Australian AML/CTF reforms: enhanced requirements for AML/CTF policies, including sanctions compliance matters

Sanctions policies, including policy requirements in relation to sanctions screening processes, are set to take on new significance if proposed draft rules accompanying the significant reforms to Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) are implemented.

AUSTRAC has released a second round of consultation on the Draft Rules accompanying the amended AML/CTF Act, following significant reforms introduced by the 2024 Amendment Act. Notably, the 2024 Amendment Act provided that, as part of customer due diligence, reporting entities will be required to establish, on reasonable grounds, whether a customer is designated for targeted financial sanctions. This also applies to a customer’s beneficial owners, any person on whose behalf the customer is receiving the designated service, or any person acting on behalf of the customer.

Among numerous other updates to the proposed AML/CTF regulatory framework introduced by this latest consultation, the Draft Rules now contain a number of enhanced sanctions requirements for AML/CTF reporting entities, including:

• enhanced requirements for AML/CTF policies, including a proposed requirement that AML/CTF Policies must ensure that reporting entities do not breach certain sanctions requirements;
• failure to have sanctions policies as prescribed by the Draft Rules will be a breach of the requirement to develop and maintain AML/CTF policies, attracting a potential civil penalty; and 
• failure to comply with those sanctions policies will be a breach of the AML/CTF Act, attracting a potential civil penalty.

Should the Draft Rules be implemented in their current form, this will constitute a marked shift from the role sanctions policies ordinarily play for reporting entities regulated by the AML/CTF regime. In practice, reporting entities will likely need to consider a number of complex matters when drafting sanctions policies to meet the proposed requirements under the Draft Rules.

For further details on the proposed AML/CTF reforms, see HSF Kramer’s Insights article here.