For accountants
Client money and property: AML/CTF item 3 for accountants
Client money is not a single statutory category. Table 6 item 3 applies when, in the course of business, a professional receives, holds and controls, including disburses, or manages another person's money, accounts, securities, virtual assets or other property as part of directly advancing a transaction. The analysis turns on actual custody, control, authority, discretion and the transaction being advanced. It then requires consideration of express statutory boundaries. A firm should not classify every trust-account receipt as captured or every fixed payment as excluded. It should map the flow of property, decision rights and legal basis for each material arrangement.
See the accountants AML/CTF workspaceMap custody, control and decision rights
For each workflow, identify the owner of the property, payer, recipient, accounts used, period held, person who can direct disbursement and all conditions on release. AUSTRAC reads receiving, holding and controlling as a composite idea, commonly involving receipt, retention and control over disbursement. Record whether the firm has that practical control rather than relying only on the name of the account.
Managing can apply without custody where the firm has substantive authority and discretion to decide or direct how the property is dealt with. Authority to select a recipient, vary amount or timing, redirect funds, allocate limited cash or change purpose points toward management. Technical access or the ability to upload an approved file is relevant but not conclusive when fixed instructions and controls remove substantive discretion.
Identify the transaction and direct advancement
Item 3 also requires the activity to form part of planning or executing a transaction, or otherwise acting for the person in a transaction, and to directly advance it. State the transaction in concrete terms. A ledger entry, cash-flow forecast or recommendation may inform the customer without itself moving money or advancing the transaction. Execution authority can lead to a different result.
Separate workflows such as completion money for a company transfer, investment subscriptions, finance proceeds, creditor payments, tax payments and internal account transfers. The same bank mandate can be used for activities with different legal character. If another designated service covers the conduct, the item 3 boundary for another designated service must be applied carefully rather than double-counting or assuming that neither item applies.
Apply statutory boundaries to the actual payment
The Act provides item 3 boundaries including payment for the firm's own goods or services, certain payments reasonably incidental to a non-designated service, specified court or tribunal payments, payments involving government bodies and other listed recipients, another designated service and Rules-based circumstances. Each has conditions. State the provision and facts rather than recording a broad exemption label.
AUSTRAC explains that the reasonably-incidental boundary is assessed at business level. If the legal entity provides another designated service, a team cannot rely on being a separate bookkeeping or advisory department. AUSTRAC also identifies tax payments to the ATO within a government-payment boundary, but that does not remove every service involving tax money or every other payment made during a tax engagement.
Apply CDD, monitoring and suspicious-matter controls
Where item 3 is a designated service, complete required initial CDD before providing it. Establish the customer and representatives, authority, ownership and control, relevant beneficial owners, purpose and expected property flow. Assess risk and screening results. Higher-risk sources, destinations, third parties or structures may require enhanced CDD and approval under the program.
Monitor actual property flows against the customer's expected profile and transaction. Unexpected third-party receipts, rapid pass-through movement, unexplained offshore destinations, personal expenditure through business accounts, inconsistent payment references or pressure to obscure a recipient should trigger inquiry. Escalate confidentially when suspicion may meet the reporting test, and preserve tipping-off controls.
Preserve the boundary with operational controls
Align contracts, banking permissions and system roles with the assessed service. If the firm relies on fixed instructions, prevent staff from adding recipients or changing destinations without recorded customer approval. Set dual controls and verification for bank-detail changes where appropriate. Segregate firm fees from client property and define how rejected, excess or unidentified receipts are handled.
Keep mandates, authority matrices, flow diagrams, scope decisions, boundary reasoning, CDD, risk assessments, transaction records, monitoring, escalations and approvals. Reassess when discretion changes, a new property type or jurisdiction is introduced, the firm begins holding funds, a transaction changes or an unexpected third party participates. The evidence should let a reviewer reconstruct who could decide what at the relevant time.
Official sources
Use these primary AUSTRAC pages to confirm the current rules and apply them to your circumstances.
Frequently asked questions
Does every client or trust account receipt trigger item 3?
No. Apply all elements: receiving, holding and controlling or managing, the transaction connection, direct advancement, business context and statutory boundaries. The account label is evidence of the flow but does not replace the legal analysis.
Is fixed bill payment the same as managing client money?
Not necessarily. Implementing pre-determined obligations without substantive discretion is less likely to be management than choosing, redirecting or varying payments. The firm must still apply the complete item 3 test and any boundary to its actual authority and workflow.
Can an incidental-payment boundary be applied per engagement team?
AUSTRAC explains that the relevant condition operates at business level. Consider all designated services provided by the same legal entity, even if organisational teams are separate, and document every condition for the payment being assessed.
Put it into practice
Cassandra AML turns these obligations into a working system: designated-service decisions, customer due diligence, screening, monitoring and reporting records — hosted in Sydney, free to start.
This guide is general information for Australian professionals. It is not legal advice and does not replace the AML/CTF Act, the AML/CTF Rules or AUSTRAC guidance. Confirm your specific obligations with AUSTRAC or a qualified legal adviser. See our editorial and correction standards.