Tipping Off. Know the Criminal Offence

You've just filed a Suspicious Matter Report about a customer. Their transaction looked dodgy. You reported it to AUSTRAC. Now what?

Do you tell the customer? Do you explain why you're asking extra questions? Do you mention that you've reported them?

No. No. And absolutely no.

Because that's tipping off — and it's a criminal offense that can land you in prison for up to 2 years.

What Is Tipping Off?

Under section 123 of the AML/CTF Act, tipping off occurs when you disclose to any person that:

• A Suspicious Matter Report has been or will be made
• Information has been or will be given to AUSTRAC or police
• An investigation is being or may be conducted

And that disclosure is likely to prejudice an investigation.

The penalties? 2 years imprisonment or a fine of 120 penalty units (approximately $37,560 at current rates), or both.

Why Is Tipping Off a Crime?

Imagine you're a money launderer. You just moved $500,000 through a bank using a complex structure. The bank files an SMR. Then the teller says: "Just so you know, we had to report this transaction to AUSTRAC. They might investigate."

What do you do?

• Move the money immediately before it gets frozen
• Destroy evidence
• Flee the country
• Alert your criminal network
• Threaten or harm the person who reported you

That's exactly what tipping off laws prevent. If criminals know they've been reported, investigations become impossible.

But there's another reason: protecting innocent customers.

Not every SMR is about actual crime. Many are false positives — suspicious activity that turns out to have a legitimate explanation. If you told every customer "I reported you for potential money laundering," you'd be destroying reputations of innocent people.

What Counts as Tipping Off?

Directly Telling the Customer

"I had to file a Suspicious Matter Report about your transaction."
Criminal offense. Prison time. Don't do it.

"AUSTRAC is looking into your account."
Criminal offense.

"We've reported this to the authorities."
Criminal offense.

Indirect Disclosure

"I can't tell you why, but you should probably move your funds elsewhere."
Tipping off. You're implying something's wrong.

"I need to speak to my manager about this transaction." [Then refuses the transaction after speaking to manager]
Might be tipping off if it's obvious you've escalated due to suspicion.

"Your transaction raised some red flags with our compliance team."
Tipping off. You're signaling that they're under scrutiny.

Telling Third Parties

Customer's lawyer calls: "Did you report my client to AUSTRAC?"
You answer: "Yes."
Tipping off. Doesn't matter that it's the lawyer, not the customer directly.

Customer's accountant: "Why did you refuse that transaction?"
You answer: "We had compliance concerns."
Potentially tipping off if it implies an SMR was filed.

Behavioral Changes That Signal Suspicion

Customer has banked with you for 10 years. Suddenly, after one transaction, you:

• Stop being friendly
• Avoid eye contact
• Rush them out of the branch
• Start asking lots of unusual questions
• Refuse future services without explanation

Your behavior change signals something's wrong. That can constitute tipping off.

What Is NOT Tipping Off?

The law includes reasonable exceptions. You're allowed to conduct your business without walking on eggshells:

Asking Customer Due Diligence Questions

"Where did these funds come from?"
Not tipping off. This is required CDD.

"What's the purpose of this transaction?"
Not tipping off. Normal inquiry.

"Can you provide evidence of your source of funds?"
Not tipping off. Enhanced due diligence.

Refusing a Transaction (With Care)

"We can't process this transaction because you haven't provided the required identity documents."
Not tipping off. You're citing a legitimate compliance requirement.

"This transaction is outside our risk appetite."
Not tipping off if true. Many businesses have risk limits.

Requesting Additional Information

"For transactions over $50,000, we need additional verification."
Not tipping off if that's your standard policy.

"Can you provide a utility bill to verify your address?"
Not tipping off. Standard ID verification.

Internal Discussions

Talking to your compliance officer: "I think we need to file an SMR on this customer."
Not tipping off. Internal discussions are exempt.

Getting senior management approval for enhanced due diligence.
Not tipping off. Part of your AML program.

Disclosures to Legal/Professional Advisors

Asking your lawyer: "If I file an SMR, am I protected from liability?"
Not tipping off. You're getting legal advice.

Consulting with your AML consultant about a suspicious customer.
Not tipping off if done in confidence.

The Gray Area: Enhanced Due Diligence

Here's where it gets tricky. When you file an SMR, you typically apply enhanced due diligence to that customer. Which means:

• More questions about source of funds
• More frequent monitoring
• Requesting additional documentation
• Senior management involvement

But if you suddenly start asking lots of questions right after a suspicious transaction, doesn't that signal suspicion?

The key: Frame it as routine compliance, not investigation.

Bad: "Because of that last transaction, we now need to verify your source of funds."
(Links the inquiry directly to the suspicious transaction)

Good: "As part of our ongoing customer reviews, we need to update your information. Can you provide evidence of your source of funds?"
(Frames it as routine, not triggered by specific suspicion)

Real Scenarios: What Would You Do?

Scenario 1: The Direct Question

Customer: "Did you report me to AUSTRAC?"

Wrong answer: "Yes" or "I can't say"
(Both imply an SMR was filed)

Right answer: "We're required to comply with AML/CTF obligations, which includes reporting when appropriate. I can't discuss specific reports, but we follow all legal requirements."
(Doesn't confirm or deny. Cites legal obligations.)

Scenario 2: The Lawyer's Call

Customer's lawyer: "My client says you refused their transaction. Was it because you filed a suspicious matter report?"

Wrong answer: "Yes, we thought the transaction was suspicious."

Right answer: "We can't discuss specific compliance matters. The transaction was refused because it didn't meet our risk assessment criteria."
(Doesn't mention SMRs. Cites risk appetite.)

Scenario 3: The Follow-Up Transaction

You filed an SMR on Customer A last week. Today they come in to make another transaction. Do you:

A) Process it normally?
B) Refuse it immediately?
C) Ask enhanced due diligence questions?

Answer: A or C, never B without justification.

Refusing immediately after an SMR signals you've reported them (tipping off). Processing normally or doing ECDD (framed as routine review) doesn't tip them off.

What If You've Already Tipped Off?

Maybe you didn't know. Maybe you said something before you understood the law. What now?

Document it immediately
Write down what you said, when, and to whom. If AUSTRAC investigates, you want a record showing it was inadvertent.

Report to your compliance officer
Your AML officer needs to know. They might need to take remedial action or notify AUSTRAC.

Get legal advice
Tipping off is a criminal offense. If you're concerned you've breached section 123, talk to a lawyer.

Don't make it worse
Don't try to "un-tip" by explaining yourself. Don't contact the customer again. Just document and escalate internally.

Tipping Off vs Prejudicing an Investigation

The offense requires that the disclosure "could prejudice an investigation." So what does that mean?

Prejudicing includes:

• Allowing criminals to destroy evidence
• Giving criminals time to move assets before freezing
• Alerting co-conspirators to the investigation
• Causing witnesses to change their stories
• Putting investigators or informants at risk

But here's the thing: You don't need to prove actual prejudice occurred. The offense is "likely to prejudice" — meaning it could interfere, even if it doesn't.

So if you tell a customer you've filed an SMR, you've committed the offense. Even if they don't do anything with that information.

Defenses to Tipping Off

The AML/CTF Act provides some defenses:

You didn't know and weren't reckless
If you genuinely didn't know an SMR had been filed and weren't reckless about whether one existed, you might have a defense.

The disclosure was legally required
If a court orders you to disclose information, you're protected. But this is rare.

The disclosure was to get legal advice
Talking to your lawyer about whether to file an SMR is protected.

The disclosure was in the course of customer due diligence
Asking CDD questions, even if they arise from suspicion, is protected as long as you're not explicitly saying "I'm suspicious of you."

Tranche 2: New Players, Same Rules

From July 2026, lawyers, accountants, and real estate agents will file SMRs. Which means tipping off becomes your problem.

Real estate agents: You file an SMR about a foreign buyer. The buyer asks why the sale is delayed. If you say "compliance review," that's fine. If you say "we reported you to AUSTRAC," that's tipping off.

Accountants: Client asks you to set up a trust structure. You suspect it's for money laundering. You file an SMR but continue working with them (applying ECDD). You can ask questions about the structure's purpose. You can't say "this looks like money laundering."

Lawyers: Managing a trust account for a client. Suspicious transaction comes through. You file an SMR. Client asks why you're suddenly requesting more information. You explain it's part of routine compliance reviews. You don't mention the SMR.

The principle's the same across all professions: File your SMR. Do your ECDD. Don't tell the customer you've reported them.

AUSTRAC's Guidance

AUSTRAC says tipping off is one of the most misunderstood obligations. Staff worry that any question will tip off the customer. That's not true.

You CAN:

• Ask about source of funds
• Request additional identification
• Inquire about transaction purpose
• Apply enhanced due diligence
• Refuse transactions (if you have legitimate grounds)
• Discuss SMRs internally with compliance

You CANNOT:

• Tell the customer an SMR was or will be filed
• Tell third parties (lawyers, accountants, family) about the SMR
• Imply through behavior that you've reported them
• Confirm or deny when directly asked

The key distinction: Conducting your business is fine. Disclosing the reporting is criminal.

The Bottom Line

Tipping off is simple in principle: Don't tell customers you've reported them.

But in practice, it requires careful communication. Frame questions as routine compliance. Don't change your behavior suddenly. Don't confirm suspicions when asked directly.

And if you're uncertain whether something constitutes tipping off? Talk to your compliance officer or lawyer. Because the penalty — 2 years in prison — isn't something you want to risk.

Platforms like ARCaml help by standardizing CDD processes. When every customer goes through the same verification steps, applying ECDD to a suspicious customer doesn't stand out. Your questions are part of the normal workflow, not a red flag.

But ultimately, tipping off comes down to what you say and how you say it. Train your staff. Document your processes. And remember: Silence isn't just golden — it's legally required.