For lawyers
Law-firm trust accounts and the item 3 AML/CTF boundary
A trust account does not make every receipt an AML/CTF designated service, and routing a payment through an office account does not avoid regulation when the substance is captured. Table 6 item 3 requires a factual analysis of the firm's control or management of customer money, accounts, securities, virtual assets or other property and its connection to a transaction. The service must directly advance the transaction in the course of business, and subsection 6(5C) contains important exclusions. Trust-account regulation and professional conduct duties continue separately. This guide helps legal practices build a repeatable classification; difficult or engineered payment arrangements should receive legal review before funds are accepted.
See the lawyers AML/CTF workspaceTest every element of item 3
The first limb concerns receiving, holding and controlling property, including disbursing it. AUSTRAC treats receiving, holding and controlling as a composite expression: mere receipt without the relevant holding and control may not satisfy it, while a firm that can decide when settlement funds are released may. The alternative limb is managing customer property, which can apply without physical receipt where the firm has authority or discretion to administer, direct or decide how the asset is handled.
The conduct must occur while assisting or acting for a person in a transaction and must directly advance that transaction. It must also be supplied in the course of business and not fall within a subsection 6(5C) exclusion. Record each element rather than using the trust-account ledger code as the answer. Fixed, binding payment instructions with no discretion may present a different management analysis from an authority allowing the solicitor to choose timing, recipient or application.
Identify the customer and the transaction
The item 3 customer is the person the firm directly assists or acts for in the relevant transaction. It is not automatically every payer, beneficiary or person whose funds touch the account. Identify the transaction being advanced, the person receiving the service, the source of the firm's authority and the exact property controlled or managed. A third-party payer may still create risk or CDD questions without becoming the statutory customer merely because payment was received.
Examples that may require analysis include controlling a settlement deposit, operating an account to complete an acquisition, administering securities during a restructure, directing virtual assets under a transaction mandate or disbursing consideration after conditions are satisfied. Holding evidence or receiving a fee does not necessarily have the same character. Substance, authority and connection to the transaction decide the classification.
Apply subsection 6(5C) exclusions narrowly
The Act excludes specified conduct, including receiving payment for the firm's own goods or services, money payable under a court or tribunal order, certain government, court, tribunal, international-organisation or insurer payments described by the Act, and conduct that is itself another designated service. The Rules can also specify circumstances. Each exclusion has conditions; an invoice payment does not convert unrelated transactional funds into payment for the firm's services.
There is also an exclusion for payments reasonably incidental to a non-designated service, but it is restricted where the business provides another designated service besides item 3. That condition is assessed at the relevant business or legal-entity level, not casually by saying the litigation team is separate from conveyancing. A litigation-only practice holding money under a privately negotiated settlement may reach a different result from a multidisciplinary firm that also provides designated property or entity services. Document the organisational facts and legal basis.
Use examples without turning them into blanket rules
A conveyancer who controls purchase money and releases it at settlement may provide item 3 as well as the real-estate transaction service. A firm receiving its professional fee ordinarily looks to the own-goods-or-services exclusion. Funds paid under an actual court order may fall within a statutory exclusion, while funds moved under a private settlement deed are not automatically court-ordered. Rental receipts and expenses can have Rules-based treatment that should be checked against the current instrument.
Do not permit the trust account to operate as a customer's general banking facility. A request to receive unrelated funds, split them among unexplained third parties, rapidly return overpayments or use the firm's account to conceal origin or destination requires escalation. Even if the service ultimately falls outside item 3, the facts may affect the customer's risk assessment, professional duties, fraud controls or whether a suspicious matter report must be considered.
Create a funds-control record before accepting money
Capture the customer, transaction, amount or property, expected payer and payee, authority, discretion, account, intended timing, designated-service decision and any exclusion. Link that record to CDD, sanctions screening, risk assessment and source-of-funds inquiries required by the firm's program. Reassess if the payer, destination, amount, instructions or settlement purpose changes.
Operationally separate intake approval from payment release. Use verified destination details, dual authorisation and independent change-of-bank-detail checks. Those fraud controls do not replace AML/CTF obligations, but they prevent a compliant-looking file from becoming the mechanism for theft or laundering. Preserve the evidence used at both acceptance and disbursement.
Official sources
Use these primary AUSTRAC pages to confirm the current rules and apply them to your circumstances.
Frequently asked questions
Is every law-firm trust-account receipt a designated service?
No. Item 3 has specific elements and exclusions. The firm must examine control or management, the transaction being directly advanced, the customer, course of business and subsection 6(5C). Trust-account status alone neither proves nor disproves the designated service.
Does following a customer's instruction mean the firm never manages money?
Not necessarily. The degree of authority and discretion matters. A firm authorised to decide or administer how property is applied may be managing it, while a tightly fixed instruction can present different facts. The receiving, holding and controlling limb should also be tested independently.
Can a law firm hold money unrelated to its legal work?
That is high risk and may conflict with professional trust-account rules as well as AML/CTF controls. A firm should not offer a de facto banking facility. Identify the legal service and transaction purpose, reject unexplained routing and escalate unusual third-party or refund instructions.
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.