Many Australian business brokers are likely to be regulated under the Tranche 2 anti-money laundering and counter-terrorism financing laws where they actively assist with the sale or transfer of a company, trust, partnership or commercial property.
However, not every business broker is automatically covered.
The key question is not whether a person calls themselves a “business broker”. It is whether the broker provides a regulated designated service in the course of their business.
For business brokers, the answer will often depend on what is being sold, how the transaction is structured, the broker’s role in advancing the transaction and whether the transaction has the required connection with Australia.
Why might business brokers be regulated?
Australia’s Tranche 2 AML/CTF reforms apply to certain professional and real estate services.
A business broker may be regulated where they assist a client in planning or carrying out a transaction involving the sale, purchase or transfer of a company, shares in a company, a trust, units or interests in a trust, a partnership, another legal arrangement or commercial real estate.
These rules focus on the service being provided, rather than the professional title of the person providing it. This means a business broker may be regulated even though business brokers are not always identified as a separate industry category in general summaries of the Tranche 2 reforms.
Entity sales and asset sales may be treated differently
Entity sales
An entity sale may involve:
- the sale of shares in a company;
- the transfer of units in a trust;
- the transfer of a partnership interest; or
- another change in the ownership or control of a legal arrangement.
A business broker who actively assists with this type of transaction is likely to be providing a designated professional service.
Asset sales
An asset sale may involve the buyer acquiring:
- equipment;
- stock;
- customer contracts;
- intellectual property;
- business names;
- licences; and
- goodwill.
A pure asset sale may not fall within the designated service relating to the transfer of a company, trust or partnership. However, other designated services may still apply. For example, the transaction may include commercial real estate, or the broker may receive or control money or property on behalf of a client.
The transaction therefore needs to be assessed as a whole.
When is a business broker likely to be regulated?
The following table provides an indicative guide only.
| Business-broking activity | Indicative AML/CTF position |
|---|---|
| Assisting with the sale of shares in a company | Likely to be regulated |
| Assisting with the transfer of a trust or partnership interest | Likely to be regulated |
| Negotiating or progressing an entity-sale transaction | Likely to be regulated |
| Coordinating due diligence for an entity sale | Likely to be regulated |
| Brokering the sale of commercial real estate | Likely to be regulated |
| Brokering a business and commercial property together | Potentially regulated under more than one designated service |
| Advertising a business without advancing the transaction | May not be regulated |
| Making an introduction only | May not be regulated |
| Providing a standalone business valuation | May not be regulated |
| Brokering a pure sale of equipment, stock and goodwill | Requires assessment |
| Receiving or controlling deposits or other property | May trigger separate obligations |
The result depends on the broker’s actual role, the transaction structure and whether the service has the required connection with Australia.
What does “assisting with a transaction” mean?
A business broker does not necessarily need to prepare the final sale agreement or complete the legal transfer to be regulated. A broker may begin providing a designated service when they take practical steps that directly advance the transaction.
Depending on the circumstances, this may include:
- negotiating the commercial terms;
- communicating offers and counteroffers;
- coordinating due diligence;
- helping structure the transaction;
- organising the transfer of shares or ownership interests;
- coordinating transaction documents; or
- progressing the transaction towards completion.
A broker should not assume that AML/CTF obligations only apply to the lawyers or accountants involved in the sale.
What about commercial real estate?
A business sale may also include the sale of a factory, office, retail premises, hotel, restaurant or other commercial property.
Where the business broker also brokers the sale or purchase of that real estate, the broker may provide a real estate designated service. This should be considered separately from any professional designated service relating to the sale of a company, trust or partnership. Depending on the transaction and the broker’s role, both categories may apply.
What AML/CTF obligations may apply?
A regulated business broker may need to:
- enrol with AUSTRAC;
- assess the money laundering, terrorism financing and proliferation financing risks facing the business;
- develop and maintain an AML/CTF program;
- appoint an AML/CTF compliance officer;
- identify and verify customers;
- identify the beneficial owners of companies, trusts and partnerships;
- assess each customer’s risk;
- conduct politically exposed person and sanctions screening;
- undertake enhanced customer due diligence for higher-risk matters;
- monitor customers and transactions;
- consider whether suspicious matter reports are required;
- train relevant staff; and
- create and retain AML/CTF records.
Customer due diligence will generally need to be completed before the broker begins providing the designated service, subject to limited exceptions. Required AML/CTF records must generally be kept for seven years.
For a business broker managing multiple buyers, sellers, companies, trusts and investors, these obligations can quickly become difficult to administer using separate forms, spreadsheets and calendar reminders.
Warning signs in business-sale transactions
Business sales can involve significant payments, complex ownership structures and parties acting through companies, trusts or nominees. Warning signs may include:
- a last-minute change from an individual buyer to an offshore company;
- a purchaser who will not identify the people funding the acquisition;
- nominee shareholders or directors with no clear commercial role;
- deposits paid by an unrelated third party;
- funds arriving from a country with no obvious connection to the buyer;
- an ownership structure that appears unnecessarily complicated;
- pressure to complete before customer checks are finished;
- repeated changes to the purchaser or payment arrangements;
- a purchase price that appears inconsistent with the trading figures;
- a customer who is unwilling to explain the source of funds; or
- a request to omit a person’s involvement from the transaction documents.
A warning sign does not necessarily mean that criminal activity is occurring. However, it may require additional enquiries, enhanced customer due diligence or consideration of whether a report must be made to AUSTRAC.
What should business brokers do?
Business brokers should begin by mapping their services and the different types of transactions they handle. For each service, consider the following questions.
What is being sold?
Is the transaction a share sale, trust-unit transfer, partnership transfer, pure asset sale, real estate sale or a combination of these?
What role does the broker perform?
Does the broker simply advertise the opportunity and introduce the parties, or does the broker negotiate, coordinate due diligence and actively progress the transaction?
Who is the customer?
The customer may be the seller, the buyer or, in some circumstances, more than one party. The broker must clearly identify who receives the designated service.
Does the broker handle money or property?
Receiving or controlling deposits, transaction documents, securities or other property may create additional obligations.
Does the transaction have an Australian connection?
The service must also have the required geographical link to Australia before the Australian AML/CTF regime applies.
Where the answer is unclear, the broker should obtain advice based on its actual service model, engagement terms and transaction process.
Review engagement terms and internal procedures
Business brokers should review their engagement documents so they can comply with their AML/CTF obligations without breaching their contractual commitments to clients.
Engagement terms should address:
- the client’s obligation to provide identification and ownership information;
- the broker’s right to request further information;
- delays caused by customer due diligence;
- the broker’s ability to decline, suspend or terminate services where legal requirements cannot be satisfied;
- the collection and protection of personal information; and
- the broker’s legal reporting obligations.
Internal procedures should also explain:
- when customer due diligence must begin;
- who approves higher-risk customers;
- when enhanced due diligence is required;
- how warning signs should be escalated; and
- how AML/CTF records will be retained.
How Flagship AML helps business brokers
Flagship AML is an Australian AML/CTF compliance platform designed to help small and medium-sized professional service businesses put their AML/CTF program into practice.
Flagship AML helps business brokers manage:
- customer onboarding;
- identification of individuals, companies, trusts and partnerships;
- beneficial ownership;
- customer risk assessments;
- politically exposed person, sanctions and criminal screening;
- enhanced customer due diligence;
- source-of-funds and source-of-wealth enquiries;
- ongoing monitoring;
- compliance records;
- review reminders; and
- audit-ready reports.
Guided workflows help brokers manage their obligations consistently without relying on disconnected spreadsheets, paper forms and manual reminders.
Frequently asked questions
Are all Australian business brokers regulated?
No. Regulation depends on the services the broker provides, the structure of the transaction and the broker’s actual involvement. However, many full-service business brokers are likely to be regulated where they actively assist with the sale or transfer of a company, trust, partnership or commercial property.
Does an asset sale trigger AML/CTF obligations?
A pure sale of equipment, stock, intellectual property and goodwill may not fall within the designated service relating to the transfer of a company or legal arrangement. Other designated services may still apply, particularly where the transaction includes real estate or the broker receives or controls money or property.
When must a business broker complete KYC?
Customer due diligence will generally need to be completed before the broker begins providing the designated service, subject to limited exceptions.
Do business brokers need to identify beneficial owners?
Where the customer is a company, trust, partnership or another legal arrangement, a regulated broker may need to identify and verify the individuals who ultimately own or control it.
The practical takeaway
Business brokers are not automatically regulated simply because they describe themselves as business brokers.
However, a broker is likely to be captured where they actively assist with the sale, purchase or transfer of a company, trust, partnership or another legal arrangement. A broker may also be regulated where the transaction involves commercial real estate or another designated service.
The safest approach is to consider:
- what is being transferred;
- who the broker acts for;
- what the broker does to advance the transaction;
- whether money or property is handled; and
- whether the service has an Australian geographical link.
For many full-service Australian business brokers, the Tranche 2 AML/CTF laws will be directly relevant.
Make AML/CTF compliance easier to manage
Flagship AML provides guided AML/CTF workflows for Australian business brokers and other professional service providers.
Manage customer due diligence, beneficial ownership, customer risk assessments, screening, enhanced due diligence, record keeping and review reminders in one practical platform.
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Disclaimer: This article provides general information only and does not constitute legal advice. Whether a person or business is regulated depends on the particular services provided and the circumstances of each transaction.
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