Privilege changes what you file, and how long you have. Which of three paths a matter takes is settled before anything goes to AUSTRAC, and on one of them nothing goes at all.
Australian law practices became reporting entities on 1 July 2026, to the extent they provide a designated service. Table 6 of the Act lists them, and for law practices they run from assisting in a conveyance to creating or restructuring a company or trust. From that point, forming a suspicion about a client obliges the practice to lodge a suspicious matter report (SMR) with AUSTRAC.
Section 242 of the AML/CTF Act preserves privilege expressly, so nothing in the Act compels you to hand AUSTRAC privileged material. But s41 still requires the report. The two provisions have to be read together, and AUSTRAC’s legal practices starter kit sets out how.
The three filing paths
Before an SMR is submitted, someone has to decide how far privilege extends over the grounds for the suspicion: the facts and communications that led you to form it. That decision produces one of three outcomes.
| How far privilege extends | What you file | Deadline |
|---|---|---|
| No part of the grounds is privileged | Standard SMR | 3 business days from suspicion (s41(2)) |
| Part of the grounds is privileged | SMR, plus an LPP form in lieu of the withheld information | 5 business days (s 41(2)(aa)) |
| All of the grounds are privileged | Neither an SMR nor an LPP form | No filing; retain the documented decision |
An LPP form is the privilege claim form AUSTRAC accepts in place of the withheld information. It records that a claim has been made over part of the grounds; what it must contain is one of the things still unsettled, below.
Two of those rows catch practices out.
The wholly-privileged path files nothing at all. Not a redacted report, not a nil return. You discharge the obligation by making the assessment and keeping the record of it. That runs against the instinct to file something whenever a question arises, but the starter kit is explicit.
The five-day extension is not a general extension. It attaches only to the partial-privilege path, and only because you are filing an LPP form in lieu of information you are withholding. An ordinary SMR is still three business days.
And it only runs where the privilege is someone else’s. Section 41(2)(aa) extends the deadline where some (but not all) of the reportable information may be privileged and the privilege, if it exists, belongs to a person other than your practice — in the ordinary case, your client. Privilege your practice holds in its own right does not buy the extra two days.
Threshold transaction reports run on a separate rule. Where privilege affects a report of cash of $10,000 or more, the LPP form is co-filed within ten business days under s 43(3)(aa).
Terrorism financing is 24 hours, privilege or not
Where the suspicion relates to terrorism financing, the deadline is 24 hours from the moment the suspicion forms. Privilege buys no extension, so a partly-privileged terrorism financing matter is still a 24-hour report.
Read “five business days for privileged matters” as a general rule and apply it to a terrorism financing suspicion, and you miss a statutory deadline by roughly four days.
The clock also runs from when the suspicion forms, not from when someone classifies the offence. A matter sitting unclassified is still consuming its deadline.
Who decides, and what they are deciding
The starter kit contemplates staff flagging potential privilege to the practice’s AML/CTF compliance officer (the AMLCO), who then determines whether the information can be withheld. The AMLCO is making two findings, in order.
Is the material privileged at all? Was it communicated in confidence, for the dominant purpose of giving or obtaining legal advice, or for use in existing or anticipated litigation? Not everything a client tells a solicitor meets that test. Transactional records, identity documents and payment instructions generally do not.
Does the improper-purpose exception apply? At common law, privilege does not attach to a communication made with the intention of an illegal or improper purpose. AUSTRAC’s guidance describes privilege as not extending to information “created for a purpose that’s contrary to the public interest… made with intention of illegal or improper purpose.” Where the exception applies, the material was never privileged, and it is reported in full.
One note on citing that exception. Some published material attributes it to a section of the AML/CTF Act. It is not statutory. It is the common-law improper-purpose exception, reached through the s5 definition of legal professional privilege, which incorporates without limiting to Part 3.10 Division 1 of the Evidence Act 1995 (Cth). If you are drafting your own procedure, cite it that way.
The assessment, the reasoning and the outcome are all documented and retained for seven years under the record-keeping obligation. On the wholly-privileged path that record is the only thing the decision produces, which makes it the only thing a reviewer will ever have to look at.
Privilege and tipping-off are different questions
Privilege governs what you may withhold from AUSTRAC. Section 123 governs what anyone may disclose to a client or a third party. They pull in opposite directions and are easy to run together.
Section 123 was rewritten by the AML/CTF Amendment Act 2024, with the current form in force from 31 March 2025. The old prohibition on disclosing anything from which an SMR could be inferred has been replaced by a harm-based test: whether the disclosure would, or could reasonably be expected to, prejudice an investigation. The maximum penalty is two years imprisonment, 120 penalty units, or both. It does not matter whether an investigation has actually started.
So you can be simultaneously entitled to withhold privileged material from a report and prohibited from telling the client the report exists. The privilege assessment must not itself become a disclosure, which means the assessment record needs the same access controls as the SMR it relates to. That is a constraint on how you run the workflow, not only on what you decide.
What is still unsettled
Section 242A provides for ministerial guidelines on privilege claims. Those guidelines have not been made. Until they are, how a claim is framed and what an LPP form must contain rest on the starter kit and on general privilege law rather than on a purpose-built instrument.
State law society guidance for AML/CTF is also new and still developing. Write your procedure now, version it, and expect to revise it.
Where to start
If your practice has no written privilege procedure yet, three things do most of the work:
- A private route for raising it: staff need a way to put a possible privilege issue to the AMLCO without discussing it more widely, so that raising the question does not itself risk a s123 disclosure.
- A structured record of the finding: the AMLCO’s answer on both tests, with the reasoning, held under the same access controls as the SMR it relates to.
- A deadline worked out per matter: derived from that matter’s offence classification and privilege outcome, rather than one figure written into the procedure and applied to everything.
How duely handles this
For law practices, the privilege assessment is a gate in front of SMR submission, with the three outcomes above. It is on by default: only an explicit opt-out in your AML/CTF program disables it, because a practice that has never answered the question is more likely to hold privileged material than not.
The deadline comes from the offence classification and the assessment outcome together rather than from one flat rule, so the terrorism financing case is applied rather than remembered.
The lppFlag in the exported AUSTRAC XML comes from the completed assessment. The v3.0 schema asserts both directions, so a Y must carry an LPP claim-form attachment and an N must carry none. Where a partly-privileged report has no form attached yet, duely refuses the export rather than emitting a Y that AUSTRAC will reject or an N that would deny a privilege claim which exists. A wholly-privileged case is blocked from both submission and export, because there is no honest file to produce.
The completed assessment is frozen with the case, so the record shows the decision as it stood at filing rather than as it looks after later edits.