Client money is where bookkeeping work crosses into AML/CTF scope most often. Table 6 item 3 of the AML/CTF Act covers receiving, holding and controlling or managing money, securities or other property as part of directly advancing a transaction in the course of carrying on a business. Not every client payment puts a bookkeeper in scope, but a practice that holds and moves client money for a transaction must run the item 3 analysis and build the controls that follow. This guide explains the boundary and the operating discipline.
Run the item 3 analysis
Item 3 requires three elements to work together: the practice receives, holds and controls or manages the money or property; it does so as part of directly advancing a transaction; and it does so in the course of carrying on a business. The transaction must be one of the specified transaction types in the item, and the statutory boundaries and customer implications must be tested.
Receiving a fee for bookkeeping services is not item 3. Holding a client's funds briefly while processing a payment may or may not be, depending on whether the practice controls or manages the funds and directly advances the transaction. Record the factual analysis rather than assuming every client-money touchpoint is captured.
CDD before the money moves
When item 3 applies, the money cannot move before applicable customer identification procedures are complete. The customer is not necessarily only the person who paid the funds; the persons on whose behalf the service is received matter too.
- Identify the customer and verify identity before providing the designated service
- Identify the transaction the funds advance and its parties
- Map beneficial owners for entity customers
- Screen for PEPs, sanctions and adverse media
- Record the source-of-funds position where risk requires it
Operating controls for client money
The reconciliation is the AML control. A client account that balances is evidence that the practice knows what it holds and for whom; unexplained balances, negative balances or frequent manual adjustments are the patterns examiners follow.
- Maintain a separate client account where required by law or the engagement
- Reconcile the account regularly and investigate every discrepancy
- Require documented authority for each movement
- Monitor unusual patterns: round amounts, rapid movement, third-party payments
- Keep an audit trail for every deposit, transfer and withdrawal
Reporting and records
Client money records are also the evidence base for reporting decisions. A practice that can show the source, purpose, authority and movement of each amount has the foundation for a defensible SMR or a documented decision not to report.
- Lodge an SMR where the movement creates reasonable suspicion, within the deadline
- Protect SMR-related information from tipping off
- Report a TTR for A$10,000 or more of physical currency connected to the service
- Retain the account records, authorities and CDD evidence for the required period
Official sources
Confirm the current rules against these primary sources.
Questions
Does receiving a payment from a client trigger item 3?
Not automatically. The practice must receive, hold and control or manage the money as part of directly advancing a specified transaction. Ordinary fee receipt is not the designated service.
Can a bookkeeper hold client money without an AML program?
Only if the service is not a designated service. Where item 3 applies, the practice is a reporting entity for that service and must complete CDD, monitor and retain records.
What is the most important control for client money?
A separately identifiable account with documented authority and regular reconciliation. It connects the money to the customer, the transaction and the evidence.
Do we need source-of-funds evidence for every client?
No. Apply source-of-funds review proportionately to the assessed risk and the transaction, and record why it was or was not required.
General information for Australian professionals, not legal advice. It does not replace the AML/CTF Act, the Rules or AUSTRAC guidance. See our editorial standards.
Keep reading
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