Can I tell a client that I've filed an SMR on them (tipping off rules)?

The tipping-off prohibition is one of the most important — and most counterintuitive — aspects of AML/CTF compliance. It prevents reporting entities from warning clients that they are the subject of a suspicious matter report, preserving the integrity of AUSTRAC's intelligence-gathering and any law enforcement investigation that may follow.

What the prohibition covers

Section 123 of the AML/CTF Act prohibits disclosing to any person:

• That you have filed an SMR about them (or anyone else)
• That you are in the process of filing an SMR
• That you are considering whether to file an SMR
• Any information that would identify an SMR has been, or is being, prepared

The prohibition applies regardless of whether the disclosure is intentional. An inadvertent tip-off — for example, a staff member mentioning to a colleague that 'we filed a report on that client' in a context where it is overheard — can constitute an offence.

Penalties

Tipping off is a criminal offence with a maximum penalty of two years imprisonment. Civil penalties may also apply. There is no defence of honest mistake — the strict nature of the prohibition means that the consequences of inadvertent disclosure are the same as deliberate disclosure.

What you CAN tell the client

You cannot disclose the existence of an SMR, but you are not prohibited from:

• Telling a client that you cannot provide a service (without explaining why)
• Requesting additional information from a client as part of your CDD obligations
• Advising a client to seek independent legal advice
• Referring generally to your AML/CTF obligations — many firms include a general disclosure in their engagement letters noting that they have AML/CTF reporting obligations under Australian law

Managing staff awareness

The fact that an SMR has been filed — or is being considered — should be treated as confidential within your firm, shared only on a strict need-to-know basis. Staff who work with the client in question should not be informed of the SMR unless there is a specific compliance reason to do so. Training on the tipping-off prohibition is essential for everyone in a client-facing role.

Terminating the relationship after an SMR

If you decide to terminate the client relationship after filing an SMR, the manner and timing of the termination must be handled carefully to avoid indirectly tipping off the client. Seek legal advice on how to structure the exit if you are concerned the client may draw a connection between the termination and the report.