1. Sometimes, family lawyers perform work which is within the definition of “designated services” under the anti-money laundering and counter-terrorism financing (AML/CTF) tranche 2 reforms, which now form part of the AML/CTF legislation. The AML/CTF legislation is comprised of the Anti-Money Laundering & Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and the Anti-Money Laundering & Counter-Terrorism Financing Rules 2025 (Cth) (AML/CTF Rules). The AML/CTF regime is a central part of Australia’s efforts to deter, detect and disrupt money laundering and terrorism financing. The AML/CTF tranche 2 reforms commenced on 1 July 2026.
2. Law firms that provide any designated services must:
- enrol with AUSTRAC – by 29 July 2026;
- establish a governance framework – this includes policies and processes;
- conduct a Core Risk Assessment – relating to the designated services that the law firm provides its clients, its suppliers and the countries in which the firm operates;
- develop and maintain an AML/CTF program – this also involves onboarding and training relevant staff; and
- report to AUSTRAC.
3. Information on whether a law firm needs to enrol with AUSTRAC, how to enrol and ongoing obligations can be obtained from the websites of:
- AUSTRAC;
- The law firm’s relevant state or territory legal professional body; and
- The Law Council of Australia.
The Law Council of Australia’s June 2026 “National Legal Profession Anti-Money Laundering and Counter-Terrorism Financing Guidance—Legal profession designated services Guidance Note 4” is particularly instructive and contains information commencing on page 44 specifically relating to family law.
4. Arguably, the work performed by family lawyers that may fall within the definition of designated services is not clearly defined at present. However, the following services could appear to be designated services. Hence, undertaking any of the following may mean that the law firm is caught by the AML/CTF tranche 2 reforms:
- Performing the work required to transfer real estate or shares or the creation of or restructure of a company, pursuant to an informal agreement between the parties or a financial agreement, but not pursuant to a court order;
- Holding money in a trust account, including a controlled monies account, being the proceeds of sale of assets such as real estate where it is not held pursuant to a court order;
- Distributing money held in a trust account, including a controlled monies account pursuant to an informal agreement between the parties or a financial agreement, but not pursuant to a court order; and
- Assisting a client to plan or execute, or otherwise acting on behalf of a person in the creation of or restructuring of a company or a legal arrangement – which may include an express trust – even if it is pursuant to a court order.
5. The following services do not appear to be caught by the AML/CTF tranche 2 reforms:
- Performing the work required to implement a property settlement, such as transferring real estate or shares from one party to another where the transfers are pursuant to a court order;
- Drafting or advising on a financial agreement. Financial agreements (also known as BFAs) are not included within the scope of the court order exemption, so transfers implementing a settlement pursuant to a financial agreement may be a designated service. Legal services provided in relation to the preparation and execution of a financial agreement will only be a designated service if it directly advances the outcome of designated services. Put simply, it is the implementation of the transaction provided for in the financial agreement, such as a transfer of real estate or shares, which is the designated service, not the drafting of and advising on the agreement itself”
- Advising about the transfer of real estate or shares or the structure of companies and trusts as part of a property settlement. This advice is separate from the implementation of the property settlement, which is a designated service;
- Drafting consent orders to settle family law proceedings, which provide for the transfer of real estate or shares or the restructuring of a company;
- Receiving and holding money in a trust account, including a controlled monies account, as payment of fees for the provision of professional services;
- Receiving and holding money in a trust account, including a controlled monies account, payable to the parties or third parties pursuant to a court order; and
- Receiving and holding money in a trust account, including a controlled monies account, payable to the Australian Taxation Office, even if there is no court order.
6. To be clear, if a law firm undertakes a designated service, then that law firm:
- is defined as a “reporting entity” and must meet obligations under the AML/CTF Act and AML/CTF Rules;
- Must undertake client due diligence (CDD) and, in certain cases, enhanced client due diligence (ECDD) for more high-risk clients;
- Must report certain transactions and suspicious activities to AUSTRAC, including submitting:
- suspicious matter reports (SMRs) – if the law firm suspects a person is not who they claim to be, or the law firm has information relevant to criminal activity. The latter is likely to arise often in family law matters as allegations of family violence and breaches of intervention orders are frequent. Although that criminal activity is unlikely to be linked to money-laundering or counter-terrorism financing, the reporting obligation exists nevertheless. Other types of criminal activity which may be suspected by the law firm, or of which the law firm may have evidence include tax evasion, drug-trafficking or fraud. Clients who are reluctant to prove their identity or have inconsistent identity documents or are politically exposed persons (PEPs) or closely linked to a PEP are among the clients considered to be high-risk clients. The Federal Government has a list of PEPs. If clients live in certain countries considered by the Federal Government to be high risk, the law firm will need to be wary.
- threshold transaction reports (TTRs) – for any transaction involving physical currency (cash) of $10,000 or more;
- international funds transfer reports (IFTIs) – for instructions to transfer funds into or out of Australia;
- cross-border movement reports (CBM) – if the law firm moves physical currency (cash) and other monetary instruments of $10,000 or more into or out of Australia; and
- compliance reports – an annual report to AUSTRAC about how the law firm met its AML/CTF obligations in the previous calendar year.
7. SMRs must be submitted to AUSTRAC in certain circumstances, including if the law firm suspects that a client has committed a criminal offence, but only if the law firm is performing a designated service for that client.
8. If a law firm submits an SMR to AUSTRAC, the firm cannot inform the client that it has done so, as to do so could be committing the offence of “tipping off”. From a practical perspective, it is difficult to see how the law firm could continue to act for the client in these circumstances. However, advice should be sought from the ethics support service of the relevant state or territory legal professional body before terminating the relationship.
9. It is important to note that changes have been made to the Australian Solicitors’ Conduct Rules commencing on 1 July 2026. In Victoria, New South Wales and Western Australia these Rules are the Legal Professional Uniform Law Australian Solicitors’ Conduct Rules 2015. The amendments to rules 8, 12 and 13 give directions to legal practitioners as to how their conduct is impacted by the AML/CTF regime, commencing with the client retainer agreement. The aim of the amendments is to protect the legal practitioner where the retainer must be terminated and reasons cannot be provided to the client, due to the AML/CFT offence of tipping off.
Details of the changes to the Solicitors’ Conduct Rules are:
- Rule 8.1 has been amended to state that:
“A solicitor must only accept and follow a client’s lawful, proper and competent instructions.“ - Rule 12 makes it mandatory to include in client retainer agreements words to the effect that:
“12.1 the solicitor is subject to statutory obligations, including reporting obligations that might include confidential information; and
12.2 the solicitor may terminate the retainer, and notify the client, where continuing to act would require the solicitor to breach their ethical duties or professional responsibilities; and
12.3 the law may prohibit the solicitor from providing reasons for terminating the retainer under the previous sub-rule”. - Rule 13 now defines “just cause” for termination of retainer to include:
“13.4.1 instructions that require, or any circumstance where continuation of the engagement would cause, a solicitor to breach his or her ethical duties and professional responsibilities;
13.4.2 any circumstance where a solicitor is no longer able to act in the client’s best interests;
13.4.3 any circumstance where a client has not provided all information requested of them that is required to fulfil a solicitor’s statutory obligations.“
10. A law firm can refuse to lodge a SMR with AUSTRAC if it reasonably believes that all of the information comprising the grounds on which the law firm holds the suspicion is privileged. If only some of the information is privileged, the SMR must still be lodged. The SMR must then be accompanied by a LPP form which sets out details of the claim of privilege. The claim will be assessed by AUSTRAC. It is possible that information will initially be privileged, but may then be no longer covered by LPP as it has, for example, been disclosed to the other party.
11. There is an interpretation issue about how long the law firm’s reporting obligation continues. The obligation to lodge a SMR arises “at the relevant time or a later time”. The “relevant time” seems to be when the law firm commences to provide the designated service or there is an enquiry by a client about whether the law firm will provide a designated service. The words “or at a later time” suggest that the obligation to report continues after the designated service has been provided. If this is correct, the reporting obligation in family law matters could be quite long.
12. Family lawyers frequently hold trust money on behalf of the parties without court orders in place, including in circumstances where the parties were not involved in litigation but had agreed to the sale of an asset, such as real estate, a boat, shares etc. Parties routinely agree that the funds be “parked” with one of their law firms until they reach agreement regarding distribution or there is a court order setting out how the funds are to be distributed.
Since 1 July 2026, holding or distributing trust money other than for limited purposes such as to pay legal costs and tax is a designated service if it is not done pursuant to a court order. In circumstances where the law firm is required to lodge a SMR with AUSTRAC, a conflict of interest may arise. Whilst it may seem logical that a law firm suggest to the client that the parties hold sale proceeds in a joint account rather than a law firm’s trust account, such an approach should only be recommended after careful consideration of all options. The AML/CTF tranche 2 reforms are intended to cover sale proceeds in these circumstances. Law firms are required to enforce the law, not try to evade their obligations.
Additionally, and importantly, as family law disputes frequently involve family violence or allegations of family violence, a law firm’s trust account will often be the safest place for the funds to avoid one party pressuring the other to release the funds. Following the Family Law Amendment Act 2024 (Cth) which commenced on 6 May 2024 and the case of Shinohara & Shinohara (2025) 93-218; [2025] FedCFamC1A 126 in which the Full Court of the Federal Circuit and Family Court of Australia interpreted s 79(3) Family Law Act 1975 (Cth) to mean that add-backs can no longer appear on a balance sheet, there is a real risk that the full value of an asset which has been removed from the property pool by one party will not be taken into account and adjusted against the party who removed the funds. There are, therefore, potential risks of negligence claims against family lawyers who advise a client to invest funds jointly with their former partner.
Family lawyers who perform a designated service, must monitor for unusual transactions and client behaviour, for activity that may trigger a need to submit an SMR. It may be possible to avoid performing designated services, but to do so requires care, a willingness to refer work to other law firms, conveyancers and accountants and weighing up the risks of potential negligence claims if a law firm declines to take certain steps on behalf of, or for the benefit of, their client.
It is important to note that this is not a comprehensive overview of the obligations of lawyers and law firms practising in family law post 1 July 2026. Significant guidance has been issued by both AUSTRAC and the legal professional bodies. Additional guidance will likely be forthcoming as questions arise regarding how the AML/CTF regime applies to law firms, and particularly to family lawyers.