AUSTRAC takes compliance action in relation to Tranche 2 entities

Overview

Recent reforms to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the AML/CTF Act) expanded AUSTRAC’s information gathering and examination powers.

AUSTRAC has begun exercising its expanded information gathering powers as part of its compliance oversight of entities captured by the Tranche 2 reforms.

Businesses in newly regulated sectors, including certain real estate agents, accountants, legal practices and jewellers that provide designated services, were required to enrol with AUSTRAC by 29 July 2026.

On 28 August 2026, barely a month later, AUSTRAC announced it had begun issuing section 167 notices to businesses that appear to be providing ‘designated services’ but have not enrolled under the AML/CTF Act.

Australian businesses, particularly those that may fall within the Tranche 2 rules, should:

• be alert to receiving section 167 notices from AUSTRAC over the coming weeks (if they have not received them already);
• prepare to provide timely, compliant responses to those notices; and
• review their AML/CTF risk management framework and systems.

Parallels may be drawn with the development of the UK AML/CTF enforcement regime. Australian businesses should anticipate that AUSTRAC’s initial information gathering may lead to enforcement action against non-compliant entities.  

‘Designated services’

AML/CTF obligations apply to a person or entity that provides a ‘designated service’ in the course of carrying on a business with a geographical link to Australia.

‘Designated services’ for lawyers, accountants, conveyancers, insolvency practitioners, financial advisers and other businesses that provide professional services are listed in table 6 of subsection 6(5B) of the AML/CTF Act.

They include

• assisting in the planning or execution of a transaction to sell, buy or transfer real estate;
• assisting in the planning or execution of a transaction to sell, buy or transfer a body corporate or legal arrangement;
• receiving, holding, controlling or managing a person’s property to help in the planning or execution of a transaction;
• assisting in organising, planning, or executing a transaction for equity or debt financing relating to a body corporate or legal arrangement;
• selling or transferring a shelf company;
• assisting in the planning or execution of the creation or restructuring of a body corporate or legal arrangement;
• acting, or arranging for someone to act on behalf of a person in particular positions in a body corporate or legal arrangement; and
• providing a registered office address or principal place of business address of a body corporate or legal arrangement.

If a business provides a designated service, then, subject to certain exemptions, it must comply with its AML/CTF obligations, including enrolling with AUSTRAC and taking steps to know their customers before they start providing them with the designated service.

Section 167 notices

The new AML/CTF laws significantly expanded AUSTRAC’s powers of investigation and examination.

The section 167 investigation powers were expanded to allow AUSTRAC to issue a notice to any person who has information or a document that is relevant to compliance with or enforcement of an offence or civil penalty provision under the AML/CTF Act or regulations, or an offence provision of the Crimes Act 1914 or the Criminal Code. 

As a result, AUSTRAC’s information gathering powers are not limited to reporting entities but extend to any person, including non-reporting entities, individuals, existing and former employees and officers, customers, third party agents, contractors, consultants, and related companies.  

A section 167 notice is a formal statutory notice issued by AUSTRAC requiring a person to provide specified information or documents.

AUSTRAC’s most recent information gathering activities are directed at enquiring into whether specified businesses are providing designated services and meeting their obligations to enrol under the AML/CTF Act.

Recipients of a section 167 notice must comply with the notice, regardless of whether they are required to enrol or register with AUSTRAC.

A section 167 notice is not enforcement action or an indication that enforcement action will follow.  However, if the recipient does not comply with the notice, enforcement action may follow. 

A perceived compliance gap

Exact sector related compliance numbers from AUSTRAC are not available.  However, recent media reports and compliance data indicate a gap between the number of enrolled entities and the total number of active businesses operating across Australia that may be providing designated services.

In summary, the available data suggest that by 29 July 2026, about 50% of active Australian accounting practices, about 40% of registered real estate agencies, between about 12% and 14% of law firms, and about 10% of retail jewellers operating in Australia had enrolled with AUSTRAC. 

Those numbers do not by themselves indicate significant non-compliance across those sectors.  Not all Australian businesses operating in those sectors will be required to enrol with AUSTRAC under Tranche 2.  Only businesses providing a ‘designated service’ will be required to enrol.  

The requirement to provide a ‘designated service’ may explain the relatively low number of law firms and jewellers enrolled with AUSTRAC, compared to the total number of law firms and jewellers operating in Australia. 

While a higher proportion of Australian accounting firms is expected to provide designated services, and therefore to be required to enrol with AUSTRAC, many law firms provide litigation related services only and are not required to enrol. Further, while all bullion dealers are required to enrol with AUSTRAC, the definition of ‘designated services’ means that only a relatively small proportion of retail jewellers are required to enrol.     

Nonetheless, the apparent gap between AUSTRAC enrolments and the number of businesses potentially carrying on designated services, particularly among real estate agents and accounting firms, may explain AUSTRAC's recent use of section 167 notices.

In addition, there must be some risk that businesses who are providing designated services but have not enrolled with AUSTRAC will be found not to have complied with their other core AML/CTF obligations, potentially triggering further regulatory action.

How to respond to a section 167 notice

An entity that receives a section 167 notice will need to take the following steps:

• Read the requirements of the notice carefully: This includes checking the exact scope of the request for information and documents and noting the deadline for the response.   
• Gather responsive information and documents:  Entities should compile information and documents, including information about business structures, operations and specific services, transaction histories and other business records, as specified in the notice.
• Respond to the notice within the deadline:  All responsive information and documents should be provided within AUSTRAC’s deadline (which can be as short as 14 days).
• Avoid false statements:  Entities should ensure all information is accurate and no false or misleading information is provided to AUSTRAC – providing false or misleading information or documents is a criminal offence.
• Seek professional advice:  If in doubt, entities should seek professional advice to understand their compliance position, not only in relation to any section 167 notice but also their AML/CTF obligations more generally. 

Consequences of non-compliance

Under section 167(3), it is an offence not to comply with a section 167 notice.  Contravening a requirement in a section 167 notice is punishable with imprisonment for up to 6 months or a fine of 30 penalty units, or both.

Separately, section 167(3A) provides that a person must comply with a section 167 notice.  Section 167(3A) is a civil penalty provision.

Further, under sections 136 and 137 of the AML/CTF Act, giving false or misleading information or documents to AUSTRAC is an offence, punishable with imprisonment for up to 10 years or 10,000 penalty points, or both.

As at 1 July 2026, one Commonwealth penalty unit was valued at $364.

AUSTRAC enforcement cycle

The UK experience suggests that Australian businesses should view AUSTRAC’s initial information gathering activities as the initial phase of a developing enforcement cycle.

Like the new Australian regime, the UK brought non-financial businesses and professions under anti-money laundering regulations, viewing them as “gatekeeper” professions engaged in high-risk activities that require closer supervision.

After an initial phase of educational outreach, data-gathering and compliance reviews, UK regulators engaged in more aggressive public enforcement and sanctions, including substantial fines, against non-compliant businesses.

At this stage, AUSTRAC appears to be leveraging its broader information gathering powers to understand the extent of compliance of newly regulated businesses across Australia, and this initial phase of regulatory activity appears to be targeted at identifying businesses that have not complied with their enrolment obligations.  

AUSTRAC has indicated its focus is on helping businesses understand and comply with their AML/CTF obligations.  However, Australian businesses should note that AUSTRAC has also stated that “the time for preparation is passed”.

The safer assumption must be that this information gathering phase is a precursor to possibly heavier enforcement action against entities in the event of material non-compliance, which could involve AUSTRAC seeking civil penalty orders and/or injunctions, accepting enforceable undertakings, issuing infringement notices, and issuing remedial directions, depending on the nature and extent of the non-compliance.

Insurance considerations

As a section 167 notice is not enforcement action and does not indicate that enforcement action will follow, insurance cover is unlikely to be available for the costs of complying with a section 167 notice.

However, should a person not comply with a section 167 notice, or should the response to the section 167 notice reveal other AML/CTF non-compliances, there may be scope for insurance policies to respond to the costs of resolving subsequent enforcement actions.

Affected entities should seek advice from their broker or a suitably experienced lawyer to understand their insurance position.

Conclusion

Australian reporting entities are expected to be actively managing their AML/CTF risks, and entities that ignore their AML/CTF obligations can expect regulatory scrutiny and potentially enforcement action.

The expanded information and examination powers of AUSTRAC, and the speed with which AUSTRAC has issued section 167 notices, suggests that AUSTRAC is not inclined to take a passive approach to non-compliance with AML/CTF obligations, and entities should not assume they will enjoy a prolonged phase of passive supervision before AUSTRAC moves to take enforcement action for non-compliance.      

Response times for section 167 notices can be short (e.g. 14 days).  Recipients of section 167 notices should seek legal or other professional advice promptly to ensure a compliant response.

If you or a business you know need advice or assistance in complying with AML/CTF obligations, including responding to a section 167 notice, please contact Rebecca Kelly, Managing Partner (Australia), or Jehan-Philippe Wood, Partner (Perth).