AUSTRAC turns to section 167 notices in AML crackdown

Holding Redlich special counsel David Chambers notes that the documents provided in response to a section 167 notice may address AUSTRAC’s concerns or reveal problems that prompt further investigation. 

A recent guide has explained how AUSTRAC’s expanded AML/CTF regime is bringing new compliance obligations for law firms, with firms expected to enrol, assess risks, maintain detailed records and be prepared for regulatory scrutiny and enforcement.

Impacts of a section 167 notice on a law firm

Chambers outlined why understanding the implications of a section 167 notice is critical for legal practitioners navigating regulatory compliance. 

“A section 167 notice signals that the time for asserting compliance is over and law firms must now be prepared to prove it,” Chambers said. 

“The notice may be given to a person whom an authorised officer reasonably believes has information, or possession or control of a document, bearing on compliance or enforcement.

“Depending on its terms, the notice requires the recipient to provide that information, produce documents or make and produce copies of them.

“That compulsory process enables AUSTRAC to scrutinise whether the firm’s AML/CTF obligations have been met.” 

How AUSTRAC can use information provided

Chambers indicated that the information and documents produced in response to a section 167 notice can give AUSTRAC a broader view of a law firm’s AML/CTF compliance. 

Regulators have warned that AUSTRAC is expected to take AML/CTF enforcement seriously as new obligations extend to accountants, lawyers and real estate businesses, meaning firms should start preparing early rather than wait until the mid-2026 deadline. 

“AUSTRAC can use information and documents under a section 167 notice to test a law firm’s risk profile against its records,” Chambers said. 

“It can determine whether the firm provides designated services and meets its AML/CTF obligations.” 

While the notice may be directed at a particular issue, the material provided can also expose other areas of potential non-compliance. 

“However, material obtained in response to the notice may reveal deficiencies beyond its focus, including failures to adopt and maintain an AML/CTF program, complete customer identification and verification before providing a designated service, report suspicious matters, submit threshold transaction reports for cash transactions of $10,000 or more, or conduct ongoing customer due diligence,” Chambers said. 

“If non-compliance is identified, AUSTRAC may broaden its enquiry or take enforcement action.” 

Consequences of failing to comply

For firms receiving a section 167 notice, understanding the seriousness of the compulsory process is critical, particularly given the consequences of failing to comply, as Chambers highlighted. 

“A section 167 notice is not a routine regulatory request; failure to comply may expose the recipient to both criminal and civil consequences: an omission that contravenes a requirement in the notice may constitute an offence, while the requirement to comply is separately enforceable as a civil penalty provision,” Chambers said. 

“Any claim of legal professional privilege also requires particular care.”

Where legal professional privilege is relied upon, Chambers cautioned that firms must also follow the specific notification requirements set out under the regime. 

“If the recipient reasonably believes requested information or documents are privileged, they must notify the AUSTRAC CEO using the approved form within the period set out in the notice,” Chambers said. 

“Non-compliance with that separate requirement may itself expose the recipient to civil penalty proceedings.” 

Preparing for increased AUSTRAC enforcement 

As AUSTRAC moves further into the enforcement phase, Chambers noted that law firms should be prepared for greater scrutiny of how their AML/CTF obligations are implemented and documented in practice. 

“As enforcement intensifies, law firms should expect AUSTRAC to look beyond the existence of an AML/CTF framework and examine whether it operates effectively in practice,” Chambers said. 

“Depending on the scope of the enquiry, firms should be ready to produce a range of contemporaneous records, including those relating to whether their services are captured by the regime, program approval and implementation, risk assessment, staff training, customer due diligence, ongoing monitoring, testing and remediation. 

“The firms that are best placed to respond will have a clear documentary trail showing what was decided and done, who was responsible, when action was taken and why.”