Introduction
Anti-money laundering (AML) and Counter-terrorism financing (CTF) regulations have undergone significant evolution over the last few decades, expanding their scope to encompass designated non-financial businesses and professions (DNFBPs) or collectively referred to as “Tranche 2” professions. These include lawyers, accountants, real estate agents and trust and company service providers (TCSPs). As gatekeepers to the financial system, these professions play a crucial role in detecting and preventing money laundering and terrorism financing activities. This blog provides a global overview of AML obligations for Tranche 2 professions, comparing regulatory frameworks across jurisdictions, and highlighting best practices and challenges in compliance.
The role of Tranche 2 professions in AML/CTF compliance
Tranche 2 professions often facilitate high-value transactions, corporate structuring, and property acquisitions, which are vulnerable to exploitation by money launderers. By implementing robust AML measures, these professionals act as a barrier against the misuse of financial and legal systems for illicit purposes. Key AML/CTF obligations include business wide risk assessments, customer due diligence (CDD), suspicious transaction reporting (STR), record-keeping, and ongoing monitoring of client activities.
Comparative analysis of AML/CTF obligations
AML/CTF regulations for Tranche 2 professions vary widely across jurisdictions in terms of scope, enforcement mechanisms, and penalties. Below is a comparative analysis of key jurisdictions:
The European Union (EU)
The EU’s AML framework is governed by the Anti-Money Laundering Directives (AMLDs), with the Sixth AMLD being the latest iteration. Tranche 2 professions are explicitly included under AML/CTF obligations:
- Customer Due Diligence: Professionals must verify the identity of clients, assess the source of funds, and conduct enhanced due diligence (EDD) for high-risk clients or transactions
- Suspicious Transaction Reporting: Obligated entities must report suspicious activities to their national Financial Intelligence Units (FIUs)
- Scope of Coverage: The directives cover lawyers (when involved in financial or real estate transactions), accountants, real estate agents, and TCSPs
- Implementation and Penalties: Member states must transpose the directives into national law, resulting in varying degrees of enforcement and penalties across countries in the EU
United States
In the United States, AML/CTF obligations for Tranche 2 professions are primarily governed by the Bank Secrecy Act (BSA) and related regulations. However, coverage of these professions is less comprehensive:
- Lawyers: Generally excluded from direct AML/CTF obligations due to attorney-client privilege, although voluntary guidelines exist
- Accountants and TCSPs: Not explicitly covered under the BSA but subject to IRS oversight for certain financial transactions
- Real Estate Agents: AML obligations focus on cash transactions exceeding $10,000, with reporting required under Geographic Targeting Orders (GTOs)
Australia
Australia’s in December 2024, more than 18 years after the Australian Government stated its intention to expand AML/CTF laws to gatekeepers it passed laws to expand the designated services to include those provided by lawyers, accountants, real estate agents and trust and company service providers, reported to represent over 90,000 new businesses
United Kingdom
The UK has a robust AML framework, primarily governed by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and is regulated by professional bodies and the Financial Conduct Authority (FCA):
- Lawyers: Subject to strict AML obligations when involved in transactions such as conveyancing, managing client funds, or corporate structuring
- Accountants: Covered for services involving financial transactions or tax advice
- Real Estate Agents: Obligated to perform due diligence for both buyers and sellers
Canada
Canada’s AML framework is governed by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA):
- Lawyers: Excluded from direct AML obligations due to constitutional protections for solicitor-client privilege
- Accountants and TCSPs: Subject to comprehensive AML requirements, including STRs and CDD
- Real Estate Agents: Required to report cash transactions over CAD$10,000 and conduct due diligence on buyers
Best practices and challenges in AML/CTF Compliance
Best Practices
- Risk-Based Approach: Tailoring AML/CTF measures to the specific risks associated with clients, channels, services, transactions and jurisdictions ensures effective allocation of resources
- Training and Awareness: Continuous training for professionals enhances their ability to identify and report suspicious activities
- Technological Integration: Leveraging technology, such as artificial intelligence (AI) and data analytics, improves the detection of anomalies and streamlines compliance processes
- Collaboration: Public-private partnerships and international cooperation strengthen the overall AML ecosystem
Challenges
- Inconsistent Coverage: Jurisdictions with limited or no AML obligations for Tranche 2 professions create loopholes exploited by money launderers
- Conflicts with Professional Privilege: Balancing AML obligations with confidentiality protections for clients is a recurring challenge, particularly for legal professionals
- Resource Constraints: Smaller firms often struggle to implement complex compliance measures due to limited resources
- Cross-Border Complexity: Inconsistent standards and enforcement across jurisdictions complicate compliance for multinational entities
Conclusion
The inclusion of Tranche 2 professions in AML/CTF frameworks is essential to combating global money laundering and terrorism financing. While significant progress has been made, gaps remain in coverage, enforcement, and harmonisation across jurisdictions. A risk-based approach, coupled with technological innovation and enhanced collaboration, offers a pathway to strengthening AML/CTF compliance among gatekeepers. By addressing these challenges and adopting the best global practices, regulators and Tranche 2 professions can collectively safeguard the integrity of financial systems and deter illicit financial activities.
