Tara (00:51):
Hi everybody. Thank you so much for tuning in. Today we are going deeper into the topic of AML and I've brought in one of the big guns, our special guest, Jessica Smith.
(01:05):
She is a director in the risk consulting team at Grand Thornton and she is a lawyer who specialises in the AML regime. So I'm thrilled to have you here to guide us, Jess. Welcome to the podcast.
Jessica (01:19):
Thanks Tara. I'm happy to be here.
Tara (01:21):
So for anyone listening, we have already gone over the fundamentals of the AML regime and how it applies particularly to estate planning lawyers. But I've brought Jess in to help us go a little bit deeper, raise awareness of some aspects of how the regime works, which we may not be aware of at first glance and basically just gives us some tips and tricks. So Jess, the first thing I wanted to ask you is what issues or aspects of the regime do you think estate planning lawyers should be alert to when navigating the AML?
Jessica (01:58):
Sure. So I think that's a really good question. One of the reasons is because if you look at the more commonly known exclusions for anti-money laundering would be preparing wills and general sort of estate activities based on wills or probate. So that's one of the most general exclusions. I think there's a common misconception out there that wills and estates lawyers just do wills and estates and they don't focus on that estate planning component. And that's where I think a lot of the AML issues can arise because one of the key aspects is actually working out whether the advice you're providing or your engagement tips into designated services. So anything from setting up a trust or appointing trustees or controlling, that type of activity in the estate planning realm of wills and estates is what is captured by the AML CTF regime.
Tara (02:57):
Yeah. And it is, I think something that we focused on for, especially in the TT Precedents Club, a lot of members are looking at the scope of the services they currently provide and having to make a decision about are they going to continue offering those particular services and comply with the regime or are they actually going to narrow their service offering so that they can sidestep this all together? For people who have said, "Actually, this is all too hard. I'm just going to stop offering particular services." Do you have any guidance for them? Can they just ignore AML forever for now?
Jessica (03:39):
Well, I think it's more than just making a policy position that you're not going to be providing designated services. You actually need to put controls in place to make sure that any of your matters don't tip into designated services. So this comes into some of the practical measures that firms can do, whether they want to provide designated services or whether they want to completely opt out. So I think number one is they need to understand where their matters will attract AML concerns. So what I usually recommend to clients is doing a bit of a mapping exercise over all your engagements. And so you can really articulate, okay, these ones are definitely not covered. These ones are covered. And then you can make a bit of an assessment based on, well, the majority of my business is preparing bread and butter wills. I may do a little bit of conveyancing or I may do a little bit of trust set up on the side, but really that's not where the focus of my business is, both in terms of billings and where strategically I want my firm to be placed.
(04:49):
So it's about understanding what matters you're providing. I think another thing to be aware of is we've all had the case where you have an ongoing long-term relationship with your clients, that's what we all want. And so you may have had an engagement for one thing and then by virtue of the relationship, they instruct you again and so that next matter could potentially be a designated service. So it's really about managing matter by matter. And so some of the controls or some of the things we need to have in place is have a think about the practical processes you're going to follow. So think about it from a client intake perspective, matter intake perspective and setting up the matter itself. So what we like to talk about is when we're taking in the client and we're scoping it, just make sure that it doesn't have those hallmarks of a designated services.
(05:41):
So for example, does it involve a trust or company formation? Are we acting on behalf of a client to actually set up or structure an entity? I also recommend having like matter acceptance protocols or standard engagement terms, which really articulate what the firm will do and what the firm won't do. You may also want to have a think about if you are referring that as on, who is best placed to do them? Do you have a referral partner in mind and are you set up to sort of recommend them to your clients?
Tara (06:11):
Jess, I'd love your comment about the referral partners because I'm seeing this a lot in our TT Precedents Club membership. So you're probably not aware, but we've got a membership of nearly 300 Australian lawyers who work in the estate planning space and it's really beautiful community. And what I'm actually seeing is for the firms who have decided, look, we for right now are not going to continue offering anything that could be a designated service. They're actually collaborating with other firms in the TT Precedents Club to create a referral arrangement. And they know by virtue of them being in the club and the conversations we have every Thursday, the standard of their service offering, their commitment to quality and continuing learning. So that has made it a lot easier, I think for some firms. We also have some challenges and you and I have talked about this, Jess, about the grey area because yeah, there's some things that are very clearly a designated service and some things that are clearly exempt from being a designated service.
(07:22):
But there's a few things that particularly if you've listened to this podcast and we talk about it a lot in the TT Precedents Club that we recommend is a really good value add to clients. So I'm thinking of powers of attorney for companies and corporate trustees, which to my understanding are going to be designated services. And then there's also things like, Jess, you've mentioned intervivos family trusts. What about succession planning and deeds of succession for those trusts on a death event? That to me feels like a very grey area. And I'm not asking you to give an answer on that on the spot, Jess, but just sort of to say, for me personally, we don't have enough clarity on how that will be treated and I'd be leaning towards treating it as a designated service to be on the safe side. Yeah. Well, what do you think about them?
(08:21):
Have you heard anything in terms of these gaps and grey areas and are we likely to get more guidance and what do you think practitioners should be doing if they are offering those sort of grey area services?
Jessica (08:34):
Sure. So I think one thing that is super important to point out is the designated services are activity based, not dependent on your practise area. So what that means is even though if you are like me and love reading explanatory memorandum of legislation, you will see it mentioned in there that the AML CTF Act was not designed to capture wills and estate. However, this disregards the fact that wills and estates as a practise area often does some activities that will be designated services. So for example, the establishing of the trust, registering the trustees, transferring control of the trust, these are all activities that fall within the definitions of those designated services. Now in terms of any additional guidance, so it's been a real pain point of industry that I think industry was waiting on guidance from AUSTRAC. AUSTRAC did say that they were producing industry guidance that has been delivered in the form of the starter kits and pushed back to industry bodies such as the Law Societies of the Law Council of Australia to really come up with a position and additional guidance on those grey cases.
(09:54):
So as far as I'm aware that guidance is still in discussions between at an industry level AUSTRAC have released some additional guidance on the 15th of May, but it doesn't go into the type of detail that you're sort of seeking and I think your listeners would seek too. And just so you're aware, AUSTRAC don't provide legal advice. So if any of your members will call up their service hotline and specifically ask these questions, please don't expect a definitive answer because that's not what AUSTRAC have made it clear that's not what the service hotline is for. They've been directing people to get their own legal advice. So it's one of these things where I think everyone's in the same boat and we won't know until it's tested as in until AUSTRAC have come out with a position or have we've got any information about enforcement from them in regards to this.
Tara (10:49):
Yeah. And Jess, can you remind us all what the penalty or consequences of providing a designated service without complying with the AML protocol is?
Jessica (11:02):
Sure. So a lot of the AML CTF Act, a lot of the obligations in it now have civil penalty units attached to them, which means that it's not just one act of not providing designated services. They will first get you on the fact that you are providing designated services without being enrolled. So there is a civil penalty position each day that you're not enrolled and you're providing those services and I think it's about $18,000 a day.
Tara (11:33):
Oh my gosh. Okay. All right. So if you're looking at providing-
Jessica (11:39):
That's right. So I think the main message for listeners would be if you are providing a designated service, we really encourage you to enrol before the 1st of July. That being said, the CEO of Austrac, which is the regulator of AML, has come out publicly and said for the first few months, especially for Tranch two, including lawyers, there won't be a slap of penalty units and fines straightaway. Most likely there will be maybe a letter written to say, "Hey, we noticed that you aren't enrolled yet. We consider, are you providing designated services? Please enrol." So he has come out and said that there will be a gently, gently approach in terms of enforcement, but I suspect that will sort of run out soon.
Tara (12:28):
Okay. Well, that is reassuring. So it seems that for anybody who is deciding to opt out of the regime, you have to be really clear and not really go anywhere near those sort of grey area services. And for people who are ... Am I right in saying this if you are actually complying with the regime, then you should just apply the protocols for all your matters and then it doesn't really matter if it's a designated service or not, or are you saying you should just only do it for services that could be a designated service?
Jessica (13:08):
See, that's interesting. And I've been advising my clients that it's really a business decision for them because you've got to understand, Tara, that when you are providing a designated service, you have an obligation to know your customer and to identify them. So identifying and verifying your customer comes at a cost. So you may need to do VOI, you may use a third party provider. And so we have clients who have made the decision to identify and verify all of their clients no matter what engagement that they're on, because it is highly likely that once they have been onboarded, they are most likely going to service them in a more fulsome way and provide designated services somewhere down the track. And if they get their identification straight at the start, it creates less friction for the client moving forward. However, you really got to work balance the compliance cost versus whether you want to do it for a bespoke amount of your clients versus the whole amount because there is certain costs involved with that.
(14:12):
One of the things that we are telling our clients is to really, it's a business decision for themselves as to whether they want to apply AML across the whole of their matters and their clients. Often we need to think about the fact that when we are providing designated services, we have an obligation to know who our customer is. So that means we need to identify them and verify their identity and there is a cost associated with that. So you may use a third party provider to do a VOI, a PEP and sanction screening, an adverse media check. So the decision is, do you apply that to all of your clients straight from onboarding or do you wait until you inevitably provide them with a designated service and then do it? There's pros and cons to both approaches. One, it'll create les friction if you apply that lens right at the start to all of your clients.
(15:10):
It's less of an issue in terms of maintaining two separate processes. You may have the one engagement terms, things like that, which have a lot of the AML obligations in them. Alternatively, it might be cheaper to only ID those customers or clients who are providing designated services for, but that may create a bit of friction if it's in the middle of your relationship and then only then do you ask for their identification. So there's a bit to think about there.
Tara (15:40):
And I can also imagine some risk. So especially if you've got a team and there might be junior lawyers who are not as alert to the sort of risk management and business of delivering the service and a focus just have those tunnel vision goggles on around, "Well, great, we're going to do this next step," and not actually taking a moment to go, "Well, actually we're at a designated service now and we haven't complied with our AML protocols from the beginning." So yeah, I think you'd have to have a lot of checklists or protocols in your precedence to just make sure that people are taking that moment to assess, "Okay, have we done what we need to or not? "
Jessica (16:28):
That's right. And what I recommend is that can be addressed in two ways. Number one, through training your staff to really identify what that's specific to your firm, what would be considered a designated service and what wouldn'. So it's no good to provide general training to your staff about how a commercial matter may be a designated service if you don't touch commercial matters. It's more relevant that you train your staff about when they're engaging with a client about trust structures. Are they providing general advice only or is there a specific transaction or vehicle or structure that they have been engaged to advise on or to create? So having like a checklist or training for staff, that's one way. Another way is to utilise your practise management software to include, I've seen everything from litle popups to flags to a AML mandated field where you have to actually say, "Is this captured as a designated service?
(17:30):
Yes, no." And so that way you're turning your mind to it in the client intake and the matter intake process.
Tara (17:38):
And Jess, what about firms who are opting out for now? Can they always opt in? It's not like a once and for all deadline, right?
Jessica (17:48):
No, that's right. So the key is you need to enrol with Austrac before you're providing designated services. So if it gets to 12 months down the track and you now want to provide those designated services such as setting up trust structures or assisting your clients with their roles as trustee or beneficiaries and advising in that respect, you can always enrol with Austrac at any time. The key is to do it before you're going to be advising clients on that. So if your existing clients don't want to go somewhere else or you've got enough business there to support that, that's something you can always make a decision on.
Tara (18:28):
And what about if you've enrolled and then 12 months down the track, you're like, "Actually, this is too much of a headache for me and I'm going to stop providing any kind of designated service." Can you disengage? Because I know there's the audit process and other things that you're meant to I think you're suddenly in the net for the Privacy Act. Even if you're under that three million threshold, can you wind it back or has the door closed?
Jessica (18:58):
Absolutely. So if you're no longer providing designated services, your main obligation is to notify Austrac that your details have changed, the position has changed and you're no longer providing designated services. So they've got that capability in your Austrac business online portal and it's just a matter of, I think you may have to nominate a reason as in business closed down or no longer providing those services and that's the process. So from there you may have to do the next year's compliance report depending on when you've cancelled your enrollment and just make sure from then on that you're not providing those services that would be considered designated services.
Tara (19:38):
So you can unscramble the eggs so to speak. That's reassuring.
Jessica (19:42):
You can, yes, yes. And there's precedent about that too. Remember a lot of the banks, financial services, corporate bookmakers, pubs, clubs, they've all been enrolled since the start of AML in 2006 and they have made decisions that they're not providing certain designated services or none at all and there's entities there who have unenrolled as well.
Tara (20:04):
Okay. Can we talk about the suspicious matter reporting and what to do when you think that you have to make a report in respect to your engagement continuing and the challenge that poses for lawyers especially?
Jessica (20:21):
Sure. So I'm very conscious this is a bone of contention with the legal community because we see it as almost in contradiction. The obligation to report suspicious matters is in contradiction to our ethical obligations and our duty to our client, right? And it's something that hasn't been resolved at an industry level or a regulator level. Indeed, you've got Austrac coming out formally and saying that's a matter for your legal societies and the Law Council of Australia. They'll be putting forth a position and you do have that, the lobbying from the Law Council of Australia as well to put forward the position to try and get certain exemptions in place. So the answer is there's no right way to do it at the moment. It is still an ongoing issue bearing in mind that there is mechanisms in place with the AML CTF Act where you can seek exemptions for certain things.
(21:21):
So it may be the case that different forms of SMRs may be excluded depending on that duty to your client. At the moment, the obligation is if you form a reasonable suspicion or you have reasonable grounds to form a suspicion about your client, you are obligated to tell AUSTRAC. Now that needs to be balanced with that tipping off obligation, which means you can't tell your client that you have made a report to AUSTRAC. There is nothing in the AML legislation to say you have to stop acting for your client and this is what the issue is. It's that confidentiality between, and then do I have a duty to act, do I not? So there's a lot of these issues that are still sort of somewhat unresolved.
Tara (22:06):
So the ethics department at your law society is probably the best port of call I'd be suggesting.
Jessica (22:14):
Oh, definitely. They have been involved in these discussions and are intimately aware of the issues here. So I would just strongly recommend that you contact them for additional information.
Tara (22:24):
Yeah. And Jess, I've done a little bit of research about this mostly in the context of what to include in a cost agreement because at the art of estate planning, we do provide clauses to include in your sort of normal proforma cost agreement for estate planning matters, because there's always lots of curly things that come up with estate planning matters that erode into our scope and particularly where we do value pricing and fixed pricing upfront. So I've been looking at, well, what do we need to do in the costs agreement? And I can see in a lot of the states, there is a right to stop acting for a client without giving them a reason provided you offer reasonable notice. I mean, from my perspective, I'm thinking we just need to have provision in the cost agreement to tell the client, we've got the legislative right as well, but just to be upfront with them and say, "Look, there could be a reason that we stop acting for you and we won't be providing a reason why." I don't know what you think from a risk management's perspective or if that's outside the scope of what you normally give guidance on, but I think it is worthwhile turning to have some communication in our cost disclosure about it.
Jessica (23:45):
That's right. And if you look at your terms and conditions that you would've entered into with your bank, for example, now banks have been captured by the AML CTF Act for a long time. They have buried in their Ts and Cs something like, "We reserve the right to cancel your account or close your account if we deem in line with our risk appetite of the bank." And so that type of language is really aimed to give them the right to cancel the account, but it's not specifically pointed to AML. It's a general obligation to make the customer aware. And so I envisage that law firms can use similar language in their engagement letters and certainly the ones that we have been assisting with, we've included that type of language in there because I think it really helps set the expectation.
Tara (24:33):
Yeah. Okay. That's really helpful. You're right. We're not having to reinvent the whole wheel here either. We can leverage off what the rest of the finance industry has been doing for years. That's really reassuring, Jess.
Jessica (24:46):
That's right. And in Austrac's latest guidance, which they released in May, which is available on their website, they have some guidance as to how to communicate these obligations to your existing clients. I'm not sure whether it goes into specifically about what to write in your engagement letter. In fact, I'm sure it doesn't, but it may be a useful resource to have if, for example, your long-term acting clients are now struggling with the amount of information or your change of processes because you are trying to comply with your AML obligations.
Tara (25:22):
Oh, that's great to know. I must say was really into looking at all of the AUSTRAC guidance at the start of the year and when we got into things and now I just keep getting so many emails that I'm not paying as close attention. So that is a really good reminder to actually go back and check out some of the new guidance that they have released because I can imagine there's a few of our listeners who are a little bit fatigued the same way that I am. So yeah, just a good little reminder. So Jess, before we wrap it up, are there any other tips or traps or instances where you see people inadvertently getting this wrong because they're new to the framework or anything else that you want to leave our listeners with?
Jessica (26:09):
So I think I would really encourage your listeners to take shop of their existing matters they've got, the existing clients, really to make a decision whether they want to provide those designated services or not. If they choose to opt out, as you say, making sure you've got the controls in place, whether they be training your staff and through your practise management software to really make sure you can identify any matters that would potentially be designated services so you can make the decision whether you refer them on or something like that. The biggest challenge is going to be a cultural challenge. So I get the impression lawyers out there are really not liking this whole AML, the obligations that they've got. It's going to change the dynamic with our clients 100%. It's going to challenge some of the notions we've got about our role and our duties to the client.
(27:05):
So I think it's a matter of getting across and being comfortable with acting as their lawyer and doing your professional obligations in that regard, as well as satisfying the regulator with your obligations under the AML CTEF Act. And again, I would just reiterate, utilise your law societies because they have been preparing for this. They've been in the rooms to have those discussions and they would be a wealth of information.
Tara (27:30):
Jess, that is so helpful. For our listeners who feel like they might need a bit of extra support on their compliance obligations, could you just talk them through the types of work that you do and how you support firms?
Jessica (27:46):
Sure, that's fine. For the work, especially for the law firms, I work with a range of smaller law firms to mid-size to multinational top tiers and the type of work we do is to help them gain an understanding of the matters that they currently practise in and which ones would be designated services or not. So we help them with that mapping exercise. Then if they are captured by the designated services in the AML Act, we help them gather up the information they need to provide their risk assessment. So getting an understanding of their clients, the delivery channels they use, the jurisdictions that they may deal with. So we assist in building the risk assessment and implementing those controls. We also prepare the policies and processes and forms. One thing that I see as really useful is the training that we provide because it may not be well known, but there's three key roles in the AML legislation being the governing body, senior manager and AML CTF compliance officer.
(28:49):
And they have responsibilities that are assigned to that role with civil penalty units attached if they fail to comply with those. So the training and the awareness that a governing body of a law firm, so the owners of the law firm need to have is very different to the junior lawyer or the client facing staff. So it's important that they know what their obligations are and then how to fulfil those. So that's some of the training that we help with. I think from a governance perspective, it's no longer about just being aware generally of AML and having an agenda item on your meetings. You actually need to be asking questions and discussing this.
Tara (29:31):
So just if someone wants to work with you, what's the best way for them to reach out?
Jessica (29:36):
Sure. So I'm happy to please feel free to contact me via LinkedIn. My details are on Grant Thornton's website, so yep, happy to answer any questions.
Tara (29:45):
Incredible. Thank you so much for being so generous with your knowledge today. I know there's probably lots of listeners who are feeling very unsteady about this new regime. So it's really reassuring to hear via your guidance and know that there's support out there for anyone who needs it. Thanks everybody for listening and we'll catch you next week.
