At the Coalface: Anti-Money Laundering Regulation – Lessons from New Zealand for Small Firms in Australia

As Australia edges closer to implementing Tranche 2 AML/CTF reforms, many small legal practices are understandably apprehensive. While guidance is still being finalised, insight from jurisdictions with similar regimes can offer valuable foresight – particularly for sole practitioners and small firms, who expect to feel the compliance burden most acutely.

While visiting Christchurch recently, I spoke with a principal of a small New Zealand firm that has lived through the transition since the country’s Phase 2 AML laws came into force in 2018. The insights were candid, practical, and deeply relevant – especially for firms like many in Tasmania, who have longstanding client relationships and operate across conveyancing, wills and estates, trusts, and general advisory work.

A Slow Start, Then A Sudden Shift
According to the principal, implementation “just sort of came upon us.” The initial response from many in the profession was to delay – partly due to lack of clarity, and partly because compliance felt disconnected from the realities of small-firm practice. “We hardly ever got people walking off the street wanting to buy a million-dollar property,” he noted. “Most of our clients, we’ve acted for over decades – mums and dads around the neighbourhood.”

Limited human resource was also a constraint, with one of their two partners formally designated as the firm’s AML Compliance Officer and responsible for managing the process alongside a full client workload.
But delays didn’t last long. “A few years in, we got audited, and we got slapped across the knuckles.” the principal said. With this wakeup call, the firm now manages AML compliance with more structure and confidence – though not without lingering frustrations.

Client Education Matters
One of the most consistent early pain points was dealing with existing clients. Longstanding relationships didn’t exempt them from updated verification requirements. “Clients got pissed off too,” he said with characteristic directness. “We’d acted for them for 20 or 30 years, and suddenly we’re asking for current ID and proof of address. But slowly, they got used to it – everyone from banks to insurance companies was asking for the same thing.”

The firm now uses clear language in its email signature, links to a Law Society one-page explainer, and a standard client letter when Client Due Diligence (CDD) must be repeated. These small tools helped reduce friction.

Rethinking Trust Deeds and Document Sharing
One key issue for Australian lawyers to watch is the potential overreach of counterparties. The firm often received requests from real estate agents and banks demanding full copies of trust deeds – even in cases where AML obligations could be met with far less. “It’s commercial overkill,” the principal said. “Sensitive commercial information shouldn’t be going to third parties just because they’re nervous.”

The solution in New Zealand? Section 33 of the AML legislation, which allows one reporting entity to rely on another’s completed CDD through a formal Reliance Certificate. It’s widely used now by firms, and has also helped prevent duplicate effort – though not without some pushback. “If the agent refused to accept it, we’d tell the client to switch agents. That usually did the trick.”

In Australia, the AML/CTF Act does allow limited reliance, but there’s no equivalent robust statutory safe-harbour yet – meaning responsibility can still fall back on the relying entity. For any reliance mechanism to work in practice, it will likely need to be underpinned by legislative protection, not just AUSTRAC guidance.

Processes, Tools, and Time Cost
When asked what helped most, the principal emphasised starting with the basics and building gradually. “It’s not that hard. Just start doing it. Don’t ignore it.”

The firm has built a basic but functional AML system, which incorporates matter-opening prompts to ensure verification is complete, and maintains AML folders for each client, storing ID and CDD documents centrally. Staff maintain a spreadsheet to track AML progress across files and check expiry dates on things like passports and proof-of-address before each matter. They also now scan and destroy all physical files, which saves space and improves access for future CDD refreshes.

While the firm briefly outsourced its AML to a good provider after an audit, they brought it back in-house due to some levels of discomfort sharing sensitive client information. Larger firms may have dedicated AML staff; small firms, he said, “just have to put your head down and do it.”

Time-wise, the firm allocates anywhere from five minutes for straightforward matters to over an hour for more complex clients like layered trusts or companies. Costs are passed on to clients through ordinary hourly billing.

Urgent Transactions (deferred CDD situations) and Real-World Workarounds
One Kiwi-specific workaround is worth noting: New Zealand’s Landonline system requires both parties in a property transfer to provide their IRD number (tax ID). This creates a secondary integrity check and helps the firm avoid deferring CDD even in urgent matters. While Australia doesn’t have an equivalent IRD number field, similar discipline might be enforced through consistent use of ABNs and ACNs in client onboarding.

Practical Roadmap for Australian Law Firms
Based on both the New Zealand experience and the emerging shape of Australia’s Tranche 2 framework, here’s a staged roadmap for small firms to begin preparing.

Day 1 – Minimum Viable Setup

1. Appoint an AMLCO (Anti-Money Laundering Compliance Officer) and allocate dedicated time to the role. For sole practitioners and smaller practices, this can be the principal.
2. Consider reliance arrangements permitted by AUSTRAC, and stay attuned to future reliance arrangements that may become available (such as those modelled by New Zealand’s section 33 certificates), ideally supported by more robust legislative safe-harbour provisions (watch this space). These arrangements can help reduce unnecessary document sharing and duplication of time and effort between reporting entities.
3. Create digital AML folders per client, with prompts or checklists to monitor document currency (e.g. ID expiry, proof-of-address recency).
4. Start digitising old deeds and files early – this reduces future friction when counterparties or audit requests arise.
5. Standardise client communications – e.g. signature-block notes, email templates, and a one-page AML explainer to help clients understand why you’re asking for ID again.
6. Allow 10 minutes to one hour per file (more for complex matters); consider your costing model (e.g. charge using standard hourly rates for the personnel doing the work or relative work components).
7. Define your firm’s baseline CDD requirements – list the types of identification and verification evidence you’ll accept for individuals, companies and trusts, drawing from AUSTRAC and Law Council of Australia guidance.
8. Develop a basic internal workflow to document and escalate any potential red flags.
9. Establish a training and awareness program for staff involved in client onboarding or file handling.

Day 2 – Enhanced Readiness

1. Define internal rules for acceptable evidence of source-of-funds (SoF) and source-of-wealth (SoW) – for example, bank statements, payslips, or sale contracts – and refine over time.
2. Develop a simple risk-rating matrix to categorise clients or matters as low, medium or high risk – aligned with guidance from AUSTRAC, the Law Council of Australia or your local regulator/membership body.
3. Formalise audit trail and record-keeping policies – ensuring you can easily demonstrate compliance if reviewed