A Practical Overview of Digital Currency
- Meaning: Digital currency is a type of currency that exists only in digital form. It can be exchanged for goods, services or physical currency, and it is not issued by, or under the authority of, a government.
- Why it matters for AML and CTF compliance in Australia: Digital currency can move value quickly, across borders, and sometimes with limited transparency. That makes it attractive for money laundering, terrorism financing, and sanctions evasion attempts, so your controls must be practical and risk based.
- Key reform point: From 31 March 2026, Australia is moving from the term digital currency to a broader term, virtual asset, to better align with FATF language and capture new asset types.
- Relevance for Tranche 2 entities: Even if you are not a virtual asset business, you may still encounter digital currency through client payments, source of wealth explanations, or asset holdings that must be understood in customer due diligence.
Definition of digital currency in Australia
AUSTRAC defines digital currency, also referred to as cryptocurrency, as a type of currency that only exists in digital rather than physical form. It can be exchanged for goods, services or physical currency, and it is not issued by, or under the authority of, a government. AUSTRAC links this definition to section 5 of the AML and CTF Act.
In plain English, digital currency is value that behaves like money, but it is not government money. It typically sits on a blockchain or similar technology, and it can be transferred between parties electronically.
Why digital currency matters for AML and CTF compliance
Digital currency creates a familiar compliance challenge in a new shape. You still need to answer the same practical questions you ask for bank transfers or cash, but you need different evidence to support your decision.
Who controls the funds or assets
Where did the funds or assets come from
Why is the transaction happening now
Does the behaviour make sense for the customer and the matter
The Attorney General’s Department has noted that virtual assets, previously referred to as digital currency under the AML and CTF Act, are an increasingly popular conduit to represent, store and move value, and that the regime has been amended to harden the sector against criminal exploitation.
For Tranche 2 professional services, this matters because criminals often use professional services to create legitimacy. If your client is funding a property purchase, a business acquisition, or a trust structure using proceeds that originated in digital currency, your file must show you understand the risk and have applied proportionate checks.
Digital currency and the 2026 reform shift to virtual asset
A key point for Australian compliance teams is that the law is modernising its terminology and scope. The Attorney General’s Department explains that the Amendment Act changes the current definition and terminology of digital currency to a new definition and terminology of virtual asset, aligning with FATF terminology and ensuring additional asset types such as stablecoins and non fungible tokens are captured. These changes commence on 31 March 2026.
This does not mean you should ignore the term digital currency today. It means your policies should be written with enough flexibility to remain accurate after the terminology shifts. A sensible approach is to define digital currency as the current term and note the upcoming transition to virtual asset.
How digital currency shows up in Tranche 2 files
Property and real estate matters
A buyer explains that their deposit comes from crypto trading profits. Your task is to document how those profits were generated and how they were converted to fiat currency, and to ensure the timing and amounts are credible.
Legal services and trust account scenarios
A client wants to send funds to a trust account, but the source is a series of transfers from a crypto exchange. This is not automatically unacceptable, but it requires clear source of funds explanation, proof of account ownership, and evidence of conversion.
Accounting and structuring engagements
A customer’s source of wealth is linked to digital assets held over several years. Your file should evidence what the assets are, how they were acquired, and whether there are red flags such as mixing services, rapid movement, or unexplained counterparties.
Practical evidence to request
A practical digital currency AML CTF compliance approach usually includes a blend of documents and narrative, such as:
Proof of identity and beneficial ownership, as per your customer due diligence standard
Evidence of exchange accounts used, including account ownership and history
Transaction history or wallet evidence that supports the story of acquisition and sale
Bank records showing fiat off ramps, including dates, amounts and counterparties
A short plain English explanation that links the activity to the customer’s profile and purpose
The goal is not to turn your firm into a blockchain investigation unit. The goal is to make a defensible decision on whether the story is credible and whether the risk is acceptable.
Best practice controls
Build a clear policy position on digital currency
Decide whether you accept digital currency linked funding, and on what conditions. Some firms accept it only if the conversion to fiat occurred through a regulated exchange and the evidence is strong.
Apply enhanced customer due diligence when risk is higher
Train staff on common red flags
Examples include reluctance to explain source, inconsistent wallet histories, unusual urgency, or a pattern that looks like layering.
Align to reform timelines
AUSTRAC confirms staged implementation of the new Rules and obligations, including changes commencing 31 March 2026 for current reporting entities and new obligations commencing 1 July 2026 for Tranche 2 entities.
Common challenges
Over reliance on screenshots without verifiable context
Confusing proof of transfer with proof of legitimacy
Staff discomfort in asking questions, leading to weak file notes
Not updating templates as Australia shifts to the virtual asset framework from 31 March 2026
Compliance Impact of Digital Currency
Digital currency is not just a technology topic. It is a practical customer due diligence topic. If you can explain who controls the assets, where they came from, and why they are being used in the transaction, you will be in a stronger position under Australia’s increasingly outcomes based AML and CTF framework.
“Bookmakers sit at a natural convergence point for cash, speed and anonymity. AUSTRAC’s focus reflects the reality that wagering platforms can be misused as value transfer mechanisms if risk controls are not actively applied.”
