Risky business - Why some organisations are tranche 2 entities and others aren't

With the AML/CTF regime coming into effect for tranche 2 entities in mid-July next year, it's worth exploring why these businesses pose a risk serious enough to warrant regulation.

According to AUSTRAC (ML NRA), criminal organisations regularly exploit businesses to launder money. That is, making proceeds from criminal activity appear as coming from a legitimate source.

The businesses most at risk of being exploited in this manner are those that handle or facilitate large transactions, especially in cash: in addition to "tranche 1" entities such as casinos, banks and lenders, there's also real estate agents, lawyers, accountants and dealers in precious metals and stones - and these businesses have not previously been required to have stringent AML/CTF measures in place, leaving them with easily exploitable gaps. Here's some insight into why different entities have been included under the broadened scope:

• Real estate agents These professionals facilitate the sale and purchase of property-valuable assets that are often used to hide the source of funds.

• Dealers in precious metals and stones Precious metals and stones have long served as methods for money laundering. They are easy to transport, highly valuable, and in some cases, can be bought or sold for cash.

• Lawyers and accountants Professional services deal with complex, high-value financial transactions, in many cases with the protection of client confidentiality. They may be asked to set up shell companies or trusts, which can obscure illicit activities.

Broader benefits

Broadening the scope of AML/CTF rules to include more organisations will benefit Australia, Australians and the tranche 2 businesses themselves.

The Act reflects industry best practice, so compliance translates to a reduction in a business's overall vulnerability to fraud. The requirements can act as guides for protecting against, spotting, and minimising the impact of fraudulent activity.

Reporting is also a key requirement within the Act. With a greater number of businesses reporting to AUSTRAC, law enforcement and national security agencies have a more complete picture of the criminal activity in Australia. This financial intelligence is invaluable in detecting, investigating, and prosecuting criminal activity, as well as restraining and confiscating the proceeds of crime. This helps protect the integrity of the financial system as a whole and better safeguards everyday Australians against fraud.

Finally, by expanding the remit of the AML/CTF legislation, Australia is more aligned with international standards, enhancing the country's overall financial reputation and supporting foreign investment and economic growth.

Get ready for AML/CTF

The expansion of AML/CTF legislation's scope to include more businesses is a strategic and well-considered move to close regulatory gaps, respond to emerging risks, and enhance Australia's overall crime-prevention framework.

If you're running a tranche 2 entity, you need to get ready now.LAB's technology is the simplest way to meet your new AML/CTF obligations, minimising your effort with tested automation and processes - book a demonstration.