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The head of an Australian legal association has called on the federal government to reverse its plans to impose suspicious matter and other reporting obligations on law firms.

Juliana Warner, president-elect of the Law Council of Australia,  the government’s proposed reforms could destroy the concept of attorney-client privilege, if adopted in their current form.

“A cornerstone of Australia’s justice system and the rule of law is that when a client tells their lawyer something in order to seek advice, their communication will be confidential and privileged,” she said.

“This principle fosters public confidence in the role of legal advisors and the legal system more generally, which is central to facilitating the administration of justice.”

Warner said the proposed reforms, which would see law firms classed as anti-money laundering (AML) reporting entities for the first time, could result in situations where legal practitioners are required to breach client privilege.

“We have therefore called for legal practitioners to be exempt from any suspicious matter reporting obligation where that ‘suspicion’ is based upon information or documents the subject of client legal privilege,” she said.

Avoiding unnecessary burdens

The council said it welcomes the efforts of the attorney-general, Mark Dreyfus, to close loopholes and deliver risk-based, outcome-based AML legislation.

However, it also said the reforms must be balanced and proportionate, and should not create unnecessary burdens for low-risk legal work.

“Existing statutory obligations and requirements imposed on legal practitioners mean that the residual risk in the legal sector is generally low,” said Warner.

“In addition, risk is not shared across our profession. Many areas of legal practice have negligible or no risk. Therefore, the scope of services which are subject to new AML/CTF [counter-terrorism financing] obligations must be carefully considered.”

According to the council’s own analysis, there is a need for “heightened awareness” of inadvertent exposure to financial crime among lawyers, but not for mandatory AML reporting obligations.

Instead, the council has suggested that it could produce comprehensive “guidance notes” for the legal profession, with input from its constituent bodies.

If AML reporting obligations are allowed to stand, Warner said that law firms providing low-risk services, such as advice work, will face increased costs and red tape for “no good reason”.

“These imposts will cause firms unnecessary financial hardship, particularly for small firms and for those in rural, regional and remote areas,” she said.

Australia’s limited AML requirements 

Luke Raven, senior partner for financial crime compliance at the Bank of Queensland, disagreed with Warner’s characterisation of the reforms as an unnecessary burden for the legal profession.

Speaking with 91����ԭ��, Raven pointed out that similar jurisdictions, such as the UK and New Zealand, have long had similar obligations in place for law firms.

In contrast, law firms in Australia are currently subject to few AML requirements. The key requirement is that they must report all cash transactions of A$10,000 ($6,740) or more to the Australian Transaction Reports and Analysis Centre (AUSTRAC).

But beyond these reports, known as , law firms are not required to follow specific know your customer (KYC) rules or have an AML programme in place.

Raven said that those in the Australian legal industry who are opposing the AML reforms are “not arguing in good faith”.

“Their arguments about legal professional privilege would be interesting, if they hadn’t been settled in most other countries for well over a decade,” he said.

“This regulation is well overdue, and the pushback and talk of insurmountable challenges is simply a distraction.”

Australian lawmakers spooked by FATF greylist threat

In March this year, the Attorney-General’s Department opened the second stage of a consultation on reforming the country’s AML/CTF laws.

The proposed reforms aim to simplify Australia’s existing AML/CTF framework and expand its reporting and other obligations to new types of businesses known as “tranche-two” entities.

These include law firms, accountants, company service providers, real-estate agents and precious metals dealers.

Mark Dreyfus, attorney-general, said the reforms are intended to address the threat of greylisting by the Financial Action Task Force (FATF), the global AML watchdog.

Since 2015, Australia has failed to comply with 16 of 40 FATF Standards, and one of the country’s key shortcomings has been its failure to extend its AML/CTF laws to tranche-two entities.

As Dreyfus often points out, Australia is currently one of only five jurisdictions in the world that does not regulate tranche-two entities — the others being China, Haiti, Madagascar and the US.

Speaking to ABC Melbourne earlier this month, Dreyfus  the proposed reforms are a “decade overdue” and if they are not enacted there could be “dire consequences” for Australia’s economy.

Brendan Thomas, CEO of AUSTRAC, made  last month during an ABC News podcast.

He noted that a FATF greylisting can cost a country between 2 and 3 percent of its annual GDP.

“It makes it a less attractive country for people to invest in,” he said. “It pushes up the price of credit and it makes it difficult for Australian businesses to do business with international counterparts.”

Australia’s AML/CTF regime will next be assessed by FATF in 2026-27. Thomas said the country must avoid the same fate as Monaco, a similarly advanced economy that was greylisted by FATF last month.