AML/CTF terminology

Plain English definitions of every term you'll encounter under Australia's Tranche 2 reforms — no jargon, no ambiguity.

A B C D E F I K M O P R S T

A

AML (Anti-money laundering): The set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained money as legitimate income. In Australia, AML obligations are set out in the AML/CTF Act and administered by AUSTRAC. When you see "AML" in a compliance context, it refers to your obligations to detect and report suspected money laundering.
AML/CTF program: A written document your business must create and maintain that explains how you will identify, manage, and report money laundering and terrorism financing risks. It must be approved by senior management, kept up to date, and available to AUSTRAC on request. Think of it as your compliance rulebook.
AUSTRAC (Australian Transaction Reports and Analysis Centre): The Australian government agency that administers the AML/CTF laws and collects financial intelligence. It is both a regulator (it can fine and prosecute you) and an intelligence agency (it analyses transaction data to detect financial crime). If you provide a designated service, AUSTRAC is your regulator.
AUSTRAC enrolment: The process of registering your business with AUSTRAC as a reporting entity before you provide designated services. It is not a licence — it simply puts AUSTRAC on notice that your business exists and is in scope. The deadline for Tranche 2 businesses is 29 July 2026.

B

Beneficial owner: The real human being who ultimately owns or controls a business or asset, even if their name does not appear on any official documents. A company may have directors and shareholders, but the beneficial owner is the person pulling the strings behind the scenes. You must identify beneficial owners as part of customer due diligence.

C

CTF (Counter-terrorism financing): The laws and obligations designed to prevent money from reaching terrorist organisations or being used to fund terrorist acts. CTF obligations sit alongside AML obligations under the same Act and the same AUSTRAC regime. In practice, the obligations overlap significantly — your AML/CTF program, CDD procedures, and SMR requirements cover both money laundering and terrorism financing.
Correspondent banking: An arrangement where one bank holds accounts and processes transactions on behalf of another bank, typically across borders. Relevant to remittance providers and financial advisers dealing with offshore transactions — higher risk for money laundering because the originating bank's customers are invisible to the receiving bank.
Customer due diligence (CDD): The process of verifying who your client is before and during the relationship. At minimum: confirm their name, date of birth, and address. For businesses: identify the entity and its beneficial owners. You must also understand why they want your service and monitor the relationship over time for anything unusual.

D

De-risking: When a business refuses to work with entire categories of clients (e.g. all foreign nationals, or all cryptocurrency businesses) rather than assessing each client individually. AUSTRAC discourages de-risking — you are expected to assess risk, not avoid it wholesale. Blanket refusals can also raise discrimination concerns.
Designated service: A specific activity listed in the AML/CTF Act that triggers compliance obligations. Tranche 2 adds services provided by lawyers, accountants, real estate agents, and others. If you provide a designated service, you are a reporting entity and must comply with the Act. Not all services a profession offers are designated — only those on the list.

E

Enhanced due diligence (EDD): A higher level of identity verification and ongoing monitoring applied to clients who pose a greater money laundering risk — for example, politically exposed persons, clients from high-risk countries, or transactions with no obvious commercial purpose. EDD means more questions, more evidence, and more scrutiny than standard CDD.

F

FATF (Financial Action Task Force): The international body that sets global standards for combating money laundering and terrorism financing. Australia is a member and must follow FATF recommendations. The Tranche 2 reforms were driven largely by FATF criticism that Australia's previous laws left lawyers, accountants, and real estate agents unregulated — a gap that exists in almost no other developed country.

I

International funds transfer instruction (IFTI): A report you must send to AUSTRAC every time you instruct a transfer of money into or out of Australia on behalf of a client. This includes wire transfers and international remittances. The report must be submitted within 10 business days of the transfer. Most relevant to remittance providers, accountants, and lawyers handling cross-border transactions.

K

Know your customer (KYC): A broad term for the process of identifying and verifying who your clients are. In Australian law, the formal obligation is called customer due diligence (CDD), but KYC and CDD are used interchangeably. It covers identity verification, understanding the purpose of the relationship, and ongoing monitoring.

M

ML/TF risk assessment: A written analysis of the money laundering and terrorism financing risks your business faces, based on your clients, services, geographic exposure, and transaction types. You must complete one before finalising your AML/CTF program, and update it whenever your business or the risk environment changes materially.

O

Ongoing due diligence: The obligation to keep monitoring your client relationship after the initial identity check. This means watching for transactions that don't match the client's profile, updating records when circumstances change, and re-verifying identity when there is a change in beneficial ownership. It is not a one-off check at onboarding.

P

Politically exposed person (PEP): A person who holds or has held a prominent public position — senior government official, judge, military officer, executive of a state-owned enterprise — or a close family member or associate of such a person. PEPs are considered higher risk because their position gives them opportunity to receive or conceal bribes. They require enhanced due diligence.
Proceeds of crime: Money or property obtained directly or indirectly from criminal activity. Money laundering is the process of making proceeds of crime appear legitimate — moving it through businesses, property, or financial systems to hide its origin. Accepting or handling proceeds of crime is itself a serious criminal offence, even if you didn't commit the original crime.

R

Reporting entity: Any business that provides a designated service and is therefore subject to the AML/CTF Act. Once you are a reporting entity, you must enrol with AUSTRAC, develop an AML/CTF program, conduct customer due diligence, and report suspicious matters and threshold transactions. Tranche 2 makes lawyers, accountants, and real estate agents reporting entities for the first time.
Risk-based approach: The principle that you should apply more scrutiny to higher-risk clients and transactions, and less to lower-risk ones — rather than treating everyone identically. AUSTRAC expects you to identify your specific risks, document them, and allocate your compliance effort accordingly. It is not an excuse to do less; it is a requirement to do the right amount in the right places.

S

Sanctions: Legal restrictions imposed by Australia (via DFAT), the United Nations, or other bodies that prohibit dealing with specific people, organisations, or countries. Providing a service to a sanctioned person is a strict-liability criminal offence — intent is irrelevant. You must screen clients against current sanctions lists before and during the relationship.
Simplified due diligence (SDD): A reduced level of identity verification permitted for clients who pose a very low money laundering risk — for example, listed companies on a regulated stock exchange, or government bodies. You still must verify identity, but you can rely on less evidence. SDD is the exception, not the default.
Source of funds: Where the money for a specific transaction comes from — for example, a salary, a loan, or the sale of an asset. For higher-risk transactions, you must ask and document this. It is different from source of wealth, which is broader.
Source of wealth: How a client built up their overall financial position over time — through business, employment, inheritance, investments, etc. Required for higher-risk clients such as PEPs or clients with unusually large assets relative to their apparent income. The goal is to detect wealth that cannot be explained by legitimate means.
Structuring: Deliberately breaking a large transaction into smaller ones to avoid triggering a reporting threshold. For example, making three $9,000 cash deposits instead of one $27,000 deposit. Structuring is itself a criminal offence under the AML/CTF Act, regardless of whether the underlying money is from legitimate sources.
Suspicious matter report (SMR): A report filed with AUSTRAC when you have reasonable grounds to suspect that a transaction or client involves proceeds of crime, money laundering, or terrorism financing. You must file within 3 business days of forming the suspicion, or within 24 hours if terrorism financing is involved. You must not tell the client you have filed one.

T

Threshold transaction report (TTR): A report filed with AUSTRAC within 10 business days whenever you handle physical currency (cash) of $10,000 or more in a single transaction. Electronic transfers do not trigger TTRs — only cash. Most relevant to businesses that accept large cash payments, such as pawnbrokers, currency exchange operators, and some real estate agents.
Tipping off: Telling a client, or anyone connected to them, that you have filed or are considering filing a suspicious matter report about them. Tipping off is a criminal offence under the AML/CTF Act. If a client asks whether you have reported them, you cannot confirm or deny it.
Tranche 2: The second wave of AML/CTF reforms in Australia, enacted in 2024 and taking effect from 1 July 2026. Tranche 1 (2006) covered banks, casinos, and financial services. Tranche 2 extends the same obligations to lawyers, accountants, real estate agents, conveyancers, trust and company service providers, and dealers in precious metals and stones.

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