As Australia prepares to implement Tranche 2 of its Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) reforms, not-for-profit (NFP) organisations—particularly small to medium-sized ones—are increasingly in the spotlight.

While NFPs exist to do good, they can inadvertently be used to channel illicit funds, finance terrorism, or obscure financial flows. For this reason, global AML watchdogs such as the Financial Action Task Force (FATF) have long called for greater oversight of the sector. With Tranche 2 reforms finally gaining momentum, now is the time for NFP leaders to take action.

Why Are NFPs Part of the Tranche 2 Discussion?

NFPs have been identified by regulators and law enforcement agencies as vulnerable to abuse due to:

• Large cash donations and international funding flows
• Inadequate due diligence on donors, beneficiaries, or partners
• Weak or inconsistent governance frameworks
• Cross-border operations, especially in high-risk regions

The Tranche 2 reforms are expected to include designated non-financial businesses and professions (DNFBPs), and while not all NFPs may become reporting entities, those involved in financial activities or high-risk operations will need to demonstrate compliance readiness.

🧭 Your Top Priorities as an SME NFP in 2025

1. Assess Your Risk Profile

Start with a comprehensive risk assessment:

• Do you receive large or frequent cash donations?
• Do you work in or send funds to high-risk jurisdictions?
• Do you partner with unknown or loosely vetted organisations?
• Do you distribute funds or resources on behalf of third parties?

This helps determine how your NFP could be exposed to financial crime and where to focus your mitigation efforts.

2. Establish a Fit-For-Purpose AML/CTF Policy

Even if you’re not (yet) required to comply under AUSTRAC’s reporting regime, developing an internal AML/CTF policy shows you're taking your responsibilities seriously. Your policy should cover:

• Donor and partner due diligence
• Monitoring of suspicious financial activity
• Staff and volunteer responsibilities
• Reporting procedures (internal and external)

3. Know Your Donors and Partners (KYD/KYP)

As part of good governance, implement procedures to:

• Verify identities of high-value or anonymous donors
• Conduct background checks on key partners and fund recipients
• Screen against sanctions and watchlists
• Seek clarification for donations with unclear sources

Simple tools like donor forms and basic due diligence checks can make a big difference.

4. Improve Financial Transparency and Record-Keeping

Tranche 2 compliance will demand clear and traceable financial records. Ensure:

• All donations and disbursements are logged and auditable
• Records are kept for at least 7 years
• Multiple layers of oversight are in place (e.g. board, finance committee, external audits)

This is particularly important for cross-border transactions or in-kind donations.

5. Train Your People

Your board, staff, and volunteers must understand:

• The risks of financial crime in the NFP sector
• How to spot suspicious behaviour or transactions
• Their role in escalating concerns

Tailored, scenario-based training can empower even small teams to stay alert and compliant.

6. Engage with Regulatory and Sector Bodies

Stay in the loop through:

• The Australian Charities and Not-for-profits Commission (ACNC)
• Sector-specific NFP networks and associations
• AUSTRAC’s updates and guidance materials

Being proactive and collaborative sends a strong message of transparency and accountability.

Why Compliance is a Strategic Advantage

While AML/CTF compliance may feel like extra red tape, it can actually:

• Strengthen donor confidence
• Boost governance standards
• Help your organisation become grant-ready for public or institutional funding
• Protect your reputation against misuse or scandal

In a world of growing scrutiny, NFPs that lead with transparency will attract more sustainable support.

Final Thoughts

As an SME business owner in the not-for-profit space, Tranche 2 compliance is both a challenge and an opportunity. Your top priorities should include:

1. Understanding your exposure to financial crime risks
2. Creating internal AML/CTF policies
3. Vetting donors, partners, and recipients
4. Keeping clean, traceable records
5. Training your people and staying engaged with the sector

Whether or not you fall under the new reporting regime, taking these steps will demonstrate your organisation’s commitment to ethical stewardship and responsible operation in a changing regulatory landscape.

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