:

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a seller (vendor) to sell 'real estate' (for example, a typical seller's agent service), or

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a buyer to identify and purchase 'real estate' (for example, a buyer's agent service).

314. Under section 5 of the AML/CTF Act, a person who provides a designated service (to a customer) is a reporting entity. Under section 6 of the AML/CTF Act, a customer is a person to whom the designated service is provided. In most cases, the reporting entity will be a business (the real estate agency, for example) and not an employee of the business.

315. The effect of the customer being specified under the AML/CTF regime as both the seller or transferor, and the buyer or transferee, is that the reporting entity will be required to apply AML/CTF obligations, such as CDD and SMRs, to both parties to a transaction.

316. Table 5 is not intended to regulate services related to residential tenancy agreements, property management, and leasing of commercial real estate. It is also not intended to regulate auctioneer services, unless the auctioning services are being provided by the seller's agent alongside brokering the sale of the real estate.

317. Item 2 of table 5 creates a new designated service of selling or transferring 'real estate' in the course of carrying on a business selling real estate, where the sale or transfer is not brokered by an independent real estate agent. For example, this service would capture property developers and other businesses who sell house and land packages, apartments off the plan, and blocks of vacant land in new subdivisions. This includes where the property developer or other business sells the real estate with their own in-house real estate agents, sales, or marketing employees rather than engaging a real estate agency for this work.

318. Items 1 and 2 of table 5 include references to the 'transfer' of 'real estate'. This is to ensure that situations where ownership of real estate is transferred for no value or consideration are still within scope of the designated service. This is important for the AML/CTF regime as criminals will seek to exploit loopholes in regulation, which may include disguising real estate transactions by not attaching or involving a purchase/sale price as a means of obfuscating the true purchase/sale price of the real estate.

319. For clarity, incidental sales of real estate by a business and private sales of residential property are not intended to be captured under these designated services (for example, where a property owner negotiates and directly sells real estate to a buyer without engaging a real estate agent to assist with marketing, negotiation and open homes).

320. A seller in a seller's agent arrangement would commence to receive the designated service when an agency agreement to sell a property is signed. The buyer in a seller's agent arrangement would commence to receive a designated service when it is reasonably expected that the transaction will proceed, for example, when the buyer's offer has been accepted and the contract to buy or receive the real estate is signed.

321. Separately, a buyer in a buyer's agent arrangement would commence to receive the designated service when an agency agreement to source or identify a property is signed. The seller in a buyer's arrangement would commence to receive a designated service when they sign the contract to buy or transfer the real estate.

322. To reduce regulatory burden, and avoid duplication where there are multiple real estate professionals (for example, in a multi-listing agreement) and other reporting entities involved in a real estate transaction, the AML/CTF Act already provides a flexible CDD reliance framework. This is set out in sections 37A to 39 of the AML/CTF Act, in which one reporting entity may rely on CDD undertaken by another reporting entity in appropriate circumstances. New reporting entities, such as real estate agencies or conveyancers may rely upon CDD carried out by another reporting entity or foreign entity (for example, a solicitor of a seller or the bank of a buyer) on a case-by-case basis, or under an ongoing arrangement, provided that the third party is either:

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a reporting entity for the purposes of the AML/CTF Act that is based in Australia, and has measures in place to comply with CDD and record keeping requirements, or

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a foreign entity regulated by one or more laws of a foreign country that give effect to the FATF Recommendations relating to CDD and record keeping and has measures in place to comply with obligations under those laws.

Part 2—Dealers in precious metals and stones

Anti-Money Laundering and Counter-Terrorism Financing Act 2006

323. Part 2 of Schedule 3 of the Bill extends the AML/CTF regime to regulate certain high-risk services provided by dealers in precious metals and precious stones, in line with FATF Recommendations 22(c) and 23(b). The FATF requires AML/CTF obligations be applied to dealers in precious metals and dealers in precious stones when they engage in any physical currency transaction with a customer equal to or above the applicable designated threshold.

324. The designated service for dealers in precious metals and precious stones is intended to regulate a business when it:

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sells or purchases precious metals or precious stones in the course of carrying on a business, and

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where the buyer or seller (the customer of the designated services) makes payment or receives payment in physical currency, virtual assets or a combination of physical currency and virtual assets of $10,000 or more.

325. The $10,000 threshold is consistent with the existing obligation under the AML/CTF Act for reporting entities to report to AUSTRAC if there is a transaction involving physical currency of $10,000 or more. The coverage of both physical currency and virtual assets recognises the possibility of displacement of money laundering, terrorism financing and proliferation financing risks from physical currency transactions to virtual asset transactions should only the former be regulated.

Item 3 – Section 5 (definition of bullion )

326. This Item replaces the existing definition of 'bullion' in section 5 of the AML/CTF Act with a detailed description for the purposes of the AML/CTF Act. This amendment is intended to ensure clarity between the new and existing designated services.

327. Bullion is a subset of 'precious metal', which is important to distinguish because of the different threshold that applies to the amended designated service involving bullion dealing. The definition of 'bullion' includes bullion bars and bullion coins which are valued according to the spot price (market price) of the contained precious metal, and used by individuals as investments or as a store of value.

328. The definition of 'bullion' does not extend to numismatic coins made of gold, silver, platinum or palladium, which are treated as a 'precious metal' under the AML/CTF Act and subject to a different threshold in table 2 of section 6 (see Item 5 of this Schedule below). However, coins traded at their bullion value will continue to fall within the amended designated service, regardless of whether they bear an explicit mark indicating fineness (for example, gold sovereigns and Krugerrands that are traded at their bullion value).

Item 4 – Section 5

329. Item 4 introduces the concepts of 'precious metal', 'precious product', and 'precious stone' into section 5 of the AML/CTF Act. The definitions for these terms are detailed below in Item 5 of this Schedule.

Item 5 – After section 5

330. Item 5 inserts a new section 5A in the AML/CTF Act that lists the substances, which are considered a 'precious metal' and a 'precious stone', and the items which are considered a 'precious product'.

331. Subsection 5A(1) provides a definition and list of types of substances that the AML/CTF Act determines are a 'precious metal', and includes gold, silver, platinum, iridium, osmium, palladium, rhodium, ruthenium or any substance with at least 2 per cent weight of any of the aforementioned substances.

332. Subsection 5A(2) provides that for the purposes of subsection 5A(1), it is immaterial whether the substance is in a manufactured or unmanufactured state.

333. Subsections 5A(3), 5A(4) and 5A(5) provide definitions of a 'precious stone' and a non-exhaustive list of types of substances that the AML/CTF Act determines are 'precious stones'. Additional substances that fall within the definition are corundum (including rubies and sapphires), chrysoberyl, crystallin and cryptocrystalline quartz, spinel, zircon, tourmaline, olivine peridot, tanzanite, nephrite jade, spodumene, feldspar, and lapis lazuli.

334. Both the 'precious metal' and 'precious stone' definitions at subsection 5A(1) and 5A(5) empower the AUSTRAC CEO to prescribe additional substances to be precious metals or precious stones in the AML/CTF Rules, to ensure that the AML/CTF regime can quickly respond should any additional substances reach similar market value and subsequent desirability to criminals in the future. This rule-making power will also improve the effectiveness of the AML/CTF regime by providing flexibility to respond to displacement, where criminals seek out unregulated products when previously favoured products become regulated.

335. Under subsection 5A(6), 'precious product' includes jewellery, a watch, other object of personal adornment or article of 'goldsmiths' or silversmiths' wares' that is made up of, contains or has attached to it any precious metal, precious stone, or both. Jewellery is intended to take its ordinary meaning of an object of personal adornment, and includes watches. 'Goldsmiths' or silversmiths' wares' in subsection 5A(7) is intended to include such articles as ornaments, tableware, smokers' requisites and other articles of personal, household, office or religious use.

336. For illustrative purposes, the following objects would be considered to be 'precious products' under the AML/CTF Act:

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a ring crafted from gold and pearl

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a stainless-steel watch with diamonds set on the watch face

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cufflinks made of gold and tsavorite

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a headdress made of platinum and garnet

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a gold or diamond grill (dental jewellery)

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a gold refillable lighter

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a brass and ruby belt buckle

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a platinum paperweight

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an enamel pill box set with diamonds, or

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a money clip made of silver.

Item 6 – Subsection 6(3)

337. Item 6 repeals the existing table 2 in subsection 6(3) of the AML/CTF Act (related to bullion designated services) and replaces this with a new table that co-locates all designated services related to precious metals and precious stones, whether in the form of bullion, raw product, jewellery or other precious products.

338. Item 2 of table 2 creates a new designated service of buying or selling one or more 'precious metals', 'precious stones' or 'precious products' in the course of a business, where the customer pays or the seller accepts $10,000 or more in physical currency (or the equivalent in virtual assets). This includes (but is not limited to) where the buyer or seller is:

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a jewellery retailer

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a watch dealer

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a scrap metal dealer

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a jewellery manufacturer

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a precious stone cutter or polisher

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a precious stone miner

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a precious stone wholesaler

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a pawnbroker or antique or used goods dealer/retailer

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a second-hand jewellery dealer

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a precious stone manufacturer

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an intermediary or broker, and

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a precious metal refiner.

339. For example, where a precious metals dealer sells precious metal to a buyer for $10,000 or more in physical currency or virtual assets, the precious metal dealer would be conducting a designated service and must comply with AML/CTF obligations. In a scenario where that same precious metal dealer buys precious metal from a seller (whether a supplier in the ordinary commercial sense, or where a person enters the dealer's store to sell precious metals) for $10,000 or more in physical currency or virtual assets, the seller is the customer of the designated service and the precious metal dealer must apply AML/CTF obligations to that person who is selling the precious metal.

340. For the avoidance of doubt, item 2 of table 2 is intended to include a purchase made in either a single transaction or in several transactions that are linked, or appear to be linked. A single transaction also includes staggered cash payments or payments over time in instalments, including situations such as 'lay-by' and structured payments (splitting payments up into multiple transactions).

341. Item 2 of table 2 will not regulate transactions below the $10,000 threshold where payment is made in physical currency or virtual assets, or above the $10,000 threshold where payment is made by any means other than physical currency or virtual assets, such as payments by debit card or credit card, BPAY or PayPal.

342. Businesses may decide to not accept physical currency or virtual asset payments over the $10,000 threshold and remain outside the scope of item 2 of table 2. However, when Part 2 of this Schedule commences, businesses will need to make a clear decision as to whether they will accept these types of payments and ensure employees adhere to this business rule. Accepting a payment over the threshold, even once, would mean the business meets the definition of a 'reporting entity' for the purposes of the AML/CTF Act. Therefore, the business must already have undertaken a risk assessment and developed AML/CTF policies as part of their AML/CTF program, and comply with other AML/CTF obligations, before providing that designated service.

Part 3—Professional Services

Anti-Money Laundering and Counter-Terrorism Financing Act 2006

343. Expansion of Australia's AML/CTF regime to certain services provided by professional service providers (and other tranche two entities) is required to meet FATF Recommendations 22(d) and 22(e). Services provided by these sectors are recognised globally as high-risk for money laundering exploitation. Criminal groups are constantly finding new ways to obfuscate the origins of their illicit funds and exploit weaknesses in global financial systems, and expansion of the AML/CTF regime to these services will mitigate money laundering, terrorism financing and proliferation financing risks in these services.

Item 7 – Section 5 (definition of exempt legal practitioner service )

344. Item 7 repeals the definition of 'exempt legal practitioner service' in section 5 of the AML/CTF Act. As a consequence, the concept of 'exempt legal practitioner service' is removed from items 46 and 47 of table 1 in section 6 (as seen in Item 9 of this Schedule). The exemption that previously applied to legal practitioners is no longer required, as legal practitioners carrying out these designated services are now intended to be regulated entities under the AML/CTF Act.

Item 8 – Section 5

345. Item 8 inserts definitions for the new concepts of an 'express trust', a 'legal arrangement', and a 'nominee shareholder' in section 5 of the AML/CTF Act.

346. 'Express trust' is defined to be a trust expressly and intentionally created in writing by a settlor, for example a written deed of trust. This is to be contrasted with trusts, which come into being through the operation of the law, or which do not result from the clear intent or decision of a settlor to create a trust or similar legal arrangements (for example, constructive trusts). 'Testamentary trust' is explicitly excluded from this definition and is intended to have its ordinary meaning. The definition of 'express trust' has been provided in the AML/CTF Act to ensure that the new designated services inserted by Item 10 of this Schedule are appropriately refined, and do not regulate all instances where a trustee-beneficiary relationship is created.

347. 'Legal arrangement' is defined to be an express trust, a partnership, a joint venture, an unincorporated association or an arrangement including a foreign arrangement such as a fiducie, treuhand or fideicomiso, similar to any of the other referenced arrangements. The similarity of arrangements to express trusts is to be assessed with regard to Article 2 of the Hague Convention on the Law Applicable to Trusts and on their Recognition (implemented by the Trusts (Hague Convention) Act 1991) on the law applicable to trusts and their recognition on the basis of whether legal arrangements have a similar structure or perform a similar function to an express trust.

348. 'Nominee shareholder' is defined to be a person who, in relation to a body corporate or 'legal arrangement', holds shares in the body corporate or 'legal arrangement' on behalf of another person (the nominator), and exercises voting rights associated with the shares according to the instructions of the nominator, or receives dividends on behalf of the nominator, or both. This term is introduced to the AML/CTF Act to support the operation of item 8 of table 6, which relates to acting as, or arranging for another person to act as, a 'nominee shareholder' of a body corporate or 'legal arrangement'.

Item 9 – Subsection 6(2) (cell at table item 46, column headed "Provision of a designated service")

349. Item 9 is a consequential amendment to Item 7 of this Schedule. This Item removes the concept of 'exempt legal practitioner service' from item 46 of table 1, per the justification at Item 7 of this Schedule.

Item 10 – Before subsection 6(6)

350. Item 10 inserts a new table of professional services that are designated services under the AML/CTF Act before subsection 6(6) of the AML/CTF Act.

351. The effect of new table 6 is to extend the AML/CTF regime to regulate certain services provided by professional service providers, in line with FATF Recommendations 22 and 23 which require 'designated non-financial businesses and professions' (including accountants, lawyers, notaries, trust and company service providers) to conduct AML/CTF obligations, such as CDD, SMRs and record-keeping requirements when they prepare for, or carry out, transactions for their client in relation to the following activities:

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buying and selling of real estate

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managing of client money, securities, or other assets

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management of bank, savings or securities accounts

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organisation of contributions for the creation, operation or management of companies

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creation, operation or management of legal persons or arrangements, and buying and selling of business entities

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acting as a formation agent of legal persons

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acting as (or arranging for another person to act as) a director or secretary of a company, a partner or a partnership, or similar position in relation to other legal persons

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providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement

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acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another form of legal arrangement, or

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acting as (or arranging for another person to act as) a nominee shareholder for another person.

352. In keeping with the existing approach of the AML/CTF Act, the new designated services in table 6 are intended to be competitively neutral and do not need to be provided by particular professions in order to qualify as designated services. Many professions and businesses, including legal practitioners, conveyancers, accountants, consultants, insolvency and restructuring practitioners, financial planners, wealth advisors, business brokers, company secretarial service providers, and trust and company service providers are involved in providing the designated services in the new table 6. Collectively this group are referred to as professional service providers for the purposes of the AML/CTF regime.

353. Professional service providers provide a range of services to a wide range of clients which differ by their method of delivery, depth and duration of relationship. Because of the nature of these services, professional service providers may wittingly, or unwittingly, serve as a 'gateway' used by criminals to gain access to the traditional financial institutions whose services are required in order to facilitate money laundering and terrorism financing. Professional service providers are uniquely placed to identify suspicious activity, and the contribution of each professional service provider capturing unique and distinct elements of a transaction or service is critical to the operation of an effective AML/CTF regime.

354. Professional service providers can also be exploited by organised criminal groups to facilitate the commission of serious offences, and to disguise the benefits of their offending. Law enforcement has also observed these services being unwitting facilitators, or reckless as to the risk of money laundering or concealing of illicit wealth. In these cases, specialised skills and proficiencies have been exploited for the benefit of criminal entities. This not only aids criminal enterprises, but increases the vulnerability of professional service providers to infiltration by serious and organised crime, and risks eroding public trust in these sectors.

355. Organised crime groups are known to exploit the services provided by professional service providers in order to:

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obscure ultimate ownership or effective control of criminal assets or entities through complex layering and the establishment of complex business corporate and trust structures (including off-shore structures)

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evade regulatory controls, including the AML/CTF regime

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provide a veneer of legitimacy to criminal activity

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avoid detection and confiscation of criminal assets, or

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deliberately hinder law enforcement investigations and proceedings.

356. Under section 5 of the AML/CTF Act, a person who provides a designated service (to a customer) is a reporting entity. Under section 6 of the AML/CTF Act, a customer is a person to whom the designated service is provided. In most cases, the reporting entity will be a business (for example, the conveyancing, accounting or law firm) and not an employee of the business.

357. Designated services in section 6 of the AML/CTF Act apply to the underlying activity described, no matter the profession or branding of the business that provide them. For example, a tax agent may become a reporting entity under the AML/CTF regime if they provide any of the listed designated services, but would only have to comply with AML/CTF obligations for the designated services provided.

Item 1 of table 6

358. Item 1 of table 6 creates a new designated service of assisting a person in the planning or execution of a transaction, or otherwise acting for a person for or on behalf of a person in a transaction to:

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sell 'real estate'

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buy 'real estate', or

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transfer 'real estate' (other than a transfer pursuant to, or resulting from, an order of a court or tribunal)

in the course of carrying on a business.

359. Item 1 of table 6 is intended to regulate where a professional service provider is engaged to assist a person to plan or execute a transaction, or otherwise act for a person in a transaction to sell buy or transfer 'real estate'. Part 1 of this Schedule inserts a definition of 'real estate' in section 5 of the AML/CTF Act. This designated service will occur when a lawyer or conveyancer undertakes work required to give effect to the transfer of ownership of 'real estate' from one person to another. There is an exception to the designated service for transfers of 'real estate' which are pursuant to, or resulting from, an order of a court or tribunal. This has the effect of excluding, for example, the regulation of:

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estate lawyers' involvement in a transfer of 'real estate' from a deceased estate following court ordered grant of probate or letters of administration

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family lawyers' involvement in transfers of 'real estate' from a married or de facto couple to one of the former partners in a property settlement following separation when ordered by a court, including the drafting of consent orders, or

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a trustee in bankruptcy appointed by a court or the Australian Financial Security Authority, or a registered liquidator appointed by a court to transfer a 'real estate' to a creditor.

360. Item 1 of table 6 also regulates the 'planning steps' that are required in anticipation of a transfer or proposed transfer in ownership of 'real estate'. This is important as red flag indicators of suspicious activity may arise during the execution of these planning steps. The designated service will be triggered by activities a professional service provider (such as a conveyancer) carries out for a customer, including but not limited to:

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preparing, reviewing or lodging the contract of sale and transfer of land instrument

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researching property titles, strata documents, or land use specifications

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coordinating with financial institutions regarding payments and discharge of mortgage for the 'real estate' transfer

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holding funds on behalf of a buyer and disbursing trust funds at settlement, or organising for release of deposit to the seller (this will also trigger item 3 of table 6)

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preparing for financial settlement, or

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preparing documents to be provided to a registry authority for transfer of 'real estate' on behalf of a client.

361. The requirement for an activity to be related to a transaction to sell, buy or transfer 'real estate' in item 1 of table 6 means that where activities listed above can, and are being, carried out for another purpose, they will not trigger the designated service. For example, conducting land title searches unrelated to an actual transaction for sale, purchase or transfer of the real estate would not be captured under this designated service.

362. Items 1 and 2 of table 6 are different to the real estate designated services in Part 1 of Schedule 3. Part 1 extends the AML/CTF regime to certain services provided by real estate professionals who conduct the buying and selling of 'real estate'. Whereas, items 1 and 2 of table 6 regulate professional service providers who are engaged to assist a person to plan or execute a transaction, or otherwise acting for or on behalf of a person in a transaction to buy/sell/transfer real estate, a body corporate or legal arrangement. A key distinction is that items 1 and 2 of table 6 also regulate the 'planning steps' of a transaction related to buying/selling/transferring of real estate, a body corporate or legal arrangement.

Item 2 of table 6

363. Item 2 of table 6 creates a designated service of assisting a person in the planning or execution of a transaction, or otherwise acting for or on behalf of a person in a transaction, to:

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sell a body corporate or 'legal arrangement', or

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buy a body corporate or 'legal arrangement', or

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transfer a body corporate or 'legal arrangement' (other than a transfer pursuant to, or resulting from, an order of a court or tribunal).

in the course of carrying on a business, where the person is or will be a beneficial owner.

364. Item 2 of table 6 regulates a professional service provider when they provide services to assist a customer to buy, sell or transfer a business, regardless of the business' legal structure. This includes where a professional service provider is engaged to assist a person to plan or execute a transaction, or otherwise act for a person in a transaction to sell, buy or transfer a business entity or structure that can hold assets, no matter whether it is a body corporate or a legal arrangement, and whether transferred for value or not.

365. There is an exception to the designated service in item 2 of table 6 where the transfer of the body corporate or 'legal arrangement' is pursuant to, or resulting from, an order of a court or tribunal, providing the same effect arises as in the examples listed above in relation to estate lawyers, family lawyers and insolvency practitioners.

366. Item 2 of table 6 only applies where the seller holds ownership rights in line with the definition of 'beneficial owner' in section 5 prior to the transfer, or the ownership rights that a buyer holds following a transfer, exceed the 25 per cent or more threshold required to be considered a 'beneficial owner'. Sales of shares and minor interests (less than 25 per cent) would not trigger this designated service. For example, a professional service provider assisting a client to buy shares or investments of less than 25 per cent would not be considered a designated service, however, buying a beneficial ownership stake in a business would be captured.

367. Item 2 of table 6 includes planning steps that are required in anticipation of a transaction or proposed transaction. The designated service will be triggered by activities a professional service provider provides for a customer, including but not limited to:

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acting for a customer for a purchase, sale or transfer of ownership of a body corporate or 'legal arrangement'

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preparing or reviewing contracts for sale, purchase or transfer of a body corporate or 'legal arrangement'

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conducting or advising on due diligence, valuation of assets and liabilities in anticipation for a sale, purchase or transfer

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obtaining Foreign Investment Review Board approvals, and Australian Securities Exchange (ASX) and ASIC waivers for clients

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conducting due diligence on accounts and finances for corporate financial transactions prior to a transaction

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preparing for financial settlement, and

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preparing documents to be provided to an authority (such as ASIC) for transfer of a body corporate on behalf of a client.

Item 3 of table 6

368. Item 3 of table 6 creates a new designated service of receiving, holding and controlling (including disbursing) or managing a person's money, accounts, securities or securities accounts, virtual assets, or other property as part of assisting the person in the planning or execution of a transaction, or otherwise acting for or on behalf of a person in a transaction, in the course of carrying on a business.

369. Item 3 of table 6 will regulate a professional service provider who handles a person's property (being money, accounts, securities or securities accounts, virtual assets, or other property) whilst acting for or assisting that person in a transaction. There are two determining factors for whether an activity is covered by this designated service. The first is whether the professional service provider is providing the person with services that are associated with a transaction, whether planning, executing or otherwise acting on behalf of the person. The second is whether the professional service provider's interaction with a person's property has an active element (that is, controlling, disbursing or managing). The types of activities intended to be covered under this designated service include where a professional service provider:

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holds sale proceeds or purchase funds for a customer on escrow (which legal practitioners may know as 'transit money')

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money or property is held by a professional service provider prior to being settled as trust property on the creation of an express trust, or

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has authority over a customer's bank account and makes payments from that account on behalf of a customer, for example, to make loan repayments to a financial institution.

370. Exemptions to item 3 of table 6 are set out in new subsection 6(5C) of the AML/CTF Act. These exemptions include where the money and property listed in paragraphs (a)–(e) of the designated service:

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is held or managed for payment by the person for provision of goods or services by the business (for example, a person making a deposit or pre-payment for fees charged by an accountant to prepare and lodge an annual tax return)

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is held or managed for the purpose of payments or receipts payable for the use, maintenance, repair, improvement or oversight of property, or received for the advertising of, or negotiating the use of property (for example, where a real estate agent manages a rental property, or where a car fleet service receives payments for use of vehicles and makes payments for maintenance of the vehicle)

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being held or managed is to be received or payable under an order of a court or tribunal (for example, where a solicitor uses their trust account to receive a judgment sum from the opposing party to litigation, and then sends on the judgment sum to their client's bank account), or

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the receipt or disbursement of a payment mentioned in subsection 6(5D), which is a payment to or from any of the following:

o

an Australian or foreign government body (for example, Launceston City Council, the Australian Taxation Office (ATO), or the United States Patent and Trademark Office)

o

a court or tribunal of the Commonwealth, a State or a Territory or a foreign country (for example, the Federal Circuit and Family Court, or Supreme Court of New Zealand)

o

a person who is licensed under a law of the Commonwealth, a State or a Territory to provide insurance, including self-insurance (for example, a personal injury legal practitioner receiving a payment from an insurer, such as Comcover or AAI Limited, to then pay to their client)

o

a person who carries on a business that relates solely to the services provided by the business referred to in item 3 of the table in subsection 6(5B), and the payment to the other person is reasonably incidental to the provision of a service that is not a designated service (for example, making payment to a barrister for representing a client in a legal proceeding, or payment to an expert witness consultant or supplier that is retained by a legal practitioner on behalf of a client in connection with legal services which are not designated services), or

o

a payment of a kind specified in the AML/CTF Rules.

371. The rule-making power will improve the effectiveness of the AML/CTF regime by providing flexibility through new subsections 6(5C) and 6(5D) to expand the scope of the respective exceptions in the AML/CTF Rules. This will allow the AUSTRAC CEO to make additional exemptions in exceptional circumstances and where the exemption provided reflects low money laundering and terrorism financing risk.

372. One of the key effects of the exceptions at new subsection 6(5C) is that businesses operating trust accounts will not be regulated under the AML/CTF regime purely for operating a trust account in the absence of any designated services. This exemption allows for legal practitioners to make payments for mediators, expert witnesses and court filing fees without becoming liable for regulation under the AML/CTF regime. Another key effect is that businesses will be free to facilitate transfers of money to and from licensed insurers, litigation opponents, government bodies (of all levels and jurisdictions, within Australia and otherwise) on behalf of their clients without triggering the designated service. These exemptions reflect the overall low-level of money laundering and terrorism financing risk associated with those payments.

Item 4 of table 6

373. Item 4 of table 6 creates a new designated service of assisting a person in organising, planning or executing a transaction, or otherwise acting for or on behalf of a person in a transaction, for equity or debt financing relating to a body corporate (or proposed body corporate), or a 'legal arrangement' (or proposed 'legal arrangement') in the course of carrying on a business.

374. Item 4 of table 6 is intended to capture when a professional service provider is engaged to assist a person to plan or execute a transaction, or otherwise act for a person in a transaction for equity or debt financing contributions for a body corporate, 'legal arrangement' or a proposed body corporate or proposed 'legal arrangement'. This includes work a professional service provider undertakes to assist clients with gaining capital contributions. For example, a professional service provider would be considered to be 'assisting' a client when they undertake activities such as structuring, negotiating and documenting these transactions. This may also include advising on compliance with the ASX Listing Rules and continuous disclosure obligations in relation to a transaction.

375. 'Equity or debt financing' in item 4 of table 6 is intended to refer to all capital and debt raising methods, including but not limited to:

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Equity capital raising, for example: initial public offerings, venture capital, share purchase plans, rights issues, and block trades.

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Debt financing, including the following whether secured or unsecured: bonds, bills or notes, asset financing, loans, including government loans, and debentures.

376. The customer of the designated service in item 4 of table 6 is the person providing instructions to the reporting entity to plan for, execute, or organise transactions for contributions for the creation, operation or management of body corporations or other legal arrangements.

Item 5 of table 6

377. Item 5 of table 6 creates a new designated service of selling or transferring a shelf company, in the course of carrying on a business. The customer of the designated service is the buyer or transferee of the shelf company. This is intended to regulate where a person creates and registers companies (with ASIC, for example), without a specific owner of the company in mind. Shelf company will take its ordinary meaning, being a company, which has a legal existence but which has not engaged in any business activity. Often, shelf companies are marketed as available for purchase by those who wish to avoid incorporating a new company themselves, or for a person who for various reasons, requires a company that has been in existence for some time.

378. Shelf companies pose a significant money laundering and terrorism financing risk and are recognised as being one of the most common type of legal arrangements used in schemes and structures designed to obscure the true ownership of assets.

379. Item 5 of table 6 is required as a standalone designated service to provide clarity on the regulation of 'shelf companies' under the AML/CTF regimes and to ensure there is no possible alternative interpretations. Item 2 of table 6 only captures where a professional service provider assists a customer in the planning or execution of a transaction, or is otherwise acting for or on behalf of a person to sell, buy or transfer a body corporate or legal arrangement, where the customer is or will be a beneficial owner of the body corporate or legal arrangement as a result of the transaction. Separately, item 6 of table 6 covers where a professional service provider assists a person to plan or execute or otherwise act for a customer to create or restructure a body corporate or legal arrangement. The key difference is that items 2 and 6 of table 6 do not apply if the professional service provider itself sells the body corporate, because the professional service provider would not be assisting with the transaction, they are directly transferring or selling the body corporate.

Item 6 of table 6

380. Item 6 of table 6 creates a new designated service of assisting a person to plan, execute or otherwise act for a person in the creation or restructuring of a body corporate or proposed body corporate (other than a corporation under the Corporations (Aboriginal and Torres Strait Islander) Act 2006), 'legal arrangement' or proposed 'legal arrangement' in the course of carrying on a business. This designated service regulates a professional service provider assisting with planning the creation or restructuring of a body corporate or 'legal arrangement'. It also regulates a professional service provider assisting a customer with the execution of the creation or restructuring of a body corporate or 'legal arrangement'.

381. Item 6 of table 6 includes planning steps that are required in anticipation of creating a body corporate or 'legal arrangement'. The designated service may be triggered by activities a professional service provider provides for a customer, including but not limited to:

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drafting, reviewing and negotiating corporate agreements and business documents, including company constitutions, partnership agreements, shareholders agreements, documents creating corporate trustees and insolvency agreements

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drafting and reviewing trust deeds and documents, such as preparing a deed for a family trust, a bare trust or other asset protection arrangements using legal structures

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drafting, reviewing and negotiating documents to support a customer's mergers and acquisitions, as well as proposed mergers and acquisitions

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registering applications and forms with ASIC for registering a company or a business name

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obtaining Foreign Investment Review Board approvals, and ASX and ASIC waivers for clients, or

•

conducting due diligence on accounts and finances for corporate financial transactions prior to a transaction.

382. Item 6 of table 6 does not regulate pure advisory work performed by professional service providers where there is no underlying transaction or proposed transaction involved.

383. The customer of the designated service in item 6 of table 6 depends on the nature of the service being undertaken. Where the service sought is the creation or restructuring of a body corporate, the customer is the person providing instructions to the reporting entity, and the beneficial owners and directors of the company. Where the service sought is the creation of an express trust, the customer is the person providing instructions to the reporting entity, plus the trustee, settlor and beneficiaries of the trust.

384. This is an exception to the designated service for testamentary trusts created by way of a will due to the low ML/TF risk such arrangements present, and to reduce the regulatory impact of the amendments.

Item 7 of table 6

385. Item 7 of table 6 creates a new designated service of acting as, or arranging for another person to act as, any of the following, on behalf of a person (the nominator), in the course of carrying on a business:

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a director or secretary of a company

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a power of attorney of a body corporate or 'legal arrangement'

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a partner in a partnership

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a trustee of an express trust, or

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a position in any other 'legal arrangement' that is functionally equivalent to a position mentioned in any of the above paragraphs, other than in the circumstances covered by subsection 6(5E).

386. Item 7 of table 6 is intended to regulate a professional service provider where they are engaged to act as, or arrange for another person to act as any of the positions listed in (a) to (e). The effect of this is that the designated service is triggered when a professional service provider:

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drafts documents to authorise or make appointments to the listed positions on behalf of a customer

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identifies or introduces a person to be authorised as or appointed to the listed positions on behalf of a customer, or

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acts as, or is appointed as any of the listed positions on behalf of a nominator/customer.

387. The limiting factor of item 7 of table 6 is the requirement for the professional service provider to 'act as' or arrange for another person to 'act as' director, company secretary, trustee and the other listed positions in item 6. In the context of a person 'acting as' the director of a body corporate on behalf of a customer, this means the customer retains control over the acting director's fulfilment of duties and responsibilities, and the acting director acts on the wishes and instructions of the customer. Examples include where a person is authorised to act, in common language, as an alternate director, a nominee director, a resident director on behalf of a shareholder, creditor or interest group. The designated service applies to scenarios where the reporting entity, an employee of the reporting entity, or where the reporting entity assists to identify and engage a person to act as director or any other listed position in the designated service. The customer of the designated service is the person who authorises or nominates the acting director or other position listed in the designated service.

388. Item 7 of table 6 is intended to be distinguished from genuine appointments of individuals to the role of director where the appointed individual is expected to fulfil duties and responsibilities with independent decision-making authority. This means that, for example, recruitment businesses that offer a service where they assist body corporates to identify and engage executive directors are not regulated.

389. In the context of a reporting entity acting as, or arranging for another person (including an employee of the reporting entity) to act as trustee of an express trust or acting as power of attorney for a company, item 7 of table 6 will be triggered by any appointment of this nature by a client, and where the reporting entity is providing the service in the course of carrying on a business. This means a solicitor or other individual who is a trustee of their own family trust will not fall within this designated service. The designated service also does not apply to power of attorney in respect of natural persons.

390. Paragraph (e) of item 7 of table 6 provides that a person is regulated under this designated service where they perform a role for a 'legal arrangement' that is functionally equivalent to a trust to a trustee, for example, a fiduciaire of a fiducie estate or a mutawalli (manager or superintendent) of a Waqf.

391. New subsection 6(5E) provides exceptions to this designated service. For example, this includes where a person is appointed as a registered liquidator over an insolvent body corporate, or where a trustee company or public trustee manages the financial affairs of a person with a decision-making disability. Paragraph 6(5E)(b) of the exception excludes the Official Trustee or other trustees appointed to act as a trustee of a regulated debtor's estate, within the meaning of Schedule 2 of the Bankruptcy Act 1966. This includes estates regulated under that Act, being bankrupt estates, estates of a debtor under a personal insolvency agreement, an estate of a person whose property is subject to control under Division 2 of Part VI of the Bankruptcy Act 1966.

Item 8 of table 6

392. Item 8 of table 6 creates a new designated service of acting as, or arranging to act as, a 'nominee shareholder' of a body corporate or 'legal arrangement', on behalf of a person (the nominator) in the course of carrying on a business. This intends to regulate a professional service provider where they are engaged to act as, or arrange for another person to act as, a 'nominee shareholder' of a body corporate or 'legal arrangement'. 'Nominee shareholder' is defined in Item 8 of Part 3 of this Schedule to mean where a person (the nominee shareholder) holds shares or an interest in the body corporate or 'legal arrangement' on behalf of another person (the nominator), and exercises voting rights associated with the shares according to the instructions of the nominator, or receives dividends on behalf of the nominator, or both.

393. Item 8 of table 6 includes where a professional service provider arranges for another person to act as 'nominee shareholder', the effect of this is that the designated service is triggered when a person:

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drafts or amends documents to authorise a 'nominee shareholder' on behalf of a nominator

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identifies or introduces a person to be act as 'nominee shareholder' on behalf of a nominator, or

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acts as 'nominee shareholder'. Item 9 of table 6

394. Item 9 of table 6 creates a new designated service of providing a registered office address or principal place of business address for a body corporate or 'legal arrangement', in the course of carrying on a business. This designated service intends to regulate a professional service provider where they provide a body corporate or 'legal arrangement' with a registered office address or principal place of business address for use in lieu of a genuine office address that the person operates their business from.

395. Registered office address in item 9 of table 6 takes its ordinary meaning, but in the Australian context the term should be understood to align with the Business Names Registration Act 2011, the Corporations Ac t, and equivalent State, Territory and foreign jurisdiction legislation.

396. Item 9 of table 6 regulates persons who provide addresses that customers may use and notify to ASIC in absence of a true office address, which a company may wish to conceal for privacy or commercial reasons, or if the company does not have a physical presence in Australia.

397. Item 9 of table 6 does not regulate businesses that lease or otherwise provide office accommodation that a business uses and occupies as its principal place of business addresses or other business premises addresses. The determining factor is whether the business is using and occupying the premises.

398. The customer of the designated service provided in item 9 of table 6 is the person that is being provided with the address.

Part 4—Transitional provisions

335. Part 4 of Schedule 3 of the Bill creates the application provisions for newly regulated entities. The effect of these provisions is that businesses that provide services prescribed as designated services covered by item 2 of table 2, or an item of table 5 or 6 of section 6 of the AML/CTF Act may enrol as reporting entities on AUSTRAC's Reporting Entity Roll from 31 March 2026, despite the regulatory obligations under Part 1A, 2, 3 and Divisions 2 to 6 of Part 10 not applying until 1 July 2026.

Item 11 – Delayed application of certain provisions of this Act

399. Subsection 11(1) defers the obligations contained in Parts 1A, 2, 3 and Divisions 2 to 6 of Part 10 of the AML/CTF Act for reporting entities who provide the new designated services set out under this Schedule until 1 July 2026.

400. Subsection 11(2) provides that the remaining provisions of the AML/CTF Act apply to a reporting entity on and after 31 March 2026. This is subject to any other provision in this Bill, including transitional rules made in accordance with the amendments in Schedule 12 of this Bill.

Item 12 – Application provision - timing of enrolment

401. Item 12 of this Schedule provides for the application of Section 51B of the AML/CTF Act to reporting entities. Section 51B of the AML/CTF Act is the requirement for reporting entities to enrol with AUSTRAC. Section 51B, by default, would require entities providing a designated service to enrol within 28 days of commencing to provide the designated service.

402. Subclauses 12(1) and 12(2) of Schedule 3 of the Bill provide that a reporting entity must enrol with AUSTRAC no later than 29 July 2026 if:

•

the reporting entity provides, or commences to provide, a new designated service under this Schedule at any time before 1 July 2026, and

•

the reporting entity does not, as at that time, provide, or commence to provide, any other designated services under the AML/CTF Act.