Why It Took Almost Two Decades to Bring Lawyers Into Australia’s Anti-Money Laundering Framework

Money laundering can sound abstract, a paperwork issue, a banking concern, something that plays out in spreadsheets rather than in people’s lives. In practice, the money being laundered is often connected to drug trafficking, organised crime, and the exploitation of vulnerable people, including children. Disrupting that flow of funds is part of why anti-money laundering law exists, and why Australia has a dedicated regulator, AUSTRAC (the Australian Transaction Reports and Analysis Centre), responsible for detecting and disrupting it.

From 1 July 2026, those laws will apply to law firms in Australia for the first time.

This article looks at how these legislative changes came about, and why it took close to two decades for legal services to be brought into a regulatory framework that already covered banks, other financial institutions, and the gambling sector.

How money laundering works, and who it harms

Money laundering typically moves through three stages:

1. placement, where illicit cash first enters the financial system;
2. layering, where it is moved through multiple transactions, accounts or structures to obscure its origin; and
3. integration, where it re-emerges looking like legitimate funds, used to buy property, invest in a business, or simply sit in a bank account.

Each stage relies on the same thing: a financial system, and the professionals operating within it, accepting the money without asking enough questions about where it came from.

The crimes generating that money are not abstract. AUSTRAC’s own national risk assessments have repeatedly noted that some of the offences with the lowest money-laundering volume carry the highest levels of harm, among them, child sexual exploitation and human trafficking. In 2020, Westpac paid a $1.3 billion penalty – at the time the largest civil penalty in Australian history – after AUSTRAC found, among millions of reporting failures, that the bank had failed to adequately monitor customer transactions for indicators associated with possible child exploitation. AUSTRAC has since established a dedicated team, working with the Australian Centre to Counter Child Sexual Exploitation, specifically to trace financial transactions connected to this kind of abuse. The money trail is, in many cases, the only trail that can lead investigators back to the people responsible.

This is the harm that Australia’s AML/CTF regime is designed to prevent, and the reason its scope is now being extended to legal services.

The gatekeeper problem

In 2003, the Financial Action Task Force (FATF) – the international body that sets global anti-money laundering standards – coined the term “gatekeepers” for lawyers, accountants, and real estate agents, among other professions whose services can, in some circumstances, be used to lend legitimacy to a transaction without the underlying funds being properly checked.

A lawyer’s trust account, for example, moves large sums of money and carries professional standing, but has historically not been subject to the same identity verification requirements as a bank account. A lawyer’s involvement in setting up a company, a trust, or a property purchase can be one part of a transaction that, overall, has not been independently checked.

There are Australian examples that illustrate this.

In Operation Elbrus – one of the largest tax fraud investigations in Australian history – a lawyer’s trust account was used to disguise more than $24 million in proceeds of crime connected to the Plutus Payroll scheme. More recently, in 2026, a Sydney lawyer was charged as part of the “Penthouse Syndicate” investigation, with police alleging he used his professional standing to help launder proceeds of crime and facilitate the purchase of more than $25 million in property on the group’s behalf. That matter is yet to be tested in court, but the allegations reflect the kind of risk regulators have pointed to for some time: lawyers have not, until now, been required to verify who they are dealing with in the way other regulated sectors are.

What the regulators kept saying

This gap was identified well before the recent reforms. Australia underwent a FATF mutual evaluation in 2015, assessing the country’s AML/CTF system against international standards. The Attorney-General’s Department, working with AUSTRAC, followed this with a statutory review the following year, making 84 recommendations to strengthen Australia’s regime. AUSTRAC has separately published its own analysis of money laundering risk in the legal sector. The reforms now known as Tranche 2 – extending AML obligations to legal services, real estate and accounting – followed from this body of work.

The period between Australia’s 2015 evaluation and the 2026 commencement date reflects the complexity involved, rather than a single, simple decision. Extending these obligations to lawyers required working through legal professional privilege and client confidentiality, determining which legal services would constitute a “designated service” under the Act (the specific category of activity that triggers a lawyer’s AML/CTF obligations), and designing a compliance framework that could apply not just to a small number of banks but to tens of thousands of legal practices of varying size across the country. This involved extensive consultation with the profession, careful drafting to protect legal professional privilege, and sequencing against other items on the regulatory agenda.

Why this matters beyond compliance

The “designated services” now captured by these laws, property transactions, trust structures, company formation, and management of client funds, are among the mechanisms that have been used in real Australian cases to disguise the proceeds of organised crime, including drug trafficking. AUSTRAC and law enforcement agencies have also identified these mechanisms as part of the broader risk landscape connected to other serious crime types, including human exploitation. Bringing legal services and other Tranche 2 businesses into the AML/CTF framework is intended to close that gap.

What it means for our clients

Coulter Legal has spent the past 12 months preparing for these changes ahead of the 1 July 2026 commencement date. From that date, clients engaging the firm for affected services will be asked to verify their identity, in a manner similar to the checks already familiar from banking. It is a small step for each individual client that has the potential to make a real difference in the lives of those vulnerable individuals who are the victims of money-laundering activities. Collectively, it closes a gap that has sat in Australia’s financial system for far too long.

If you have questions about how these changes affect your matter, the team at Coulter Legal is here to help. More detail on what to expect is available here.