A solicitor is acting on a property settlement. In a conference about the contract, the client explains where the deposit came from, and the explanation does not survive contact with the bank statements. The solicitor now suspects, on reasonable grounds, that the funds are not what the client said. The trouble is that the suspicion rests entirely on a conversation the client had, in confidence, for the purpose of getting legal advice.
Eleven weeks into the regime, this is the question legal practices ask most carefully and answer least confidently. Does privilege mean you say nothing? Does the reporting obligation mean you say everything? AUSTRAC's answer, rewritten on 1 July 2026, is neither. It is a third document, a longer clock, and a penalty for getting the paperwork wrong. Our guide for lawyers sketched the principle in April. This is the machinery.
What the Act Did and Did Not Change
Start with the reassurance, because it is real. The Act does not take away a person's right to refuse to give information that is protected by legal professional privilege. Obligations to give AUSTRAC information do not extend to information subject to LPP, and the reformed Act says so in terms: nothing in it affects the right to refuse to give information, including by answering a question, or to produce a document, where that information would be privileged. (AUSTRAC, legal professional privilege, updated 1 July 2026; AUSTRAC, your obligations, updated 10 July 2026)
Now the two boundaries that decide most real cases.
Privilege is narrower than confidentiality. AUSTRAC's page opens on exactly this point. LPP does not apply to everything a legal professional has a duty to keep confidential; it protects only the confidential communications that fall within the common law definition. The general duty of confidentiality has exceptions, including where disclosure is compelled by law. Privilege does not. So the question is never "is this confidential," which describes the whole file. It is "is this a privileged communication," which describes a much smaller part of it. (AUSTRAC, legal professional privilege)
Privilege does not cover the crime. The Act's definition in section 5 picks up the Evidence Act privilege and does not create a new category or deviate from the common law. AUSTRAC adds the sentence that matters for this regime: LPP is not extended to information created for a purpose contrary to the public interest, meaning a communication made with the intention of an illegal or improper purpose. (AUSTRAC, legal professional privilege) A client who tells you how they intend to move the proceeds is not having a privileged conversation. They are describing the offence.
Everything else on the page is what to do in the space between those two lines.
The Three Outcomes, and Only One Is Silence
When a reporting obligation or an AUSTRAC notice touches privileged information, the guidance sorts it into three cases. (AUSTRAC, legal professional privilege; AUSTRAC, suspicious matter reports, updated 8 July 2026)
All of the grounds are privileged. If every piece of information making up the grounds of suspicion in a suspicious matter report is subject to LPP, you do not submit an SMR and you do not submit an LPP form. This is the one genuinely silent outcome, and it is deliberately narrow: all of the grounds, not most.
Some of it is privileged. You submit two things: an SMR containing the information that is not privileged, and an LPP form describing what you are withholding and the basis for withholding it. The obligation is to report "to the extent possible without disclosing the privileged information." The privileged part stays out. The report still goes in.
None of it is privileged. The ordinary SMR, on the ordinary clock. AUSTRAC's own worked example in the legal starter kit ends this way: the compliance officer submits an SMR, none of the information disclosed is subject to LPP, "so they don't need to complete a legal professional privilege form." (AUSTRAC, legal profession starter kit worked examples, updated 2 April 2026)
In the settlement scenario above, the practical work is separating the file. The client's account of the deposit, given in a confidential conference for legal advice, may well be privileged. The bank statements, the trust account receipt, the contract price, the identity of the parties and the timing of the funds are facts about a transaction. If the suspicion can be stated on those facts alone, the SMR carries them and the form describes what stayed behind. Whether a particular communication attracts privilege is a question of law, and AUSTRAC says as much: if in any doubt, seek independent legal advice as part of the decision. (AUSTRAC, legal professional privilege)
Whose Privilege It Has to Be
A detail that surprises people: for an SMR, you can only claim LPP if the privilege belongs to someone else, such as your client. AUSTRAC's example is not a lawyer at all. You become suspicious about your client's source of funds, but the information came from a privileged communication between your client and their lawyer. (AUSTRAC, legal professional privilege)
That example is aimed at accountants, conveyancers and agents as much as solicitors. Clients repeat what their lawyer told them. If a client's explanation of a structure or a payment arrives with "my solicitor advised that," the information in your file may be the client's privileged communication, and the five day window and the form can apply to your report too. The SMR page confirms it: the extended timeframe applies where part of the information is privileged and belongs to someone other than the reporting entity. (AUSTRAC, suspicious matter reports) AUSTRAC's advice to non-lawyers is direct: if you are not a lawyer, seek legal advice before withholding anything on the basis of LPP. Withholding is the step that carries risk. Reporting the non-privileged facts on time does not.
If the privilege is yours, you can waive it. If it is not, you can only disclose with the privilege holder's consent or where an exception applies. AUSTRAC's example of when waiving is in the reporting entity's interest is a customer who is the victim of a serious crime such as fraud. (AUSTRAC, legal professional privilege) There are cases where the client wants the report made in full.
The Clocks
The form does not get its own deadline. It travels with whatever it is attached to. (AUSTRAC, legal professional privilege; AUSTRAC, suspicious matter reports; AUSTRAC, threshold transaction reports, updated 1 July 2026)
- SMR, terrorism financing. Form and report together, within 24 hours of forming the suspicion. Privilege buys no extra time here.
- SMR, anything else. Form and report together, within 5 business days after the day you formed the suspicion. The ordinary window is 3 business days; the extra two exist specifically so you can work out whether privilege attaches and prepare the form.
- TTR. If information that would ordinarily go in a threshold transaction report is privileged, the form goes in with the TTR, within the TTR's 10 business days.
- Notices and requests. Within the period specified in the notice.
Two things about the five days. First, it is not a general extension. A report with no privileged content is still due in three, and the five day window starts on the same day the three day window would have. Second, it is a ceiling for preparing a form, not an invitation to spend a week deciding whether to report at all. AUSTRAC's test for under-reporting has not changed because the file mentions a lawyer.
The Notices It Also Covers
Most of the discussion is about SMRs, but the form exists for AUSTRAC's information powers as well. If you assert privilege over information caught by any of these, you submit an LPP form within the notice's timeframe: a section 26Q request for your AML/CTF program documentation, a section 49 notice for further information about your reports, a section 49B notice to produce information to assist the CEO, a section 167 notice relevant to compliance or enforcement, and a section 202 notice about whether designated services are being provided. Two others, sections 75N and 76Q, relate to the remittance and VASP registers and will not reach a Tranche 2 practice. (AUSTRAC, legal professional privilege)
The compulsory examination power works the same way in a different room. The requirement to answer an examiner's questions overrides any other duty of confidentiality, with limited exceptions, and privilege is the one AUSTRAC names. You may claim it in response to a question; AUSTRAC will consider the claim and may require further information to assess it. Your own legal practitioner, if present, is normally permitted to object to a question on the ground that it is likely to reveal privileged information. (AUSTRAC, section 172A examination powers, updated 26 June 2026)
The pattern across all of them is the same. Privilege is a reason to withhold specific information. It is never a reason to ignore the notice.
What the Form Actually Is
An LPP form is a written notice, in a form approved by the AUSTRAC CEO, that specifies the basis on which the withheld information is privileged. It goes in instead of the information. AUSTRAC expects you to complete it to the extent possible, while accepting that some particulars may themselves be privileged and cannot be given. There is no requirement to put privileged information in the form, or anywhere else. (AUSTRAC, legal professional privilege)
The sentence that makes the form usable is this one: the Act states that providing a description of privileged information does not, of itself, amount to a waiver of privilege. Describing what you are withholding, and why, is not disclosing it.
There are two forms, and they go to two places.
- Reporting obligations. The form for SMRs and TTRs is submitted with the relevant report through AUSTRAC Online.
- Notices and requests. The form for responding to a notice is emailed to lpp.forms@austrac.gov.au.
Both come in Word and Excel, and AUSTRAC recommends the Excel version for claims covering multiple communications. In some cases it may ask for further information to decide whether to review or challenge a claim. And the line to read twice: failure to submit an LPP form in accordance with the Act may attract civil penalties. (AUSTRAC, legal professional privilege) The privileged information is protected. The failure to tell AUSTRAC you withheld it is not.
Ministerial guidelines on how AUSTRAC will handle claims are still to come. Section 242A provides for them, and AUSTRAC says they will cover its approach to reviewing or challenging a claim, when it will ask for more, how privileged material is handled during searches or investigations, and dispute resolution. (AUSTRAC, legal professional privilege) Until they land, the page is the process.
It Is Already Built Into the Starter Kit
If your practice used AUSTRAC's legal profession starter kit, the form has a place in your program whether or not you noticed. The escalation form staff use to raise a concern with the compliance officer asks "Is information protected by legal professional privilege?" twice: once for the person escalating, and once for the compliance officer, who has to document the reason if the answer is yes. The policy document assigns the roles. All personnel inform the compliance officer whether information that would ordinarily be reported may be subject to LPP. The compliance officer decides whether information can be withheld under LPP held by a third party such as a client, and, where some but not all of it is withheld, provides the LPP form within the required timeframe. The process document carries the 5 business day rule and repeats that where all of the grounds are privileged, no SMR and no form is needed. (AUSTRAC, legal profession starter kit document library, updated 16 June 2026)
Two consequences for a small firm. The privilege call is not made by the solicitor on the matter alone; it is escalated with the concern, and the compliance officer owns the decision and the record. And the quarterly effectiveness check in the same kit is where the compliance officer confirms that the SMRs, and any LPP forms that went with them, were lodged on time. In a practice where those three jobs share one head, the discipline is writing down which hat made the call.
One more thing the starter kit says without saying it. The tipping off rule still applies. Deciding that part of a report is privileged does not entitle anyone to tell the client that a report was made.
What to Do This Week
- Add the privilege question to your escalation path. If your unusual activity or escalation form does not ask "is any of this privileged, and whose privilege is it," add the two lines. The starter kit version is a fine model.
- Decide who makes the call. The compliance officer, with independent legal advice where there is doubt, and always if the firm is not a law practice. Write it into the policy.
- Download both forms now, from AUSTRAC's LPP page, and file them next to your SMR checklist. Finding them on day four of a five day window is not the plan.
- Rehearse the split. Take a plausible matter and practise separating the transaction facts from the privileged communication. If the suspicion stands on the facts alone, the report is straightforward.
- Diarise the difference. Three business days for an ordinary SMR, five when a form goes with it, 24 hours for terrorism financing regardless, ten for a TTR. The SMR walkthrough covers what goes in the report itself.
Where AML Mate Fits
AML Mate's escalation and SMR records keep the concern, the compliance officer's decision, the date the suspicion was formed and the lodgement date on one client file, so the three day or five day question is answered by the record rather than by memory. The free compliance check takes five minutes and shows where your program's reporting section is thin.
Privilege did what it was meant to do through the reforms: it still protects the advice. What the reforms added is an audit trail around the silence. Keep the communication. File the form.
This article is general information, not legal advice. For advice specific to your circumstances, consult a qualified AML/CTF professional.