Additional Comments from Senator Paul Scarr

Introduction

1.1There is broad consensus in support of Australia having a robust system of anti-money laundering and counter-terrorism financial laws.Governments of both political persuasions have introduced laws and progressed enhancements of AML/CTF laws.

1.2With respect to the Coalition’s record the following is noted:

The modern AML/CTF legislative regime is a legacy of the Coalition Government under then Prime Minister the Hon. John Howard AC;

In 2002, the Coalition Government criminalised terrorist financing as part of the Criminal Code and moved money-laundering offences into the Criminal Code;

In 2006, the Coalition Government introduced and passed the AML/CTF Act which conferred upon AUSTRAC the far-reaching and significant powers that it has today;

Upon returning to office, the Coalition Government led Australia through its last mutual evaluation process and implemented the first suite of changes arising from that mutual evaluation process through amendments to the AML/CTF Act in 2017;

In 2020, the then Coalition Government made further amendments to the AML/CTF Act.

1.3Under the legislative regime introduced by the Coalition Government, massive pecuniary penalties have been imposed upon regulated entities that failed to meet their obligations.This has included civil penalties of hundreds of millions of dollars imposed upon: Westpac, Commonwealth Bank of Australia and Crown Melbourne/Crown Perth.

1.4This Bill proposes a range of significant reforms. As outlined in paragraphs 2.3 to 2.14 of the Committee Report, there is broad ranging ‘in principle’ support for the policy reflected in the Bill, including the extension of AML/CTF obligations to so-called Tranche 2 Entities (accountants, real estate agents and lawyers).However, there is a considerable concern with respect to cost, regulatory burden, and how reforms would interact with professional responsibilities.Inthat context, it is disappointing that (once again) the legislative process for consideration of such important legislation has been deficient.

Deficiencies in Legislative Process

1.5At the outset, I note that the comments I make in this regard are not intended to be a reflection on the Chair or other Government members on the Committee. In all the circumstances, including the inappropriately abbreviated timeline, the Committee has acted in a collegiate manner and has done its best to deal with the timeline imposed upon it (noting that the Senate was split 28 to 28 in relation to whether or not further time should be granted for the inquiry with a majority of the non-Greens members of the cross-bench voting with the Coalition for further time).

1.6Further, I note that inappropriately abbreviated timelines place a great workload upon the secretariat; especially when multiple Bills dealing with important matters are required to be dealt with contemporaneously (in this case, the Committee is required to report on the Privacy and Other Legislation Amendment Bill 2024 – another very significant bill - the day after this report is due).

1.7During this term of Parliament, on too many occasions, I have had to commence my comments on bill inquiry reports by noting the deficiency in the legislative process.This includes the inadequate time provided to those impacted by the proposed law to comment upon the Bill.On numerous occasions, I have referred to the concerns raised by the Law Council of Australia with respect to the inadequate time provided for it as the peak body representing the Australian legal profession to make submissions and engage in the process.[1]This goes to the heart of the function of the Senate as a House of Review. It is deeply unsatisfactory.

1.8I also note that other stakeholders have commented upon the lack of an exposure draft and the short timeframe in which to review the Bill and to provide comments.In this regard, I refer to the evidence from the ABA and COBA.

1.9Whilst there are circumstances where Bills are required to be introduced and passed as a matter of urgency (for reasons outside the control of the Executive), this Bill deals with matters which have been the subject of discussion for some time.Further, the reforms are of great importance.This is demonstrated by the impact analysis undertaken by the Attorney General’s Department which estimates the cost of the regulatory burden at a staggering $13.9 billion. One would have thought that such an imposition (based on the Government’s own analysis) would warrant a greater consultation period in relation to the Bill, not less.

1.10To quote the Law Council of Australia:

The Bill is lengthy and complex, substantially amending legislation which already fits this description. The Bill was presented without an exposure draft and with a limited timeframe in which to analyse its impact on affected persons. It contains proposals that were not foreshadowed in the May 2024 consultation papers, including the precise definitions of ‘Designated Services’ (which are the centrepiece of the Bill so far as legal practitioners are concerned) and the compulsory notice and examination powers (which are particularly problematic for legal practitioners and require further examination more generally). In the time available, it has not been possible to make a full assessment of the impact of the Bill. It is likely that matters will arise that have not been contemplated at this point. Nevertheless, the Law Council makes this Submission to facilitate ongoing constructive dialogue.[2]

1.11It is concerning that the Law Council of Australia has been moved to write such a strongly worded reservation.

1.12The following points made by the Law Council of Australia are particularly concerning:

The observation that the Bill contains matters which were not foreshadowed in the May 2024 consultation process, including the definition of Designated Services, and the compulsory notice and examination powers (I will say more about these powers subsequently in these Additional Comments);

In the time available, the Law Council of Australia advises it has not been possible to make a full assessment of the impact of the Bill; and

It is likely that matters will arise that will not have been contemplated at this point (this foreshadows the likelihood of unintended consequences that will necessitate further amendments to the legislation and cause uncertainty for those impacted by the Bill).

1.13If the Senate is to perform its function as a House of Review, there needs to be adequate time for those impacted by proposed legislation (and their representative bodies), to engage in the Senate committee process.It is disdainful of the Senate process to impose abbreviated timeframes which do not allow proper and meaningful engagement. This is to the detriment of the law-making process.It has become a systemic issue under the current Labor Government, somewhat ironically especially with respect to legislation falling within the purview of the Attorney General.

1.14It is recommended that the Senate note the inappropriateness of the abbreviated timeline for consideration of the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024; especially given:

(a)the importance of the legislation;

(b)the cost burden the Bill will impose upon those impacted (an estimated $13.9 billion);

(c)the failure of the Government to circulate an exposure draft of the Bill; and

(d)the inclusion in the Bill of matters which were not the subject of prior consultation, including the Schedule 9 powers.

Concerns with respect to the regulatory cost burden – an estimated $13.9 billion over ten years

Overview

1.15There is no commentary in the Committee Report in relation to the impact analysis undertaken by the Attorney-General’s Department with respect to the Bill.Nor is there detailed discussion with respect to the cost concerns raised by the stakeholders, including the Tranche 2 entities, who will be impacted by the Bill.

1.16In the Committee report, there is no discussion of the $13.9 billion in estimated regulatory costs.There is no discussion of the detail in the impact analysis released by the Attorney-General’s Department in August 2024.There is no discussion of the qualifications contained in that report regarding the cost estimation.There is no discussion of the estimates of costs provided by the Tranche 2 entities (legal professionals, real estate agents and accountants) submitted as part of this Committee inquiry process. This is a staggering omission.

1.17The concern is that this omission reflects a lack of appreciation on the part of the Government of the impact of the cost burden upon the private sector, including many small businesses.

Attorney-General Department’s Impact Analysis

1.18The Attorney-General’s Department undertook a detailed impact analysis of the Bill.In August 2024, it released the report: Reforming Australia’s anti-money laundering and counter-terrorism financing regime. Impact Analysis August 2024 (‘AGD Impact Analysis’).

1.19The AGD Impact Analysis considered four options.The Bill implements Option 4.This comprises both: (a) simplifying, clarifying and modernising the legislation; and (b) expanding the reporting obligation under the AML/CTF legislation to so-called Tranche 2 entities (including lawyers, accountants and real estate agents).

1.20The AGD Impact Analysis states:

Implementing Option 4 is expected to deliver the significant law enforcement benefits and reduction in community harm from the expansion of the regime to tranche two entities, with the additional benefit of improved compliance across regulated entities and tranche two entities due to the reform to simplify the regime.This is estimated to provide benefits of up to $2.4 billion over ten years.Option 4 will also be most effective in minimising the likelihood of grey-listing and any associated economic and reputational damage, which may be up to $10.7 billion over 10 years.Implementing Option 4 is estimated to result in an additional regulatory burden to businesses of $13.9 billion over 10 years, which is lower than Option 3.[3]

1.21It is noted that the benefits arising from avoiding grey listing, are estimated to be anywhere between $560 million and $10.72 billion.[4] This is a wildly fluctuating estimate which highlights the uncertainty involved in trying to assess the benefits of avoiding grey listing (if it were to occur which is itself uncertain).

1.22Hence, the net result of the impact analysis is a net cost of somewhere between $0.8 billion and $10.7 billion.If grey listing did not occur, the net cost increases to approximately $11.5 billion with the costs being borne predominately by the Tranche 2 entities (legal professionals, accountants and real estate agents) who would pass on as much of those costs as possible to the Australian public.

1.23However, even with this staggering estimate of costs to be borne by Tranche 2 entities, the AGD Impact Analysis is highly qualified. The costs could be more. The Attorney General’s Department does not know because the AML/CTF rules have not been finalised. The AGD Impact Analysis states:

The department notes that there are inherent limitations to the impact analysis, including:

Difficulty quantifying the value of money laundering globally and in Australia…estimates therefore reflect the best efforts and understanding of the Department;

A lack of evidence in the Australian context of the likely impact these reforms will have on the amount of money laundered per year;

The details of the reforms are not yet finalised as the AML/CTF Rules will build on the principles in the Act and provide further detail on how such obligations may be achieved. As such the operational impact of the reforms is difficult to quantify, particularly for tranche two entities who have no experience with the AML/CTF regime. Estimates of regulatory burden therefore reflect the best efforts and understanding of the affected stakeholders.[5]

1.24Many stakeholders making submissions to the inquiry raised their concern that the content of the AML/CTF Rules were uncertain and would have an impact on the regulatory burden, including costs.

Cost burden on an industry basis

1.25The cost burden per industry has been estimated in the AGD Impact Analysis.The estimates for each industry include the upfront implementation cost and then the cost of the ongoing regulatory burden over a period of ten years.

1.26The cost imposed on real estate firms ($5.892 billion), legal professionals ($2.883 billion) and accountants ($3.682 billion) represents approximately 89.6% of the total estimated cost.

1.27The table below has been copied from the AGD Impact Analysis. The figures are calculated on a net present value basis (expressed in today’s dollars).

Table 18 | Option 4 total upfront and ongoing regulatory burden to businesses, by industry ($m, NPV)[6]

Estimates of cost impact per firm, including the costs imposed on small business

1.28A deeply concerning observation of the regulatory cost imposed on Tranche 2 entities is the burden which will be imposed upon small business. The disproportionate impact on smaller businesses (those least able to absorb additional costs) is drawn out by the analysis of costs when compared to revenue/turnover.

1.29The Impact Analysis indicates that the average annual cost per business over a ten-year period for a business with a turnover between $200,000 and $2 million is $33,230 with an initial upfront cost of $28,650.[8]This is the average.If $33,230 were the annual cost for a business with a turnover of $1.1 million (the midpoint of the range), that would equate to approximately 3% of turnover.That is as a percentage of turnover, not profit.

1.30The impact on a small regional practice could be the difference between remaining in operation or closing. This is a serious issue which needs to be carefully considered by the Senate; especially given that there is no visibility with respect to the AML/CTF rules which will have a material impact on what the ultimate cost burden will be.

1.31Refer to the below table from the AGD Impact Analysis.

Table 19 | Option 4 average upfront and ongoing (annual) burden per tranche two business ($, real terms), by reform and turnover[9]

Cost impact on legal professionals

1.32The AGD Impact Analysis estimated that the upfront cost for the provision of legal services to comply with the new regime would be $429 million with ongoing costs of $2,454 million.Over a ten-year period, that total cost (calculated on a net present value basis) upon those providing legal services which are designated services is estimated to be $2.833 billion.[10]

1.33The AGD Impact Analysis estimates that the average upfront cost for a legal business will be $17,300.[11]The annual regulatory burden is estimated to be $22,100.[12]

1.34The Law Council of Australia in referring to its concerns with respect to the compliance costs; especially the costs imposed upon small legal practitioners, submitted:

The legal profession in Australia is overwhelmingly made up of sole practitioners (including barristers who must practise as sole traders) and very small firms (2–4 partners). Most are based in suburban, regional or remote areas. Legal practice is quintessentially small business

The Law Council is extremely concerned about the compliance cost burden that will be imposed by the Bill. The Government’s own estimates indicate compliance costs exceeding $1.85 billion per annum over the next 10 years. The proportion applicable to the legal profession is unknown, but it is likely to be significant, as has been the experience of compliance costs for small legal businesses internationally. Those costs (or at least a part of them) will have to be passed onto the consumers of legal services—that is, ordinary Australians in need of legal advice to manage their lives and businesses effectively. That will elevate the costs of access to justice and cause some practitioners to stop providing designated services to contain costs, particularly in suburban, regional and remote communities.[13]

1.35With respect to the number and importance of small legal practices, the Queensland Law Society submitted:

QLS is concerned Queensland law firms will be significantly affected by the AML/CTF reforms, given the high number of small law firms and sole practitioners across Queensland:

• 1,783 sole practitioners;

• 1,461 micro law firms (defined as 5 or fewer practising certificates (solicitors) in the firm)

• 407 small law firms (defined as between 6 and 19 practising certificates (solicitors) in the firm).

Queensland is also a highly decentralised State, with 1,674 law firms based outside of metropolitan Brisbane. QLS is particularly concerned that some rural, regional and remote firms will close as a result of imposing AML/CTF regulation in its current form, due to the cost of compliance arising from the scope of designated services in the Bill.

In many regional centres, the local firm is the only Legal Aid preferred supplier for their community. The majority of Legal Aid Queensland work is undertaken by preferred suppliers in private practice. According to the recent Justice on the Brink Report commissioned by National Legal Aid, 72 per cent of legal aid approved matters are assigned to private practitioners.

A closure to these practices will have devastating impacts for locals and will increase the cost of obtaining legal assistance from a distant firm or a community legal centre. This wiII have significant implications for an already strained and underfunded legal assistance sector. Compliance costs will either need to be borne by the firm or passed onto the client, leading to an increase in cost of providing legal services generally. In the conveyancing context specifically, compliance will increase the cost of purchasing a home.[14]

1.36In answers to questions on notice, the Law Council of Australia advised:

Since the Committee hearing we have located and draw the attention of the Committee to updated evidence of significant compliance costs identified in New Zealand.

This includes:

• market research indicating that, on average, businesses spent NZD62,000 per annum managing their financial crime obligations for the financial year ending 31 March 2022; and

• very small businesses (0–5 employees) on average spent NZD25,000, while large businesses spent on average NZD747,000 per annum.

We also note that, in New Zealand, compliance costs have been so onerous that more than 6000 applications for partial or full exemptions under the Act have been made over the last decade, and the incoming NZ Government is committed to a roll back of the compliance burden. That has been in response to a lengthy report by Business NZ on the regulatory burdens. In short, the regulatory model in NZ has come at a significant cost to the private sector.[15]

1.37This is very concerning information.

Cost impact on real estate agents

1.38The AGD Impact Analysis estimated that the upfront cost for the provision of real estate services to comply with the new regime would be $989 million with ongoing costs of $4,903 million. Over a ten-year period, that total cost (calculated on a net present value basis) upon those providing real estate services which are designated services is estimated to be $5.892 billion.[16]

1.39The AGD Impact Analysis estimates that the average upfront cost for a real estate business will be $18,700.[17]The annual regulatory burden is estimated to be $20,700.[18]

1.40In its submission, the REIQ (the peak body representing real estate agents in Queensland) expressed their concern:

We are particularly concerned about the financial and administrative burden it will create for real estate professionals and businesses in Queensland and throughout Australia. Additionally, we are concerned about the potential impact on property transactions and cost to the economy based on international experiences as outlined in previous submissions.[19]

1.41In response to questions on notice (including with respect to what lessons can be learned from the New Zealand experience), the REIQ submitted:

Firstly, we wish to reaffirm our support to expand the AML/CTF regime to property transactions.

As outlined at the hearing, the REIQ is advocating for a legislative framework that is more practical and flexible.

In our view, the Bill should enable a model that allows for sharing and reliance between the multiple practitioners involved in a property transaction. This is critical to avoid unnecessarily onerous administration and excessive cost to both small business and consumers. The success of this expansion should be guided by experiences learned from our international counterparts namely, New Zealand and the UK.

New Zealand has experienced significant resistance from real estate businesses in response to the AML laws. In particular, in relation to the assessment of complex company and trusts structures that necessitate Enhanced Customer Due Diligence (EDD) to verify the source of funds and wealth. It is evident that agents lacked the training and resources to fulfill this requirement effectively.

Based on our investigations, the New Zealand regime has created significant additional costs and responsibilities for real estate agencies. Many agencies have reported being forced to hire or designate an AML Compliance Officer with the requisite expertise, to implement AML systems and processes. Further costs have been incurred to train staff and develop resources and systems to comply with AML/CFT regulations and to engage third party suppliers to assist with compliance.

New Zealand agencies have also reported clients are either unwilling or unable to provide the necessary information, a challenge compounded by the inconsistent understanding of the regime among various agencies. Smaller agencies, in particular, have reportedly struggled to adopt available AML solutions, often resorting to manual verification of identity, stored through emails and unsecured drives. This poses serious cyber breach and privacy risks.[20]

1.42The REIQ provided its analysis of what the impact would be of the regulatory cost burden on each transaction undertaken in Queensland. The estimate is a total of $245 million per annum.This equates to a cost of $1,213 per property transaction – approximately $600 for the seller and $600 for the buyer.[21]

Cost impact on accountants

1.43The AGD Impact Analysis estimated that the upfront cost for the provision of accounting services to comply with the new regime would be $562 million with ongoing costs of $3,120 million. Over a ten-year period, that total cost (calculated on a net present value basis) upon those providing accounting services which are designated services is estimated to be $3.682 billion.[22]

1.44The AGD Impact Analysis estimates that the average upfront cost for an accounting business will be $13,700.[23]The annual regulatory burden is estimated to be $17,000.[24]

Commentary

1.45The cost burden which would be imposed by the Bill is of material concern.This is especially so in the current difficult economic conditions for small business.

1.46The Senate is left in the entirely unsatisfactory position that:

the costs of implementation of the reforms are estimated to be $13.9 billion;

the estimate of costs is heavily qualified because the content of the AML/CTF Rules are still unknown; and

the Senate is asked to pass the Bill without knowing the content of the AML/CTF Rules (and the views of stakeholders on the cost burden imposed by the rules).

1.47On the basis of the current information received by the Committee and given that the AML/CTF Rules have not been released, it is not possible to form a view that the cost burden imposed by the Bill is reasonable and proportionate.

1.48Before the Bill is passed, the Government must address the cost burden imposed by the legislation, particularly upon small business. The $13.9 billion cost is a burden far too large for small businesses, a cost which will ultimately be passed onto consumers. The Government must work to eliminate or substantially minimise this cost (especially for small business) or provide adequate compensation/support for implementation. Unnecessary or overly burdensome and costly compliance obligations must be avoided. Reforms should not overlap with existing obligations and regulations.Compliance should be streamlined.

1.49The content of the AML/CTF Rules will be a key driver of regulatory cost. As the Law Council of Australia submitted:

The Rules will be a significant part of the AML/CTF regime, yet these have not yet been drafted. It is imperative that, in developing the Rules, duplication is avoided as much as possible and stringent cost minimisation measures are adopted.[25]

1.50The process for development of the AML/CTF rules should be as public and transparent as possible.There should be exposure drafts.Those impacted by the rules should have the opportunity to make public submissions.This process is too important to occur out of the public domain given that the cost implications flowing from the rules will impact all Australians.

1.51Principles should be embedded in the legislation requiring the AUSTRAC CEO to consider certain matters when preparing the rules.These should include the need to avoid duplication, promote efficiency (including through technology) and to consider the cost burden imposed by the rules.The Senate should make its expectation clear in this regard on the face of the legislation.

1.52It is recommended that the Bill be amended to provide that in making the AML/CTF rules AUSTRAC CEO should consider the need to avoid duplication, promote efficiency and minimise the cost imposed on small business.

1.53It is recommended that the Bill be amended to provide for an open and transparent process in developing AML/CTF rules for tranche 2 entities, including: the publication of exposure drafts and a reasonable opportunity for the making of public submissions.

1.54It is recommended that the Senate carefully monitor the development of the AML/CTF rules, including through the Scrutiny of Delegated Legislation Committee, considering the issues raised through the course of this inquiry.

Response to recommendations for amendment of the Bill contained in the Committee Report

1.55The Committee Report made 7 recommendations for amendment of the Bill.I deal with each of those recommendations below.

‘Tipping Off’ Offence (recommendation 1 of the Committee Report)

1.56In recommendation 1, the committee recommends that the Bill be amended to move the commencement of the ‘tipping off’ offence to 31 March 2025.This is on the basis of submissions that argued that this would provide greater certainty to reporting entities and there was no need for the reform to be delayed.

1.57Subject to my comments below with respect to application of the offence to the legal profession and any other proposed amendments to the offence, I agree in principle.

Bill not to apply to Barristers briefed by solicitors (recommendation 2 of the Committee Report)

1.58In recommendation 2, the committee recommends the Bill contain a note that reflects the policy intent for the AML/CTF regime to not capture barristers acting on instructions of solicitors.

1.59Strong arguments have been made by Bar Councils and senior members of the profession.

1.60This is a matter of great importance.If an appropriate amendment is not made to the Bill to ensure that the Bill has no application to services provided by barristers briefed by solicitors, I would strongly oppose the passing of the Bill.There is a question as to whether the insertion of a note is adequate in this regard. I comment on this further below in relation to the application of the Bill to legal professionals.

Unintentional capture of entities providing custodial, depositary or safe deposit box services (recommendation 3)

1.61In recommendation 3, the committee recommends the Bill be amended to make it clear that the Bill is not intended to capture the above services without an associated transaction element.I agree.

Uniform exemptions for item 54 entities from governing body requirements (recommendation 4)

1.62In recommendation 4, the committee recognises the concerns of the FAAA with respect to the potential capture of reporting entities delivering item 54 designated services.I agree with the recommendation that this be clarified in the Bill.

Moving criteria for ordering institutions and beneficiary institutions to the AML/CTF rule (recommendation 5)

1.63In recommendation 5, the committee notes that this would provide more time for consultation with industry to ensure that the rules are aligned with industry needs and FATF requirements.I agree and support the recommendation.

Civil penalty – connection with the customer that should have been subject to CDD (recommendation 6)

1.64I agree with the recommendation.

Provision of service to client once non-compliance has been remedied (recommendation 7)

1.65I agree with the recommendation.

Application of the Bill to legal professionals

Introduction

1.66In its submission to the inquiry, the Law Council of Australia refers to the existing regulation of the legal profession.In this regard, it submits:

The Bill appears to be based on the assumption that the legal profession presents a significant money laundering risk.But that appears to be based on inherent risk, not risk as already mitigated i.e. residual risk. The Law Council considers that, having regard to existing regulation and the matters considered in the independent risk analysis of the legal profession commissioned by the Law Council, residual risk is in fact much lower. This is not just a matter of semantics—it is essential that the application of the amended Act to legal practitioners is proportionate to the level of risk, noting the potentially serious consequences of some of its provisions on access to justice.[26]

Impact on ethical obligations of legal practitioners

1.67The Law Council has raised detailed concerns regarding the impact of the Bill upon the fundamental duties of legal practitioners.This includes the impact of suspicious matter reporting and compulsory examination and notice obligations in the Bill.The Law Council submits that the obligations contained in the Bill will distort the fundamental duties of legal practitioners. It submits:

Legal practitioners owe a paramount duty to the court and fiduciary obligations to their clients. This materially supports the rule of law in a democracy such as Australia, and is to the ultimate benefit of Australian society.

It is essential that the public can go to a lawyer and provide frank and full disclosure in a secure setting to obtain the legal advice that they need. The provision of unfettered and comprehensive legal advice advances the rule of law as it assists clients in conducting their personal and business affairs within the law.

Ethically, legal practitioners cannot become covert informers to law enforcement about their clients, which is what the relevant provisions would require. The High Court made this clear in the Lawyer ‘X’ case:

‘Here the situation is very different, if not unique, and it is greatly to be hoped that it will never be repeated. EF’s actions in purporting to act as counsel for the Convicted Persons while covertly informing against them were fundamental and appalling breaches of EF’s obligations as counsel to her clients and of EF’s duties to the court.’ (emphasis added)

For similar reasons, legal practitioners in Canada are not subject to suspicious matter reporting or compulsory notice or examination obligations. In fact, suspicious matter reporting obligations in the relevant Canadian legislation were struck out by the Canadian Supreme Court in 2015.

Parliament should consider very carefully the serious risks of undermining the rule of law and administration of justice as proposed by the Bill.

The Law Council strongly recommends that the Bill should specifically exempt legal practitioners from complying with the suspicious matters reporting and compulsory notice and examination in the Bill.

To the extent that it is said that the application of those provisions to legal practitioners would be necessary to prevent Australia being grey-listed by the Financial Action Task Force (FATF), the Law Council disagrees.

Canada does not impose those obligations and has not been grey-listed. It is clearly open to Australia to follow that domestic policy choice and exempt legal practitioners from those obligations.

To the extent that those provisions continue to have application to legal practitioners, there will be serious flow-on effects resulting from the tipping off provisions in the Bill: such as legal practitioners being unable to give clients frank and full advice; and legal practitioners being exposed, on termination of a retainer, to disciplinary conduct or court proceedings and unable to properly defend themselves, without falling foul of the tipping off provisions.[27]

1.68In relation to the application of the Bill to barristers, I note the submissions made by the Bar Associations and eminent counsel Fiona McLeod AO SC.Following the public hearing on 30 October 2024, further submissions were received, including a legal opinion from former Justice of the High Court of Australia, the Hon. Geoffrey Nettle AC KC and Mr Angus Willoughby of counsel (commissioned by the Victorian Bar Association) (‘the Nettle KC Advice’) and a legal opinion from Tim Game SC and Hugh Atkin of counsel (commissioned by the NSW Bar Association) (the ‘Game SC Advice’).

1.69It is important that the Senate appreciates the significance of these advices when considering the Bill.Hence, I quote at length.

The Nettle KC Advice

1.70First, the Nettle KC Advice considered that there was a significant risk that if the Bill was passed without amendment, it would be found to be unconstitutional in its application to barristers.Whilst the opinion did not extend to solicitors per se, the opinion states that the risk of constitutional invalidity may extend to solicitors.The Nettle KC Advice states:

For the reasons which follow, we consider there to be a significant risk that, if enacted, the Bill would be held unconstitutional in its application to barristers. The risk of constitutional invalidity may also extend to solicitors, but this memorandum is confined to the Bill’s application to barristers.[28]

1.71In relation to suspicious matter reporting, the Nettle KC Advice states:

Under the SMR regime, a reporting entity must provide the AUSTRAC CEO a “report” about the “suspicious matter” to which s 41(1) applies.A civil penalty applies to a failure to comply with the SMR regime.

The conditions of the obligation to report a suspicious matter would likely be satisfied readily. The existence of a “reasonable suspicion” is a state of mind of lesser conviction than belief, and whether a matter may be “relevant” to the breadth of Commonwealth, State, and Territory criminal law is a remarkably broad conception given that a matter may often be relevant to the investigation of an offence, albeit not “relevant” in the sense defined in uniform evidence legislation.[29]

1.72In relation to the compulsory notice provisions requiring a person to give information or documents to AUSTRAC, the Nettle KC Advice states:

The compulsory notice provisions of the Act, once so amended and extended by the Bill, are apt to authorise the AUSTRAC CEO to compel any barrister to provide confidential and privileged information to the CEO. The power to issue such notices does not require that the barrister be a reporting entity; it applies to all “persons”.[30]

1.73In relation to legal professional privilege, the Nettle KC Advice states:

The various obligations imposed by the Bill to provide information or documents do not exclude information or documents subject to legal professional privilege. Instead, the Bill introduces the concept of an “LPP form”, which is a mechanism for the reporting entity to claim that information or documents required to be provided to AUSTRAC are subject to legal professional privilege; and for AUSTRAC – not a court – then to determine the claim for privilege. Proposed s 242A authorises the Minister to issue guidelines in relation to the making or dealing with claims of privilege.[31]

1.74In relation to the so-called ‘tipping off’ offence in s. 123 of the Act, the Nettle KC Advice states:

The effect of these amendments would be to prohibit a barrister from disclosing to the barrister’s client the fact that the barrister had made a suspicious matter report or provided information or disclosed documents relating to the client; prohibit the barrister from informing the court why, because of consequent conflict of interest, the barrister should cease to act for the client in the matter to which the report, documents or information relates; and prohibit the barrister (even when defending a claim that might be made against the barrister by the client or legal services regulator in connection with the barrister’s conduct of the client’s case or the termination of the retainer) from invoking as the barrister’s defence that the barrister had been required to make the suspicious matter report or provide information or documents relating to the client and was prohibited from disclosing those facts to the client or the court.[32]

1.75In relation to the Canadian Supreme Court case which found that provisions of the relevant Canadian AML/CTF law must be read down, the Nettle KC Advice states:

In Canada, the Supreme Court of Canada recognised that a lawyer’s duty to the lawyer’s client and court is a constitutionally protected principle of justice and that the State cannot impose duties on lawyers that undermine their duty of commitment to their clients’ causes. On that basis, the Court held that provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act SC 2000, c. 17 must be read down to exclude legal counsel and law firms from the operation of that Act.

The decision rested in part on s 7 of the Canadian Charter of Rights and Freedoms but also critically upon the recognition that it is a normative principle and a basic tenet of the common law legal system that counsel are bound by a duty of loyalty and commitment to their clients’ causes. It is fundamental to how the State and the citizen interact in legal matters and it is essential to maintaining confidence in the administration of justice.

Likewise in this country, it is a defining characteristic and fundamental tenet of the justice system that counsel are bound by duties of loyalty and confidence to their clients and the court. The court demands that those duties be observed, and assumed compliance is the basis on which justice is dispensed. If, therefore, counsel breaches those duties, there is a miscarriage of justice which distorts the institutional integrity of the court and the consequences of it must be annulled. As the High Court of Australia has held, counsel’s actions in purporting to act for a client while covertly informing against them are a fundamental and appalling breach of counsel’s obligations to the client and the court which are productive of a miscarriage of justice.[33]

1.76After considering the law, the Nettle KC Advice states:

The Bill distorts the institutional integrity of Chapter III courts and State courts. It negates a compound, fundamental assumption upon which the exercise of judicial power proceeds: that parties to litigation will be represented by officers of the court bound by duties of loyalty and confidence to their clients and the court, free from any conflict of interest and duty, and that, as and when necessary, the court may exercise its powers to restrain a conflicted representative from acting in breach of duty and thereby maintain the institutional integrity of the court.

The Bill undermines those assumptions because it creates the conditions for the conflict of interest and duty to arise between a barrister and a client, and it prevents the resolution of that conflict by preventing the barrister from informing the client and court why the barrister must cease to act, or by requiring the barrister to continue to act lest the termination of the retainer constitute a tipping-off offence.

The result is a situation in which a court is required to hear and determine a case in which a barrister may be forced to continue to act despite the presence of a serious conflict, and where the court is unaware of the conflict and so cannot address consequent damage to the integrity of the proceeding; as the court otherwise might by giving the barrister leave to cease acting or by restraining the barrister from acting.

Moreover, the practical consequences of the conflict of interest are infinite and imponderable. Critically, it cannot ever be known, and yet the possibility cannot ever be excluded, that the conflict between barrister and client will have caused the barrister to vary the presentation of the client’s case to the detriment of the client and thus to the prejudice of justice.

Hence, by modifying the manner in which court proceedings are to be conducted by a barrister who is a reporting entity, and by excluding the capacity of the court to monitor and control its own procedures to ensure adherence to a fundamental tenet of justice, the Bill purports fundamentally to alter the nature and manner of exercise of the powers required to be exercised by courts and thereby distorts the institutional integrity of those courts.

In our opinion, the Bill so impairs the defining characteristics of the court that the court may cease to answer the constitutional description.[34]

1.77As stated above, I emphasise that counsel noted that the risk of constitutional invalidity may also extend to solicitors.

1.78The Game SC Advice is consistent with the views expressed in the Nettle KC Advice.

1.79The Game SC Advice states:

We have been asked to provide advice addressing the following question. Do the suspicious matter reporting obligations and the tipping off provisions in ss 41 and 123 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML Act), as proposed to be amended by the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth) (Amending Bill), in their application to legal practitioners, engage the considerations identified by the High Court in the Lawyer X case (AB v CD (2018) 93 ALJR 59; [2018] HCA 58 at [10])?

In short, our answer is “Yes”.

One of the matters considered by the High Court in the Lawyer X case was the relationship of trust and confidence which exists between a legal practitioner and their client, and the fundamental importance of that relationship to the integrity of the judicial system and the maintenance of the rule of law more generally. To compel a legal practitioner to make a report concerning their client to an investigative authority, while also prohibiting the practitioner from disclosing the fact or contents of that report to their client, fundamentally undermines that relationship of trust and confidence.[35]

1.80The Game SC Advice then considered a practical example of the problems raised by the Bill in this regard:

As in the Lawyer X case, there is a real likelihood that the suspicious matter reporting obligation, coupled with the tipping off prohibition, may lead to convictions of accused persons being quashed as being the product of a substantial miscarriage of justice.

Take, by way of example, a legal practitioner instructed to represent a client both in proceedings under proceeds of crime legislation and in defence of related criminal charges. As noted in the NSW Bar Association’s submission of 14 October 2024 at [81]-[83], representation of a client in proceeds of crime litigation will frequently require the practitioner to provide advice about prospective transactions concerning the clients’ assets and financial affairs. In those circumstances, it is highly likely that (a) the practitioner will provide a designated service of the kind specified in items 1, 2, 4 or 6 of proposed Table 6; and (b) the practitioner will suspect that information that the practitioner has concerning the provision of the designated service (i.e. the advice) may be of assistance in the enforcement of proceeds of crime legislation for the purposes of s 41(1)(f)(iv)-(v). As such, the legal practitioner will come under a suspicious matter reporting obligation.

Assume further that the legal practitioner makes a report to the AUSTRAC CEO (as the suspicion is based, in part, on confidential instructions from their client and, in part, on material served in the proceeds litigation), but does not disclose the fact of the report to their client (by reason of the tipping off prohibition) and continues to represent the client in the criminal proceedings (contrary to their professional obligations addressed above), with the client ultimately being convicted. In our view, the conviction would be liable to be quashed.

A circumstance in which an accused’s lawyer has, unbeknownst to the accused or the Court, provided information relevant to the charges against the accused to an investigative authority, yet continued to represent the accused at trial (in breach of their professional obligations) would most likely be characterised as so serious a departure from the essential processes of a fair trial as to have necessarily resulted in a substantial miscarriage of justice, irrespective of the strength of the prosecution case – i.e. the defect in the trial would be of such a fundamental kind that the conviction could not be saved by application of the proviso.[36]

1.81In relation to the issue of claims of legal professional privilege, the following concerns were raised in the Game SC Advice:

It is not clear how the “LPP form” regime is intended to work. Proposed section 242A permits the Minister to make guidelines in relation to making or dealing with claims or assertions of legal professional privilege, including the use of LPP forms. But the privilege is that of the client, who (in the scenario contemplated above) does not know that a suspicious matter report has been made in respect of them or that an LPP form has been provided by their lawyer in relation to their privileged information or documents. There is no proper way for a claim of legal professional privilege to be resolved without the knowledge and involvement of the holder of that privilege.[37]

1.82In answers to questions on notice, in commenting upon the Nettle KC Advice and the Game SC Advice, the Law Council of Australia submitted:

While the Nettle KC Advice is focussed on barristers, you will note “[t]he risk of constitutional invalidity may also extend to solicitors”. Our principal submission raised the role of legal practitioners as fiduciaries and as officers of the court. It appears to us that, insofar as the reasoning set out in the Nettle KC Advice is applicable to barristers as advocates and legal advisors, it would also be applicable to solicitors as advocates and legal advisors, as all legal practitioners (solicitors and barristers) are equally officers of the court.

We have also now seen the advice from the NSW Bar dated 7 November 2024 (Game SC Advice) dealing with the Lawyer X problem. We also note that the Game SC Advice addressed the issue of delayed disclosure raised by Senator Shoebridge. We agree with the conclusions expressed therein, which reflect the matters raised in our principal submission.

We do note, with particular concern, the conclusion in the Game SC Advice that there is a real likelihood that the suspicious matter reporting obligation being imposed on legal practitioners, coupled with the tipping off prohibition, may lead to convictions of accused persons being quashed as being the product of a substantial miscarriage of justice.

It appears to us that there must be a fundamental flaw in the proposed regime if the outcome is either that clients lose representation because their lawyer has complied with a suspicious matter reporting requirement and then ceases to act, or there is ultimately a risk that a prosecution will miscarry because a lawyer has continued to act. It appears to us that, in the drafting of the legislation extending the reporting obligations to legal practitioners, insufficient thought was given to the impact on the criminal justice system.[38]

1.83Given the serious issues raised by the Law Council of Australia, Bar Associations and in the Nettle KC Advice and the Game SC Advice, further consideration must be given to the application of the mandatory suspicious matter reporting, requirements to respond to notices to produce, and compulsory examinations concerning the affairs of clients.In my view, these obligations should not apply to legal practitioners given the strong submissions made.In fact, it would be impudent to do so given the standing of the members of the profession who have provided advice in this regard.

1.84It is recommended that legal practitioners be excluded from the application of the mandatory suspicious matter reporting requirements in the Bill.(As recommended below, Schedule 9 should be the subject of further consideration).

Application of the Bill to Barristers

1.85As stated earlier in these Additional Comments, at the very least, I strongly support the inclusion of a legislative note that the Bill does not apply to barristers who have been briefed by solicitors. Refer to my comments on recommendation 2 of the committee report.

1.86A number of options for amendment to the Bill were provided by the Bar Association of Queensland, Fiona McLeod AO SC, and the NSW Bar Association to address the issue.In my view, ‘barristers work’ should not fall within the ambit of the designated services and there would be benefit in a more definitive approach being applied to the drafting. In this regard, the Queensland Bar Association provided some drafting suggestions which should be considered.This proposed amendment expands the ambit of the briefing entity to include an Australian government body and an accountant (who would be captured by the AML/CTF regime).[39]

1.87It is recommended that the Bill be amended to exclude barristers work from the ambit of Designated Services under the Bill.

Application of the Bill to real estate services

1.88Very strong submissions were received from real estate services and technology providers with respect to the opportunities to leverage available technology to meet minimise duplication and to streamline compliance with AML/CTF rules.

1.89The REIQ submitted:

We support the development of a solution that meets the regime’s objective and places the appropriate burden on real estate professionals without causing significant impacts, costs and delays to the facilitation of property transactions. Importantly, we reiterate the importance of utilising the appropriate professionals (legal/financial) to undertake the majority of due diligence requirements to meet AML/CTF compliance measures.

It is our view that a platform solution that enables real estate agents, legal professionals and financial professionals (tranche 2 entities) to share and rely on information is the most effective way of capturing tranche 2 entities within the AML/CTF regime.

To this end, we note the following principles:

Cost and Compliance Reduction: An information-sharing mechanism could cut customer due diligence duplication significantly. This will also transfer appropriate risk assessment to be completed by the appropriate professional.

Data Security and Compliance: Enhancing the accuracy of Suspicious Matter Reports (SMRs) and reducing false positives can lower data breach risks and improve compliance with data privacy laws.

Mitigating Tipping Off Concerns: A shared information model can prevent suspicion by hosting necessary information centrally and restricting access to authorised personnel only.

Accordingly, we recommend the following:

1. Reliance Provisions: We recommend that the reliance provisions with the AML/CTF Bill be amended to enable the tranche 2 entities to share information required under the regime. For example, we suggest that at minimum, verification of a client’s identity be shared between the relevant participants in a real estate transaction to minimise, not only time and cost burden for the profession but also for the impacted consumer. In Queensland, verification of identity is completed by the real estate agent, legal professional and financial institution. Failing to streamline the verification process for identity checks would be a significant missed opportunity for the property industry. By not adopting a secure platform that professionals can rely on, we risk perpetuating inefficiencies and vulnerabilities in handling sensitive information. A streamlined, secure system would not only enhance the accuracy and speed of transactions but also bolster consumer trust by ensuring personal data is protected.

2. Information Sharing: We support a framework that enables tranche 2 entities within a property transaction to securely share information for the purpose of disclosing unusual activities, transactions and behaviour that may be relevant when assessing risk required under the regime. Providing tranche 2 entities with access to comprehensive and more accurate data may uncover patterns and connections that might otherwise go unnoticed. This enhanced visibility is essential for detecting fraudulent activities, money laundering, and other criminal behaviours.

By leveraging a secure platform for information sharing, we can ensure that sensitive data is protected while enabling professionals to collaborate effectively. In our view, leveraging a secure platform for implementing compliance requirements is a crucial step towards modernising and safeguarding compliance of the AML/CTF regime.

The REIQ recommends that the Department explore technology solutions currently available on the market to address the concerns raised in this submission. By investing and enabling technology solutions, the Department can ensure compliance with data privacy regulations, improve the accuracy of risk assessment and foster greater trust among consumers. Leveraging these tools will not only mitigate existing vulnerabilities but also position the Department as a leader in adopting innovative and secure practices.[40]

1.90In response to questions on notice, the REIQ submitted:

As Senator Scarr rightly pointed out during the Hearing, when the AML/CTF regulations are applied to property transactions, it potentially results in the same buyer and seller for the same transaction being screened multiple times for no additional benefit. This duplication results in lost time and money for the consumer and the practitioner conducting the required task.

We believe that reducing this duplication through an information sharing/reliance model offers the best opportunity for cost efficient and effective rollout of these reforms. In the UK a 2022 HMRC report identified "reliance" between parties in a transaction chain as a sensible mechanism to reduce the burden and streamline the process.

Additionally, the UK Government published guidance this month on new legislation to strongly encourage information-sharing among AML/CTF regulated entities including Real Estate Agents, Lawyers and Banks.

If a wide range of firms across sectors utilise these measures, regulated firms will have richer information sources when undertaking their reporting obligations. This will increase the accuracy of suspicious activity and fraud reporting. In practical terms, the direct sharing provisions enable regulated firms to share customer information with each other with civil liability disapplied on a peer-to-peer basis. Regulated firms may choose to undertake this through direct communication methods, or through a technological platform or mechanism designed by a third party.

The REIQ recommends that the Bill is drafted with sufficient flexibility to enable leveraging existing and emerging technology within property ecosystems which are already supported by the Law Council, the Australian Banking Association, the Property Council, the Australian Institute of Conveyancers (AIC) National and the AICNSW and AICSA.

These associations understand the value in leveraging legal, regulatory and technical infrastructure that allow all the diverse parties to a property transaction (large banks, small conveyancers, big property developers and law firms, land title office, regulators, government departments) to come together to facilitate the sale/purchase of real estate in a standard manner.

We submit that real estate agents should be included (albeit partially) in those same ecosystems to allow for a standard, regulated screening of the money laundering risk.

The Financial Action Task Force (FATF) noted that:

The use of new or innovative technological tools to facilitate AML/CFT implementation should be encouraged as part of a proactive posture with regards to identifying and mitigating ML/TF risk. The implementation of the risk-based approach does not need to imply additional effort or burden, rather it should be a reflection of the identified and assessed ML/TF risks and the adequate deployment of mitigation resources. This view is supported by the experience overseas where the FATF commended Belgium and Slovakia for implementing similar models in their real estate sector.[41]

1.91In this regard, I note the submission to the inquiry of PEXA which is a public-private partnership between several State Governments and financial institutions out of a 2008 Council of Australian Governments (COAG) initiative to create a national econveyancing platform authorised under the Electronic Conveyancing National Law (ECNL) to replace the old manual, paper-based conveyancing and settlement processes.

1.92PEXA made the following key points in its submission:

International experience has proven that the extension of AML/CTF legislation to “tranche 2 entities” imposes significant costs and compliance burdens on solicitors, conveyancers and real estate agents which are predominantly small businesses, with consequential impacts for consumers. Minimising those impacts is an important and appropriate focus in the Government’s assessment of the proposed amendments.

Australia’s electronic conveyancing regime is unique internationally, with PEXA’s electronic conveyancing platform (PEXA Exchange) already processing 90% of all property transactions in Australia and classed as critical infrastructure by the Commonwealth.

Leveraging the PEXA Exchange, and collaboration between industry and Government provides an opportunity to both:

Reduce the compliance burden and cost on small businesses such as on solicitors, conveyancers and real estate agents; and

Provide more effective regulatory and law enforcement outcomes.

We recommend simple legislative amendments to enable reliance between parties to a transaction which is implemented through an independent system, such as the PEXA Exchange, which connects those parties and enable secure information sharing between those parties to enable more effective and efficient assessment of AML/CTF risks.[42]

1.93PEXA provided drafting suggestions.

1.94It is recommended that the Bill be amended to enable reliance between parties to a transaction which is implemented through an independent system, such as the PEXA Exchange, which connects those parties and enables secure information sharing between those parties to enable more effective and efficient assessment of AML/CTF risks.

Miscellaneous matters

1.95The Property Council requested the committee to consider the threshold for including commercial leases within the Bill.They referred to longer term commercial leases in the logistics industry (in particular) which have a duration of greater than 20 years.

1.96In response to a request for drafting, the Property Council proposed that the Bill be amended, page 58, line 30-31 by striking out (f) and replacing with:

(f) a leasehold interest under a lease for a term (excluding options for further terms) of 30 years or less[43]

1.97It is recommended that the Bill be amended to provide that a leasehold interest for a term (excluding options for further terms) of 30 years or less be excluded from the definition of interest in land to accommodate arrangements entered into for long term commercial leases especially in the logistics sphere.

1.98The Property Council also made submissions that the Explanatory Memorandum be updated to make it clear that a number of matters are excluded from the application of the regime.

1.99It is recommended that the Explanatory Memorandum be amended to explicitly mention exclusion of residential site agreements and land leases (refer to Property Council of Australia submission).

1.100It is recommended that the Explanatory Memorandum be amended to provide clarity with respect to conjunction agreements (refer to the Property Council of Australia submission).

1.101The Property Council argued that Initial Refundable Deposits should not be captured.This is on the following basis:

As an expression of interest in a property only, they do not constitute a deposit, no binding agreement is made or legal documentation signed, and no service is being provided.In practice, many IRD’s are paid within a sales office via payment card.

Following an IRD, a customer would then have to exchange contracts and pay the balance of the full deposit, in order to progress the transaction.It’s at the exchange of contracts and balance paid that the business relationship, for the purpose of conducting CDD, should commence.[44]

1.102This is a very strong argument and the Bill should be amended to reflect the commercial and legal reality.

1.103It is recommended that Initial Refundable Deposits be explicitly removed from the designated services list for the reason provided by the Property Council of Australia.

Application of the Bill to the accounting profession

1.104There were a number of recommendations made in the joint submission of Chartered Accountants Australia New Zealand, CPA Australia, and the Institute of Public Accountants. These recommendations are worthy of detailed consideration by Government.

1.105It is recommended that the definition of ‘qualified accountant’ in section 5 of the Act be amended to align with section 88B of the Corporations Act 2001 and ASIC Corporations (Qualified Accountant) Instrument 2016/786.

1.106It is recommended that the Bill be amended to exclude restructuring practitioners appointed under Part 5.3B of the Corporations Act 2001 from the proposed designated professional services in Table 6.

Schedule 9 of the Bill – examination and gathering of information or documents

1.107Schedule 9 of the Bill provides for examination and gathering of information or documents.

1.108The Law Council of Australia made a supplementary submission of the Committee with respect to these powers.The Law Council of Australia stated:

Schedule 9 contains an extensive array of compulsory examination powers that we were unable to properly examine due to the very limited time available before the Committee hearing.Since the issues raised are extremely important, we have continued to work through them.We hope that the Committee will accept this supplementary submission on that basis.We emphasise that Schedule 9 contains powers that are very concerning, and which we strongly advocate be removed from the Bill pending further public consultation outside the Parliamentary process.[45]

1.109In its primary submission to the inquiry, the Law Council of Australia raised a number of issues with respect to Schedule 9 including:

the broad, imprecise and opaque scope of the provisions and the low thresholds;

extension to other ‘serious crimes’;

the highly problematic extension to legal practitioners;

the AUSTRAC CEO having the power to delegate where there is no particular level of seniority or qualification required for the delegate;

abrogation of the privilege against self-incrimination; and

the linking of the power to strict liability offences with maximum penalty provisions beyond generally acceptable Commonwealth standards.[46]

1.110In the supplementary submission, the Law Council of Australia added the following additional concerns:

Measures to ensure independent oversight, reporting or accountability over the exercise of these proposed examination powers have not been identified.

The power of the AUSTRAC CEO to delegate powers to a consultant where there are no qualifications or level of seniority required of the consultant.As the Law Council of Australia states:

This is concerning given the Bills’s powers to privately examine individuals in circumstances in which their fundamental rights are abrogated, procedural fairness is essential and offences with significant penalties including imprisonment are attached to their non-compliance.[47]

Onerous powers for an examiner to determine the participation of a lawyer in an examination (exacerbated by an absence of minimum qualification to be held by the examiner);

Deficiencies with respect to record keeping provisions; and

Measures to ensure independent oversight, reporting or accountability over the exercise of these proposed examination powers have not been identified (especially in the context of previous discussion that the jurisdiction of IGIS be expanded to include AUSTRAC).[48]

1.111In summary, the Law Council of Australia submitted:

Given the above, the Bill’s proposed examination powers would appear to fall short of a number of principles outlined by the Administrative Review Council in its 2008 Coercive Information-Gathering Powers of Government Agencies Report.[49]

1.112Whilst the Law Council of Australia notes that the powers are based on those provided to ASIC, it argues:

However, it considers that such powers should not be automatically replicated for other regulatory agencies given their extraordinary nature.Rather, it is essential that any extension of these kinds of coercive powers to new agencies should be justified and carefully scrutinised within the particular context in which they will operate.[50]

1.113The Law Council of Australia also observes:

The transcript of the Committee hearings for the AML Bill does not disclose Committee questioning into the necessity for justification of these new coercive powers…LCA’s view is that they should not be passed without close Parliamentary scrutiny, noting that these powers are significant new provisions in a recently introduced Bill.[51]

1.114In summary, the Law Council of Australia makes the strong submission:

This reinforces the Law Council’s submission recommendation that these powers should be removed from the Bill, pending further consultation outside the Parliamentary process.[52]

1.115A number of these issues were raised by the Scrutiny Committee (abrogation of the right against self-incrimination and strict liability offences) and the Parliamentary Joint Committee on Human Rights.Refer to paragraphs 1.42 to 1.66 of the committee report.

1.116Similar issues were also raised by Gov Law Lawyers who submitted:

The new compulsory examination power for AUSTRAC was not included in the industry consultation process and has an even wider potential impact to employees, contractors and any person who ‘has information or a document that is relevant to compliance’ with the AML/CTF legislation (proposed new section 172A).

For these reasons, it is submitted that a new round of industry consultation be opened by the AGD specifically on this new power for all affected industry sectors.[53]

1.117The submission then lists a range of legal and policy issues.

1.118Given the lack of previous consultation and the material concerns raised by the Scrutiny Committees of Parliament and key stakeholders, including the Law Council of Australia, there should be further consultation undertaken with respect Schedule 9.

1.119Given that this schedule of the Bill does not trigger the need for detailed additional processes on the project implementation path which are time sensitive, e.g.with respect to AML/CTF rules, then there should be the opportunity for further consultation.

1.120Due to the concerns raised by key stakeholders and by the Scrutiny Committees of Parliament, it is recommended that Schedule 9 be excised from the Bill for the purposes of further consultation.

1.121If the above recommendation is not accepted, then the Bill should be amended to address the following issues:

the seniority, qualifications and training of any person who is delegated power by the AUSTRAC CEO under Schedule 9;

alignment of the penalty for the strict liability offences under Schedule 9, including the section 172C(3) offence, with the Commonwealth Guide to Framing Commonwealth Offences;

the issues raised by the Law Council of Australia with respect to the potential application of the powers to legal practitioners given their ethical obligations; and

the concerns of the Scrutiny of Bills Committee with respect to the abrogation of the privilege against self-incrimination.

Consideration of other submissions

1.122During the course of this inquiry, submissions were received from a range of stakeholders.Many of the topics discussed were highly technical. Some of the ideas were innovative, such as the proposals from Griffith University to promote appropriate sharing of data for the purposes of research which would require an amendment to s.123(5) of the Bill.[54] In the abbreviated time available it has not been possible to consider them in detail.However, it is important that the Department diligently work through all of the submissions which have been made and make any necessary drafting amendments to the Bill.

1.123It is recommended that the Government systematically consider all of the drafting amendments proposed by submitters to this inquiry (not considered elsewhere in these Additional Comments or in the Committee Report) and make all necessary amendments where appropriate to provide clarity and to enhance the operation of the Bill.

Engagement with the Financial Action Task Force

1.124There are a number of matters raised by members of the profession which should be considered by the Financial Action Task Force. These include reasonableness and proportionality with respect to application of the recommendations to small business and the application of recommendations to the legal profession in light of Australia’s common law traditions which go to the heart of the rule of law and administration of justice.

1.125It is recommended that the Australian government engage with the FATF with respect to the material concerns raised by those impacted by the proposed AML/CTF regime, including small business and the legal profession.These issues should be discussed at the highest levels of the FATF so that the reasonableness and proportionality of recommendations can be assessed.The relevant Committee of the Parliament should examine the engagement of the Government with the FATF in relation to these issues in light of the concerns raised by stakeholders with this inquiry.

Statutory Review

1.126Given the many issues raised in relation to the Bill, there is an extremely strong case for an independent statutory review of the Bill after three years of operation.

1.127The case is summarised by the Law Council of Australia who submitted:

There has been insufficient time to consider all the issues that the Bill may raise. A significant part of the Regime has not yet been developed, and the costs of compliance are likely to be high (with adverse effects on the provision of legal services). Accordingly, the Law Council considers that there should be a comprehensive, independent review of the legislation in 2028. However, this should not be viewed as a panacea to the broader concerns raised in this Submission, which should be addressed through separate amendments to the Bill.[55]

1.128In some cases statutory reviews occur after three years or five years after operation of a Bill.Given the cost imposition triggered by the passage of this Bill, it is recommended that a statutory review be accelerated and occur in the timeframe suggested by the Law Council of Australia.

1.129It is recommended that the Bill be amended to provide for an independent statutory review of the legislation in 2028.

Conclusion

1.130The Coalition does not believe that this Bill can be passed in its current form due to the $13.9 billion cost for small and family businesses, which will ultimately be passed onto consumers.During the Albanese Government’s cost of living crisis, this is something Australians can ill-afford.

1.131The Government needs to amend this Bill to remove or substantially minimise this cost burden for business or provide adequate compensation/support for implementation.

1.132The Bill not be passed in its current form.

Senator Paul Scarr

Deputy Chair

Footnotes

[1] Refer to my comments in previous Committee reports citing the concerns of the Law Council of Australia in relation to each of the following Bills:Administrative Review Tribunal Bill 2023; Migration Amendment (Removal and Other Measures) Bill 2024; Identification Verification Services Bill 2023; Criminal Code Amendment (Deepfake Sexual Material) Bill 2024.

[2] Law Council of Australia, Submission 40, p. 6.

[3] Attorney-General’s Department, Reforming Australia’s anti-money laundering and counter-terrorism financing regime Impact Analysis August 2024, p. 9.

[4] Ibid, pp. 97–98.

[5] Ibid, p. 9.

[6] Ibid, p. 114.

[7] Upfront costs for tranche two entities includes the upfront costs for new businesses established during the ten-year period. These upfront costs therefore differ from the upfront cost estimated in 2024-25.

[8] Refer to Table 19.

[9] Ibid, p. 115.

[10] Ibid, p. 114.

[11] Ibid, Figure 6, p. 116.

[12] Ibid, Figure 7, p. 117.

[13] Law Council of Australia, Submission 40, p. 6.

[14] Queensland Law Society, Submission 31, p. 2.

[15] Law Council of Australia, Answer to Questions on Notice provided in letter dated 8 November 2024, pp. 2–3.

[16] Attorney-General’s Department, Reforming Australia’s anti-money laundering and counter-terrorism financing regime Impact Analysis August 2024, Table 18, p. 114.

[17] Ibid, Figure 6, p. 116.

[18] Ibid, Figure 7, p. 117.

[19] Real Estate Institute of Queensland, Submission 19, p. 2.

[20] Real Estate Institute of Queensland, Answers to Questions on Notice by way of letter dated 6November 2024, p. 1.

[21] Ibid, Annexure A.

[22] Attorney-General’s Department, Reforming Australia’s anti-money laundering and counter-terrorism financing regime Impact Analysis August 2024, Table 18, p. 114.

[23] Ibid, Figure 6, p. 116.

[24] Ibid, Figure 7, p. 117.

[25] Law Council of Australia, Submission 40, p. 7.

[26] Ibid, p. 6.

[27] Ibid. pp. 7-8.

[28] Hon. Geoffrey Nettle AC KC and Mr Angus Willoughby of counsel, Re: Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 Memorandum, 6 November 2024, p. 1.

[29] Ibid, p. 3.

[30] Ibid, p. 4.

[31] Ibid, p. 4.

[32] Ibid, p. 5.

[33] Ibid, pp. 11 and 12.

[34] Ibid, pp.12 and 13.

[35] Tim Game SC and Hugh Atkin of counsel, SMR and Tipping Off Provisions – Effect on Lawyer/Client Relationship Joint Advice, 7 November 2024, p. 1.

[36] Ibid, pp. 8–9.

[37] Ibid, p. 7.

[38] Law Council of Australia, Answer to Questions on Notice provided in letter dated 8 November 2024, p. 2.

[39] Bar Association of Queensland, Submission 32, p. 5.

[40] Real Estate Institute of Queensland, Submission 19, pp. 3–4.

[41] Real Estate Institute of Queensland, Answers to Questions on Notice by way of letter dated 6November 2024, pp. 2–3.

[42] PEXA, Submission 7, p. 2.

[43] Property Council of Australia, Answers to Questions on Notice, received 6 November 2024, p. 1.

[44] Property Council of Australia, Submission 21, p. 4.

[45] Law Council of Australia, Answers to Questions on Notice and Supplementary Submission contained in letter dated 8 November 2024, p. 1.

[46] Law Council of Australia, Submission 40, pp. 38–41.

[47] Law Council of Australia, Answers to Questions on Notice and Supplementary Submission contained in letter dated 8 November 2024, p. 5.

[48] Ibid, pp. 4–6.

[49] Ibid, p. 5.

[50] Ibid, p. 6.

[51] Ibid, p. 7.

[52] Ibid, p. 7.

[53] Gov Law Lawyers Australia, Submission 8, p. 2.

[54] Academy of Excellence in Financial Crime Investigation and Compliance - Griffith University, Submission 16, p. 9.

[55] Law Council of Australia, Submission 40, p. 7.