The not-for-profit (NFP) sector plays a vital role in Australian society, delivering essential services, advocacy, and community support across a broad spectrum of causes. However, as Australia prepares to implement Tranche 2 of its Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime, not-for-profits may soon face new and complex compliance obligations that could significantly impact how they operate.

Tranche 2 aims to expand the scope of the AML/CTF Act to cover high-risk sectors, including professionals and entities not currently regulated — such as lawyers, accountants, real estate agents, and certain categories of NFPs. For the NFP sector, this shift brings a host of challenges.

Understanding Tranche 2 and Its Relevance to NFPs

Australia has long faced international pressure, particularly from the Financial Action Task Force (FATF), to close loopholes in its AML/CTF framework. Tranche 2 is designed to address these criticisms and bring Australia in line with global standards.

Not-for-profits — particularly those that send or receive funds internationally, operate in high-risk regions, or handle large cash donations — are seen as potential conduits for money laundering or terrorist financing. As such, Tranche 2 could place new requirements on these organisations, including:

1. Customer due diligence (CDD)
2. Reporting of suspicious transactions
3. Record-keeping and compliance program development

Key Compliance Challenges for NFPs

1. Resource Limitations

Many not-for-profits operate on tight budgets and with limited administrative capacity. Implementing AML/CTF controls — such as dedicated compliance officers, software systems, and ongoing training — may divert resources from core mission activities and strain already stretched operational teams.

2. Regulatory Uncertainty

There is a lack of clear guidance about how Tranche 2 will apply to not-for-profits, which creates confusion and concern. It remains unclear which organisations will be caught under the new rules, and how thresholds for compliance (e.g., donation sizes, geographic reach) will be set. This uncertainty makes it difficult for NFPs to prepare effectively.

3. Complexity of Risk Assessments

NFPs will be required to conduct money laundering and terrorism financing risk assessments specific to their activities, donors, beneficiaries, and geographical footprint. For organisations with limited compliance experience, this process can be highly technical and daunting.

4. Impact on Donor Relationships

Stricter due diligence processes may deter some donors who are reluctant to provide detailed personal information. For community-based and culturally sensitive organisations, particularly those serving migrant or refugee populations, this could result in a loss of trust and a reduction in contributions.

5. Data Security and Record-Keeping

Storing sensitive donor and beneficiary information securely, and maintaining records for several years, introduces both technical and privacy challenges. NFPs may need to invest in secure systems and privacy training to meet regulatory standards.

6. Cultural and Operational Disruption

For many small or volunteer-led organisations, formalising compliance programs and adopting a more regulated, risk-based approach represents a fundamental cultural shift. Without external support, some NFPs may struggle to adapt, or even consider ceasing certain operations to avoid compliance burdens.

Pathways to Compliance

To navigate the transition to Tranche 2 compliance, NFPs can take proactive steps, including:

1. Conducting a preliminary risk assessment to understand exposure.
2. Engaging with sector peak bodies, such as the Australian Charities and Not-for-profits Commission (ACNC) and the Australian Council for International Development (ACFID), for guidance and advocacy.
3. Exploring shared services or consortia models to reduce individual compliance costs.
4. Implementing basic AML awareness training for staff and volunteers.
5. Advocating for proportionality in legislation, ensuring obligations are tailored to the size and risk level of each organisation.

The Role of Government and Regulators

The success of Tranche 2 implementation in the NFP sector will hinge on thoughtful regulation, clear communication, and a supportive transition. The government must provide:

1. Tailored, accessible guidance for NFPs.
2. Tiered or risk-based application of the law.
3. Funding or grant programs to assist with compliance infrastructure.

Conclusion

While Tranche 2 of the AML/CTF regime is driven by legitimate concerns about misuse of funds and international obligations, its application to the not-for-profit sector must be balanced and fair. Without adequate support, there is a real risk that compliance burdens could undermine the capacity of NFPs to deliver vital services. Through early engagement, sector collaboration, and government assistance, the NFP sector can rise to meet these challenges — but the journey will not be without its obstacles.

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