Reforms to the ASCR Following AML Tranche 2 Reforms

The Law Council of Australia is consulting on proposed amendments to the Australian Solicitors’ Conduct Rules (“ASCR”) in response to the AML/CTF Tranche 2 reforms. Submissions close 30 March 2026. This article is our open submission.

The Submission

To the Law Council of Australia

Re: Consultation on Proposed Amendments to the Australian Solicitors’ Conduct Rules in Response to AML/CTF Obligations

We write in response to the Law Council’s consultation on proposed amendments to the ASCR. We accept that the AML/CTF Act has passed and that law firms providing designated services will become reporting entities from 1 July 2026. This submission is not about re-drafting the AML/CTF Act before the obligations commence. The time for that has passed. It is about whether the proposed amendments to the ASCR adequately resolve the ethical issues that arise from this new status quo.

1. The Proposed Amendments

The consultation proposes three changes:

1. Rule 8: Amend from "A solicitor must follow a client's lawful, proper and competent instructions" to "A solicitor must only accept and follow a client's lawful, proper and competent instructions".
2. Rule 13.1.3: Insert a definition of "just cause" including circumstances where the solicitor would breach ethical duties, can no longer act in the client's best interests or the client has not provided information required for statutory obligations.
3. A new legal practice rule: Retainer agreements should inform clients of statutory reporting obligations, the possibility of termination and the prohibition on giving reasons.

2. The Rule 8 Problem

Rule 8 requires a solicitor to follow a client’s lawful, proper and competent instructions. If the instructions meet that standard, the solicitor has a positive duty to act on them. The proposed amendment adds the word "only", but that does not address the real tension introduced by Tranche 2.

Under the AML/CTF Reforms, solicitors will simultaneously owe duties to the client and obligations (under threat of penalty) to AUSTRAC. They will file SMRs without the client’s knowledge, comply with keep-open notices at law enforcement’s direction and produce information under s 49 compulsion. None of these are client instructions. The solicitor will be serving two masters.

Rule 8 provides a legitimate, ethical basis for a practitioner to terminate a retainer. In practice, this protects practitioners by reminding them they are not bound to ‘blind obedience’ or required to compromise their integrity for improper instructions. Practitioners must act with an intellectual conscience, even if that means saying no, rather than merely acting as a guard dog to a client pulling on the leash.

However, once a solicitor begins providing a designated service, they will be on AUSTRAC’s turf and no longer have just their client to think about. AUSTRAC is neither a client, nor the court, nor the public, nor the profession. So the relationship with AUSTRAC a legal one, not an ethical one (for now).

The real tension is between maintaining the standards of ethical integrity in Rule 8 and now having to contend with the legal obligations and liabilities that come with keep-open notices, SMR reports and secretly working for AUSTRAC. Telling solicitors “don’t do something illegal” does not address that deeper tension.

The question is: where do you draw the line with saying no when you have an ethical duty to refuse a client but are legally compelled to serve AUSTRAC? It’s the definition of being between a rock and a hard place.

At its core, Rule 8 is saying ‘if you stand for nothing, you will fall for anything’. That is the line the profession should never cross, because once we do, our integrity is gone. The fact that AUSTRAC wields immense legal authority is not a reason for practitioners to surrender their ethical autonomy. On the contrary, it is the precise reason Rule 8 should remain exactly as it stands.

3. If You Amend Rule 8, You Must Amend Rules 4.1.2, 7.1 and 12

The consultation does not address Rule 12 (conflicts of interest) or Rules 4.1.2 and 7.1 (duty of candour). These are central gaps.

Rule 12.1 provides that a solicitor must not act where there is a conflict between the duty to serve the client's best interests and the solicitor's own interests. When a solicitor forms a suspicion, they face a duty to the client and a personal interest in avoiding criminal prosecution for failing to lodge an SMR (s 41, civil penalties up to $6.6 million) and for tipping off (s 123, up to 2 years imprisonment). That is a Rule 12 conflict the consultation does not address.

The Confession Scenario

Under the existing framework, when a client confesses to past wrongdoing, the solicitor has constraints (Rule 20.2) but does not go to the police. The confession remains confidential under Rule 9. The AML/CTF regime inverts this. If a client discloses conduct giving rise to a suspicion during a designated service, the solicitor must report to AUSTRAC and must not let the client know. The client who trusted their lawyer enough to be honest is reported precisely because they were honest.

Rule 9.2.2 already recognises that confidentiality may be displaced by law that permits or compels disclosure. The AML/CTF Act will sit within this framework. But Rule 9.2.2 contemplates discrete, reactive disclosures rather than a proactive, ongoing monitoring obligation requiring solicitors to form subjective suspicions and report covertly. Rule 9.2.2 needs explicit amendment to address AML/CTF reporting and the tipping off interaction.

The Catch-22

Action	Rule 8 (amended)	Rule 12	AML/CTF Act (s 123)
File SMR and keep acting	Compliant	Breach: undisclosed conflict	Compliant
File SMR and terminate	Compliant ("just cause")	Breach: conflict not disclosed	Likely compliant
Disclose conflict to client	Compliant	Compliant	Criminal offence if could prejudice investigation
Decline to act from outset	Compliant	N/A	Likely compliant

There is no path that satisfies both Rule 12 and the AML/CTF Act simultaneously.

The s 235 Shield and Its Limits

Section 235 provides good-faith immunity from criminal and civil proceedings. But it has three gaps:

• Disciplinary proceedings are not covered. A complaint to a Law Society and resulting tribunal proceedings are professional regulatory proceedings, not criminal or civil. A solicitor who breaches Rule 12 by filing an SMR without disclosure may be protected from lawsuit but not from disciplinary action.
• Section 235(2) carves out proceedings under the Act itself. The shield protects from the client but not from AUSTRAC or the CDPP.

The ASCR amendments must address the disciplinary gap directly. Without an express Rule 12 exception for conflicts arising from statutory reporting, a solicitor who complies with the Act in good faith remains exposed to disciplinary action for the very conduct the Act compelled. At the same time, any safe harbour must preserve accountability. If a solicitor gets the assessment wrong, whether through negligence or bad faith, the door to disciplinary action should remain open.

4. The Duty of Candour

Rules 4.1.2 and 7.1 require honesty and informed choices. A solicitor who has filed an SMR maintains the appearance of an ordinary relationship while secretly informing on the client. The solicitor cannot "be honest in all dealings" while concealing the most consequential action in the retainer.

Standardised Termination Language

The proposed Rule 13.1.3 defines "just cause" as including circumstances where continuing would "breach ethical duties". This language is itself a tipping off risk because the explanation is the red flag.

Banks solved this decades ago with neutral language: "We were unable to complete your onboarding requirements and are therefore unable to provide services." The legal profession needs equivalent standardised language. However, any standardised phrase becomes a published code for "we suspect money laundering" once the Law Council publicly explains it.

The real protection is structural: the ASCR should provide that a solicitor who terminates to avoid tipping off is acting consistently with professional obligations, is not required to give reasons beyond what law permits and can disclose an SMR to the regulator confidentially if a complaint is made. Retainer agreements should address ongoing re-verification and termination where non-clients fail to provide required information.

5. The "Customer" Who Is Not a "Client"

The AML/CTF Act uses "customer", not "client". The Act's definition includes beneficial owners, prospective customers and nominators. When a solicitor acts for a company, the client is the company, but CDD is required on beneficial owners who are "customers" under the Act but not "clients" under the ASCR. They have no LPP, no Rule 9 confidentiality and no Rule 12 protection, yet the solicitor must collect their personal information and, if suspicion arises, report them. The ASCR must address what duties a solicitor owes to a "customer" who is not a client.

6. Keep Open Notices

The 2024 amendments allow law enforcement to direct solicitors to maintain client relationships for monitoring purposes. The solicitor reports the client (secretly), is directed to keep acting, cannot disclose the conflict (criminal offence) and remains bound by Rule 12.1. The solicitor is actively maintaining the retainer at the direction of the state, while the client believes the solicitor serves them. The Law Council should oppose the application of keep open notices to solicitors or create an express Rule 12 exception.

7. The Scope of Monitoring

Rule 6-35 of the AML/CTF Rules 2025 requires monitoring for transactions that may relate to an offence under "any other law". The FATF's predicate offence categories extend far beyond money laundering, from environmental crime to cybercrime to "any other offence with high risk for money laundering". The catch-all ensures no outer boundary. These categories can grow via delegated legislation without Parliamentary scrutiny. If "terrorism" expands to capture conduct currently protected as protest (the INSLM is reviewing the definition now), the SMR obligation expands with it.

8. International Precedents

Three jurisdictions have grappled with the same question. Each is instructive:

• Canada: In Canada (AG) v Federation of Law Societies of Canada [2015] 1 SCR 401, the Supreme Court struck down AML requirements for lawyers as violating the Charter. It recognised a constitutional "duty of commitment to the client's cause" and held that a regime making the lawyer an agent of the state damages the relationship of trust at its foundation. Lawyers were exempted entirely. Canada is not on the FATF grey list.
• France: In Michaud v France (ECtHR, 2012), the Court upheld France's regime only because lawyers report through the President of the Bar (bâtonnier), who filters reports before forwarding to the state. Without the filter, the regime would have been struck down. Australia has no equivalent mechanism.
• UK: In Bowman v Fels [2005] EWCA Civ 226, the Court of Appeal carved out privileged litigation communications entirely. Australia has no express statutory litigation carve out.

Australia's regime sits closest to the UK model. Solicitors are reporting entities for designated services and LPP is preserved at the point of filing. But Australia stops short of the Bowman v Fels litigation carve out, has no structural filter like France's bâtonnier and lacks constitutional protection of the kind Canada's Charter provides. We have adopted the obligations of the UK model without its most important safeguard.

9. AUSTRAC's Guidance Gap

The profession must be ready by 1 July 2026. AUSTRAC was late with their free compliance kits and their LPP claim forms are not yet available. The Minister's Guidelines on LPP, foreshadowed in the legislation, have not been published. AUSTRAC will presumably have this material ready by commencement. But the point stands: we are being asked to move mountains with the ethical rules while the operational road has not been properly built. That is a reason for caution. The ASCR amendments should be the least invasive edits possible at this stage, acknowledging the conflicts honestly without overcommitting to a framework that AUSTRAC itself has not finalised.

10. The LPP Form: An Alternative That Is Still a Report

Section 242 of the AML/CTF Act preserves legal professional privilege at the point of reporting. In practice, this means that where a solicitor forms a suspicion but the relevant information is subject to LPP, the solicitor can lodge an LPP claim form with AUSTRAC instead of filing a standard SMR. The solicitor is not exempted from reporting. They are reporting, but asserting that the content is privileged and should not be disseminated beyond AUSTRAC without a court order or waiver.

This is a critical distinction the current ASCR consultation does not address. The LPP form is not an opt-out. It is a different reporting pathway that still requires the solicitor to notify AUSTRAC that a suspicion has been formed, to identify the matter and to make a claim of privilege over the underlying information. The solicitor is still informing the state that something has triggered their suspicion. The difference is that the detail sits behind a privilege barrier rather than flowing directly into the intelligence ecosystem described in Part 12.

The Consequences of Getting It Wrong

The LPP form requires the solicitor to make a judgment call at the point of filing: what is privileged and what is not. That assessment carries serious consequences in both directions.

Under-declaration: If a solicitor fails to claim LPP over information that is genuinely privileged, that information enters AUSTRAC’s intelligence pipeline under s 212. Once disseminated to the AFP, ATO, ASIO, ACIC or foreign FIUs, it cannot be recalled. The solicitor has effectively waived privilege by omission, potentially exposing the client’s most sensitive communications to agencies exercising coercive powers. The client may never know it happened. A failure to claim privilege where it applies is not merely an administrative error; it is a potential breach of the solicitor’s fiduciary duty and an irreversible disclosure of confidential information.

Over-declaration: If a solicitor claims LPP over information that is not genuinely privileged, the consequences flow in the other direction. An overbroad or unsubstantiated privilege claim risks being treated as an attempt to frustrate AUSTRAC’s intelligence function. At best, AUSTRAC may challenge the claim and require the solicitor to justify it. At worst, a pattern of over-declaration could be characterised as non-compliance with the reporting obligation under s 41, attracting civil penalties of up to $6.6 million per contravention. An unjustified privilege claim may also undermine the solicitor’s credibility if the matter is later tested in court, weakening legitimate privilege claims in other matters.

The Guidance That Does Not Exist

As at the date of this submission, AUSTRAC has not published the LPP claim form, the Minister’s Guidelines on LPP have not been released and there is no published guidance on how to complete the form, what level of detail is required in describing the privileged information, how to delineate privileged from non-privileged material within the same matter, or what AUSTRAC’s process will be for challenging or accepting a claim. Solicitors are being asked to make high-stakes judgment calls on a form that does not yet exist, against guidelines that have not been written, with consequences that are already legislated.

The ASCR amendments should explicitly recognise the LPP form as a reporting pathway, provide guidance on the solicitor’s obligations when completing it and address the professional conduct implications of both under-declaration and over-declaration. At minimum, the Law Council should make clear that a solicitor who makes a good-faith privilege assessment at the point of filing should not face disciplinary action for a judgment call that is later challenged, provided the assessment was made on a reasonable basis and properly documented.

11. The Shared CDD Problem: Conveyancing

Conveyancing through PEXA is standardised and electronically settled. Existing VOI obligations verify identity. But CDD is fundamentally different. It requires identifying beneficial owners, source of funds, transaction purpose and ongoing monitoring. Existing VOI compliance will not satisfy AML/CTF obligations.

The inter-firm problem is immediate: the purchaser's solicitor may need CDD on the vendor, but the no-contact rule (Rule 33) prohibits direct contact and the vendor's solicitor owes confidentiality duties (Rule 9). The Act's Part 5A reliance mechanisms require written agreements, representations and Privacy Act compliance, none of which has been worked through for the legal profession. There is no model shared CDD agreement, no guidance on no-contact rule interaction and no standard retainer clause for CDD sharing.

12. What Happens After the SMR

Once filed, the SMR enters an intelligence ecosystem beyond AUSTRAC. Under s 212, AUSTRAC disseminates without warrant to the AFP, ATO, ASIO, ACIC, Border Force, CDPP and foreign FIUs. LPP is preserved at filing (s 242) but not beyond that. Recipient agencies exercise warrantless or coercive powers under their own statutes. Telecommunications metadata (who was called, when and for how long) is accessible without warrant and without LPP protection.

The parallels with Lawyer X are instructive. The Royal Commission found that a lawyer acting as an informant strikes at the adversarial system's foundation. The AML/CTF regime creates a structural version of the same dynamic, not through individual corruption but through legislative design that conscripts all lawyers into the intelligence apparatus.

13. What We Submit

We respectfully submit that the Law Council should:

1. Consider Rules 4.1.2, 7.1 and 12 alongside Rule 8. Create an express exception for conflicts from statutory reporting and acknowledge the candour limitation.
2. Advocate for a filter mechanism. Following the French model, lawyers should report through a Law Society intermediary rather than directly to AUSTRAC.
3. Endorse structural separation. Non-lawyer compliance officers for CDD, monitoring and SMR lodgement is a legitimate practice structure.
4. Address the "customer" / "client" gap. Define duties owed to beneficial owners who are not "clients".
5. Standardise termination and retainer language in a "client information statement" form equivalent to costs disclosure (eg., Form 2 Qld). Provide guidelines on neutral onboarding-failure language and broad retainer clauses covering re-verification and non-client information failures.
6. Recognise the LPP form as a reporting pathway and provide guidance on its use. The LPP form is not an exemption from reporting; it is an alternative form of report that requires the solicitor to make a privilege assessment at the point of filing. The ASCR should address the professional conduct implications of both under-declaration (privileged information entering the intelligence ecosystem) and over-declaration (risk of non-compliance or undermining legitimate privilege claims), and provide a safe harbour for good-faith assessments made on a reasonable basis and properly documented.
7. Advocate to AUSTRAC to publish the LPP claim form and guidance by June 2026 to allow practitioners to make informed decisions about whether or not they want to enrol and provide designated services. If AUSTRAC cannot provide what is required, there should be some adjustment in the expectations until they do.
8. (Aspirational) Develop a shared CDD framework standard for practitioners. Model agreements, standard retainer clauses and guidance on inter-firm CDD reliance, especially for conveyancing.

14. Conclusion

We accept the legislative reality and we recognise the difficulty of the task the Law Council has taken on. Amending ethical rules to accommodate legislation that sits in tension with them is not straightforward. The consultation is welcome and the fact that it is happening at all reflects the seriousness with which the Law Council is approaching these reforms.

Our submission is that the proposed amendments, while a sensible starting point, do not go far enough. Rule 8 cannot be amended in isolation. Rules 4.1.2, 7.1 and 12 are equally engaged and the profession deserves amendments that address the full picture rather than a partial one.

We hope this submission is a useful contribution to that process. We would welcome the opportunity to discuss any of these issues further with the Law Council and its working groups.

Key Authorities

Legislation

• Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), ss 41, 123, 242
• Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth)
• Australian Solicitors’ Conduct Rules 2015, Rules 3, 4.1.2, 7.1, 8, 9, 12

Cases

• Baker v Campbell (1983) 153 CLR 52
• Daniels Corporation International Pty Ltd v ACCC (2002) 213 CLR 543
• Commissioner of Taxation v PricewaterhouseCoopers [2022] FCA 278
• Canada (Attorney General) v Federation of Law Societies of Canada [2015] 1 SCR 401
• Bowman v Fels [2005] EWCA Civ 226
• Michaud v France (Application No. 12323/11, ECHR, 6 December 2012)

Consolidated Proposed Reforms

Rule / Reform	Proposed Action
Rule 8	Confine amendments to commentary. Preserve the rule's shield function. See Part 2.
Rule 9 / LPP gap	Amend Rule 9.2.2 to explicitly address AML/CTF reporting scope and tipping off interaction. See Part 3.
Rule 12	Create express exception for conflicts from statutory reporting. See Parts 3 and 6.
Rules 4.1.2 / 7.1	Acknowledge the candour tension. Standardise termination language. See Part 4.
Customer/client gap	Define duties owed to beneficial owners who are not "clients". See Part 5.
Filter mechanism	Advocate for reporting through a Law Society intermediary (Michaud model). See Part 8.
Structural separation	Endorse non-lawyer compliance officers for CDD, monitoring and SMR lodgement. See Part 13.
LPP form guidance	Recognise the LPP form as a reporting pathway. Provide guidance on under-declaration and over-declaration risks. Safe harbour for good-faith privilege assessments. See Part 10.
AUSTRAC accountability	Advocate for LPP claim form and guidance by June 2026. Adjustment in expectations if not provided. See Part 9.
Shared CDD framework	Model shared CDD agreements and guidance on inter-firm reliance for conveyancing. See Part 11.

This article is for general information purposes only and does not constitute legal advice. You should seek professional advice tailored to your specific circumstances before acting on any information in this article. Liability limited by a scheme approved under Professional Standards Legislation.