What is Tranche 2? AML/CTF Reforms Explained for Australian Businesses

What is Tranche 2?

Tranche 2 is the second phase of Australia's Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act 2006. While Tranche 1 (implemented in 2006) covered banks, financial institutions, and gambling services, Tranche 2 extends AML/CTF obligations to a broader range of businesses identified as high-risk for money laundering and terrorism financing.

Specifically, Tranche 2 covers:

• Real estate agents: Property sales, leasing, and property management
• Lawyers and conveyancers: Legal services, settlements, and trust account management
• Accountants and tax agents: Financial advisory, tax preparation, and audit services
• Trust and company service providers (TCSPs): Setting up trusts, companies, and acting as nominee directors
• Dealers in high-value goods: Jewellers, car dealers, art dealers, precious metal traders (for transactions over $10,000)

These industries were originally intended to be covered when the AML/CTF Act was passed in 2006, but implementation was delayed repeatedly. After 20 years of delays, the Australian government has set a firm commencement date: July 1, 2026.

History and timeline

The AML/CTF Act was designed to combat money laundering and terrorism financing in Australia. Here's the timeline:

• 2006: AML/CTF Act passed. Tranche 1 implemented immediately (banks, remittance providers, gambling).
• 2007: Tranche 2 draft legislation released but shelved due to industry pushback.
• 2016: Financial Action Task Force (FATF) mutual evaluation report criticizes Australia for not implementing Tranche 2, calling it a "significant deficiency."
• 2020: Government announces renewed commitment to Tranche 2 following increased money laundering concerns.
• 2024: Tranche 2 legislation passed with a firm commencement date of July 1, 2026.
• 2026 (now): Businesses have less than 4 months to prepare for compliance.

Who is affected by Tranche 2?

If you provide any of the following "designated services," you're a reporting entity under Tranche 2:

What are the requirements?

Tranche 2 businesses must comply with the same AML/CTF obligations as Tranche 1 entities. This includes:

1. Customer Due Diligence (CDD)

You must verify the identity of every client before providing a designated service. This includes:

• For individuals: Government-issued ID verification + biometric checks (selfie + liveness)
• For entities: Business registration verification + beneficial owner identification (anyone with 25%+ ownership or control)

2. Ongoing Due Diligence

For ongoing client relationships, you must monitor transactions and update client information when:

• There's a material change in the client's circumstances
• You become aware of suspicious activity
• The verification information is no longer current

3. Record Keeping

You must keep all verification records and transaction details for 7 years after the end of the client relationship. Records must be readily accessible for AUSTRAC audits.

4. Suspicious Matter Reporting (SMR)

If you suspect a client is involved in money laundering or terrorism financing, you must file a Suspicious Matter Report (SMR) with AUSTRAC. Failure to report is a criminal offense.

5. AML/CTF Program

You must develop and maintain an AML/CTF program tailored to your business. This includes:

• Risk assessment procedures
• Customer identification procedures
• Ongoing due diligence procedures
• Staff training requirements
• Compliance monitoring and auditing

Penalties for non-compliance

AUSTRAC has significant enforcement powers, and penalties are severe:

• Civil penalties: Up to $27 million for corporate entities, $5.4 million for individuals per contravention
• Criminal penalties: Up to 10 years imprisonment for serious breaches
• Infringement notices: On-the-spot fines for administrative breaches
• Enforceable undertakings: Court-enforceable agreements to rectify compliance failures
• Injunctions: Court orders to stop operating until you comply

How to prepare for July 1, 2026

With less than 4 months until the deadline, here's what you need to do now:

Immediate actions (next 30 days)

1. Understand your obligations: Read the AUSTRAC guidance for your industry
2. Conduct a risk assessment: Identify which services are "designated" and what your ML/TF risks are
3. Choose a verification provider: Test InstantAML with a few pilot verifications
4. Designate a compliance officer: Appoint someone responsible for AML/CTF compliance

Short-term actions (30-90 days)

1. Develop your AML/CTF program: Document your procedures, risk assessment, and compliance framework
2. Update client onboarding: Integrate identity verification into your intake process
3. Train all staff: Ensure everyone understands AML obligations and how to identify red flags
4. Update terms and conditions: Ensure contracts reflect AML requirements

Before July 1, 2026

1. Verify existing clients: Re-verify all current clients before the deadline
2. Test your systems: Run compliance audits to ensure everything works
3. Prepare for AUSTRAC reporting: Set up systems for SMR filing and transaction monitoring
4. Review and refine: Continuously improve your AML/CTF program based on learnings

How InstantAML helps

InstantAML was built specifically for Australian Tranche 2 businesses. We handle the complex identity verification component so you can focus on compliance:

Frequently asked questions

Final thoughts

Tranche 2 represents the most significant compliance change for Australian professional services in decades. The July 1, 2026 deadline is non-negotiable, and AUSTRAC will be watching closely.

The businesses that succeed will be those that prepare early, integrate AML compliance into their workflows seamlessly, and use technology to minimize disruption.

Don't wait until June 2026. Start preparing now.