Law practices and Tranche 2: What conveyancing lawyers need to know

For law practices, particularly those conducting conveyancing and property settlements, Tranche 2 represents a fundamental shift in how client relationships are managed. Here's what you need to know.

Which legal services are in scope?

Not all legal services are designated services under the AML/CTF Act. The key is whether you're dealing with client money or property in specific ways.

The critical distinction is whether you're transacting or merely advising. If you're handling client money or property, or facilitating transactions, you're likely providing a designated service.

Conveyancing-specific obligations

Property conveyancing is one of the most common designated services for law practices. Here's what you need to implement:

1. Purchaser verification

Before acting for a property purchaser, you must verify their identity using acceptable documents or electronic verification. For individual purchasers:

• Verify full name and date of birth (driver's licence, passport, etc.)
• Verify residential address (utility bill, rates notice, etc.)
• If purchasing through a company or trust, identify beneficial owners
• Understand source of funds, particularly for cash purchases

2. Vendor verification

When acting for vendors, similar verification is required:

• Verify identity of all registered proprietors
• If vendor is a company or trust, verify beneficial ownership
• Identify powers of attorney or authorised representatives
• Document any unusual circumstances (e.g., property held for short period)

3. Settlement procedures

At settlement, additional AML/CTF controls are necessary:

• Verify source of deposit and balance funds
• Record details of all parties attending settlement
• Document any cash components (triggering TTR if over $10,000)
• Apply enhanced scrutiny to transactions involving high-risk jurisdictions

Trust account management

Trust accounts are a particular focus of AML/CTF obligations. Law practices must:

Monitor for suspicious activity

• Regular trust account reconciliations with AML/CTF lens
• Scrutiny of third-party payments (not from/to the client directly)
• Investigation of unusual payment patterns or structuring
• Documentation of legitimate reasons for non-standard transactions

Cash handling protocols

While most law firms avoid cash, if you do accept it:

• Any cash amount of $10,000 or more requires a Threshold Transaction Report
• Multiple cash deposits below $10,000 that appear structured must trigger SMR
• Maintain detailed cash receipting procedures
• Consider implementing a policy against accepting large cash amounts

Beneficial ownership challenges

Identifying beneficial owners can be complex, particularly when clients are:

Suspicious matter indicators for conveyancing

Law practices should be alert to red flags specific to property transactions:

• Unusual financing: Significant cash components, or funds from unexpected sources or jurisdictions
• Nominee arrangements: Unexplained use of nominees or powers of attorney
• Quick flips: Property purchased and immediately resold without obvious improvements
• Price anomalies: Purchase price significantly different from market value without explanation
• Client reluctance: Resistance to providing identification or beneficial ownership information
• Third-party direction: Excessive involvement of unknown third parties in client's decisions
• Complex structures: Overly complicated ownership structures without clear business purpose
• Rushing: Unreasonable pressure to complete quickly without legitimate business reason

Remember: forming a suspicion doesn't mean you've proven wrongdoing. It means you have reasonable grounds to suspect based on the circumstances. When in doubt, document your assessment and consult your compliance officer.

Interaction with professional obligations

AML/CTF obligations complement (not replace) your existing professional duties as a lawyer:

Client confidentiality

• Submitting an SMR does NOT breach client confidentiality - the Act provides statutory protection
• You can share AML/CTF information within your practice for compliance purposes
• Legal professional privilege doesn't override AML/CTF reporting obligations

Know Your Client

• Many CDD requirements align with existing know-your-client practices
• AML/CTF verification is more prescriptive about acceptable documents
• Record keeping requirements are more specific and longer (7 years)

Acting on instructions

• You're not required to investigate or make findings about client's criminal activity
• However, you must not knowingly facilitate illegal activity
• If you form a suspicion, report it - AUSTRAC and law enforcement will investigate
• After reporting, consider whether to continue acting (unless prohibited by AUSTRAC)

Technology solutions

Many law practices are implementing technology to streamline AML/CTF compliance:

Electronic verification

Electronic verification services (EVS) can verify customer identity against government databases:

• Benefits: Fast, convenient, good client experience
• Limitations: May not work for all customers; still need document copies as backup
• Providers: greenID, Veda Advantage, others accredited by AUSTRAC

Practice management integration

Consider AML/CTF checklists and workflows in your practice management system:

• Matter opening checklist including CDD requirements
• Trust account alerts for suspicious patterns
• Document management for verification records
• Reporting workflows for SMRs

Training your team

All staff involved in conveyancing must understand their AML/CTF obligations:

Cost considerations

Law practices should budget for both upfront and ongoing compliance costs:

Upfront costs:

• Program development (can be reduced by using digital products like HeadStart Docs)
• Legal review and customisation of program
• Staff training (initial)
• Technology setup (EVS, practice management modifications)

Ongoing costs:

• Compliance officer time
• Electronic verification fees (typically $2-5 per verification)
• Additional matter time for CDD procedures
• Annual training refreshers
• Biennial independent review

While these costs are real, they're manageable and can be absorbed into normal fee structures. Many practices find that robust client verification also reduces other risks.

Getting started

Recommended steps for law practices preparing for Tranche 2:

1. Scope review: Determine exactly which services you provide that are designated services
2. Risk assessment: Conduct a preliminary assessment of your ML/TF/PF risks
3. Gap analysis: Compare current procedures against AML/CTF requirements
4. Compliance officer: Appoint someone with authority and knowledge
5. Documentation: Develop your AML/CTF program (consider using templates to save time and cost)
6. Technology: Implement electronic verification and practice management workflows
7. Training: Train all relevant staff before 1 July 2026
8. Enrolment: Complete AUSTRAC enrolment by 29 July 2026 (portal opens 31 March 2026)
9. Testing: Run through procedures with a few test matters before go-live
10. Review: Monitor effectiveness and refine as needed

Read our complete Tranche 2 Guide

Key dates, affected sectors, obligations and how to prepare