FAQ: How Australian Law Firms Can Spot & Report Red Flags (Tranche 2 AML Obligations)
Practical guidance for law firms preparing to meet mandatory AML/CTF obligations under Tranche 2 from 1 July 2026.
🔍 What is a suspicious matter?
A suspicious matter arises when you suspect on reasonable grounds that a person:
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Is not who they claim to be
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Is trying to avoid reporting obligations
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Is involved in money laundering or terrorism financing
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Has provided false or misleading information
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Is making a transaction with no clear lawful purpose
Is not who they claim to be
Is trying to avoid reporting obligations
Is involved in money laundering or terrorism financing
Has provided false or misleading information
Is making a transaction with no clear lawful purpose
This includes existing or prospective clients, their representatives, or related parties.
🚩 What are examples of red flags law firms should watch for?
Examples of suspicious behaviour (or "red flags") include:
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Clients unwilling to verify their identity
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Unusual or inconsistent source of funds (e.g. large cash deposits, crypto transfers, or unrelated third parties)
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Use of complex trust or company structures with no clear purpose
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Reluctance to explain a transaction
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Requests to backdate documents or structure deals to avoid thresholds
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Sudden changes in transaction patterns or intended beneficiaries
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Clients who are politically exposed persons (PEPs) or linked to high-risk jurisdictions
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Transactions that don’t match a client’s profile (e.g. a student sending large international remittances)
Clients unwilling to verify their identity
Unusual or inconsistent source of funds (e.g. large cash deposits, crypto transfers, or unrelated third parties)
Use of complex trust or company structures with no clear purpose
Reluctance to explain a transaction
Requests to backdate documents or structure deals to avoid thresholds
Sudden changes in transaction patterns or intended beneficiaries
Clients who are politically exposed persons (PEPs) or linked to high-risk jurisdictions
Transactions that don’t match a client’s profile (e.g. a student sending large international remittances)
📝 When must I submit a Suspicious Matter Report (SMR)?
From 1 July 2026, once your firm becomes a reporting entity, you must submit an SMR to AUSTRAC:
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Within 3 business days of forming a reasonable suspicion
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Within 24 hours if the suspicion relates to terrorism financing
Within 3 business days of forming a reasonable suspicion
Within 24 hours if the suspicion relates to terrorism financing
You are not required to prove criminal activity — only to have reasonable grounds to suspect that something is suspicious.
👉 AUSTRAC: Suspicious Matter Reports (SMRs)
🤫 What is 'tipping off' and how do I avoid it?
Under section 123 of the AML/CTF Act, it will be a criminal offence for law firms to disclose certain information from 1 July 2026, including:
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That an SMR has been (or is about to be) submitted
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That a suspicion has been formed about a customer
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That AUSTRAC has issued a notice under section 49 or 49B
That an SMR has been (or is about to be) submitted
That a suspicion has been formed about a customer
That AUSTRAC has issued a notice under section 49 or 49B
🔒 This offence does not apply to law firms before 1 July 2026, as they are not yet reporting entities.
Avoid saying things like:
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“We have to report this.”
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“Your transaction seems suspicious.”
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“We’ve flagged this with AUSTRAC.”
“We have to report this.”
“Your transaction seems suspicious.”
“We’ve flagged this with AUSTRAC.”
Instead, say:
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“We’re conducting a standard compliance check.”
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“We need to confirm the source of funds for regulatory purposes.”
“We’re conducting a standard compliance check.”
“We need to confirm the source of funds for regulatory purposes.”
👉 AUSTRAC: Tipping Off Reforms
🛡 How do we manage the risk of tipping off?
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Restrict access to suspicious matter information (SMR-related content) to staff with a genuine need to know
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Train client-facing staff on how to conduct follow-ups without disclosing or implying suspicion
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Use standardised and neutral language when collecting further information
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Document reasons for ending a business relationship without referencing AML concerns
Restrict access to suspicious matter information (SMR-related content) to staff with a genuine need to know
Train client-facing staff on how to conduct follow-ups without disclosing or implying suspicion
Use standardised and neutral language when collecting further information
Document reasons for ending a business relationship without referencing AML concerns
📤 How do I submit a Suspicious Matter Report (SMR)?
From 1 July 2026, once your firm is registered as a reporting entity:
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Submit the SMR via AUSTRAC Online
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Include all relevant context, timeline, and basis for your suspicion
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Retain a copy internally — but do not inform the client
Submit the SMR via AUSTRAC Online
Include all relevant context, timeline, and basis for your suspicion
Retain a copy internally — but do not inform the client
🔄 Do I need to keep records?
Yes. You must retain all documents related to:
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Suspicious matters
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Customer identity and verification
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Transaction history
Suspicious matters
Customer identity and verification
Transaction history
These must be kept for 7 years, in accordance with the AML/CTF Act.
📅 Key Dates for Law Firms
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Date
What Happens
1 July 2026
Tranche 2 begins. Law firms become reporting entities and must:
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Submit SMRs
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Comply with tipping off laws
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Conduct Customer Due Diligence (CDD)
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Maintain AML/CTF Programs | | Before 1 July 2026 | No legal obligation to report SMRs or comply with tipping off offence. Prepare systems, policies, and staff now.
Submit SMRs
Comply with tipping off laws
Conduct Customer Due Diligence (CDD)
Maintain AML/CTF Programs | | Before 1 July 2026 | No legal obligation to report SMRs or comply with tipping off offence. Prepare systems, policies, and staff now.