If your business provides designated services, two AML/CTF obligations work closely together: knowing when to submit a suspicious matter report (SMR), and knowing how to avoid tipping off. At first glance they can feel like competing priorities. One asks you to flag concerns to AUSTRAC, while the other limits what you can say to the very customer those concerns relate to. Handled well, they are entirely compatible. Here is what matters most, and what to do next.

Author: Alexandra Hoskins, Principal

What is a suspicious matter report (SMR)?

An SMR is the report you submit to AUSTRAC when you form a suspicion, on reasonable grounds, that something is not right. You do not need to be certain a crime has occurred. You simply need reasonable grounds, which is an objective test: would a reasonable person in your position, looking at the same facts, likely reach the same conclusion?

You must submit an SMR if you suspect on reasonable grounds that:

• Information you hold may be relevant to a crime, such as money laundering, terrorism financing or tax evasion

• A customer, prospective customer or their agent is not who they claim to be

• Someone is planning to use a designated service to commit an offence

An important point that catches many businesses out is that the obligation applies even if you never end up providing the service. Criminals sometimes test the market to find weak spots, so a declined transaction can still warrant a report.

When do you need to submit an SMR?

Timing is where good intentions can slip. The deadlines are:

• 24 hours from forming your suspicion, if it relates to terrorism financing

• 3 business days for all other suspicions

• Up to 5 business days where part of the information is subject to legal professional privilege (this extension does not apply to terrorism financing)

If a customer later gives you fresh grounds for suspicion, submit a new SMR and reference any earlier one. That helps AUSTRAC connect patterns of behaviour over time.

What is tipping off?

Tipping off is disclosing certain protected information where it would, or could reasonably be expected to, prejudice an investigation. In plain terms, it is anything that lets a customer or their associate realise they have been flagged, giving them the chance to change their behaviour or cover their tracks.

Under section 123 of Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the Act), tipping off is a criminal offence. The maximum penalty is two years imprisonment, 120 penalty units, or both. It applies whether you created, shared or received the information, and it does not matter whether an investigation has started.

Protected information includes anything that reveals:

• You have submitted, or are required to submit, an SMR

• The content of an SMR, or a report prepared to meet your SMR obligations

• That you have received or responded to a notice under sections 49 or 49B

How do you make further enquiries without tipping off?

The reassuring part to know is that asking reasonable questions is not tipping off. You are allowed to conduct enhanced customer due diligence and gather more information, but the difference lies in how you frame it.

Where possible, give the customer a genuine, neutral reason for your enquiry that does not signal suspicion. For example, you might explain that you are:

• Meeting your AML/CTF obligations to keep customer information up to date

• Following standard processes that apply when account or transaction activity changes

• Verifying details or resolving a question about identification documents

What you must not do is tell the customer you find their conduct suspicious, or that a report has been or will be made. AUSTRAC's own examples show the line clearly. A bank that framed its questions as routine account checks stayed on the right side of it. A venue employee who let slip that a patron had been flagged did not, and the customer promptly moved on to avoid detection.

Can you keep serving a customer after submitting an SMR?

Yes. Submitting an SMR does not require you to end the relationship. You can continue providing services, provided you manage the ML/TF risk. That usually means enhanced due diligence, closer monitoring, or limits on the channels and thresholds available to that customer.

If you do decide to exit a customer, give a genuine commercial reason that does not reveal your suspicion. Reasons might include that their activity falls outside your risk appetite, or that they have not responded to reasonable requests for information within a fair timeframe.

The practical takeaway

SMRs and tipping off are two sides of one obligation: protect the integrity of the system without prejudicing an investigation. Businesses that handle this well tend to share a few habits:

• Clear escalation and reporting processes, so nothing misses a deadline

• Trained staff who know what to say, and what not to say

• Standardised scripts and communications for enhanced due diligence

• Controls that keep sensitive information on a need-to-know basis

If you are reviewing your AML/CTF program, these are exactly the areas worth pressure-testing now, before a live matter puts them to the test. The path forward is rarely complicated. It is about having the right processes ready, and the confidence to apply them calmly when it counts.

About Senet

Senet is a multidisciplinary Australian firm specialising in gambling and gaming law, regulatory compliance, and business advisory services. We are the largest specialist team in Australia and based in Victoria. Recognised globally as experts in our field, we understand Australia’s complex gaming legal and regulatory landscape, enabling us to guide clients through their compliance requirements across each state and territory. Our clients range from start-ups to publicly listed global operators, both nationally and internationally. Our team is deeply immersed in the industry, often sharing insights at public speaking events, and our principals have held executive roles in a global ASX-listed entity and a 'Big Four' advisory firm, giving us a unique perspective on the challenges our clients face.

If you have any questions or would like to discuss the topics covered in this article, please contact the team at Senet.

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