Under the AML/CTF regime, AUSTRAC expects reporting entities to identify and assess unusual activity that may indicate money laundering, terrorism financing, sanctions evasion, fraud, tax evasion, or other criminal conduct. Unusual activity is not automatically a suspicious matter. A suspicious matter arises when a reporting entity forms a suspicion, on reasonable grounds, that a customer, transaction, or activity may be linked to criminal activity, proceeds of crime, or attempts to avoid AML/CTF obligations.
Expanded Answer
AML/CTF obligations do not require a reporting entity to prove that a crime has occurred. The obligation is to identify unusual activity, assess the circumstances, and determine whether reasonable grounds for suspicion exist.
Unusual activity is a risk indicator. It is conduct that appears inconsistent with what the reporting entity knows about the customer, their source of funds, source of wealth, investment objectives, business activities, or expected transaction patterns. Many unusual events have legitimate explanations and will not result in a suspicious matter report.
Examples of unusual activity for financial advisers and investment businesses may include:
- A client seeking to invest significant funds but being unwilling or unable to explain the source of those funds.
- A sudden and unexplained change in investment behaviour or transaction patterns.
- Instructions involving multiple third parties with no clear commercial rationale.
- Large withdrawals or transfers that are inconsistent with the client’s known objectives or financial circumstances.
- Requests involving higher-risk jurisdictions or complex ownership structures without a clear purpose.
- Reluctance to provide identification documents or beneficial ownership information.
A suspicious matter arises when the reporting entity forms a suspicion based on the available facts. The test is not certainty. The test is whether there are reasonable grounds to suspect that the activity may involve criminal conduct, proceeds of crime, terrorism financing, sanctions breaches, identity fraud, tax evasion, or an attempt to avoid AML/CTF controls.
Key distinction:
- Unusual activity is an indicator.
- A suspicious matter is a conclusion reached after assessment.
- Not every unusual activity becomes a suspicious matter.
- Every suspicious matter should be supported by identified facts, observations, and documented reasoning.
For advisers, the focus is often less on transaction volume and more on whether client behaviour, fund movements, ownership arrangements, or instructions appear inconsistent with the client’s known profile. Effective ongoing customer due diligence is designed to identify these inconsistencies and determine whether escalation or suspicious matter reporting is required.
Why it matters
AUSTRAC expects reporting entities to have systems that identify unusual activity and escalate potential suspicious matters. Failing to recognise or assess red flags can result in missed suspicious matter reporting obligations, weaknesses in AML/CTF controls, and increased regulatory scrutiny.
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Practical guidance
- Define objective AML/CTF red flags that trigger review and escalation.
- Document the facts, customer explanations, and assessment whenever unusual activity is identified.
- Maintain a clear process for determining whether a suspicious matter report should be lodged with AUSTRAC.
Further reading
AML/CTF financial planners Australia