The tipping-off offence: what Australian accountants and lawyers can and cannot say

Once a reporting entity has formed a suspicion that requires a suspicious matter report (SMR), disclosing that a report has been or will be made, or its contents, is a criminal offence under section 123 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 if the disclosure would or could reasonably be expected to prejudice an investigation. It does not matter whether an investigation has started. The maximum penalty for an individual is two years imprisonment or 120 penalty units, or both.

The offence covers more than simply telling the customer "we filed an SMR about you". Tipping off includes any disclosure that would tend to prejudice an investigation: warning the customer that their behaviour appears suspicious, asking questions that would alert them to a review, materially changing the firm response in a way the customer would notice, or telling another adviser in a way that travels back to the customer. There is a specific exception for accountants and lawyers. A qualified accountant or legal practitioner may disclose information about a report in good faith to dissuade the customer from engaging in conduct that is or could be an offence (section 123(4)). The firm should document why it relied on the exception, because the firm bears the evidential burden.

There is no longer a fixed list of permitted recipients. Disclosure to AUSTRAC is outside the offence. Other disclosures, including within the firm’s compliance function, to law enforcement, or to another reporting entity under the information-sharing exception in section 123(5), are permitted where they would not prejudice an investigation or meet the conditions in the regulations.

In practice, the most challenging scenario is continuing the customer relationship after an SMR has been filed. The firm must not change its behaviour in a way that signals suspicion, but it also has duties to the customer in the underlying engagement. Continuing ordinary business, performing the engaged services with normal diligence, and avoiding sudden changes is the standard approach.

A firm generally cannot be compelled to disclose a suspicious matter report, or the fact one was made, to a court or tribunal (section 123(6)), and SMRs are inadmissible in most proceedings (section 124). If a subpoena, court order or regulator’s notice appears to call for that information, get legal advice before responding. Seeking legal advice from the firm’s own lawyers on a report is permitted because it would not prejudice an investigation. The line is whether the disclosure would prejudice the investigation.

The penalties are serious. For individuals, up to two years imprisonment or 120 penalty units, or both. For companies, a fine of up to 600 penalty units. Tipping off is a criminal offence, and the risk is highest in client-facing staff who do not always understand the SMR process.

Practical advice for accounting and legal firms: deliver specific tipping-off training to every staff member with customer contact, document the training annually, restrict SMR knowledge to the smallest group needed, and have a written protocol for continuing customer relationships after an SMR. CoSec Partners can help structure the corporate-secretarial side of customer engagement to reduce the risk of inadvertent tipping off during routine company-secretarial communications.