The Australian government has brought in sweeping changes to the laws on anti-money laundering and counter-terrorism financing, known as AML/CTF, which began on July 1.
The initial aim was to simplify and modernise the anti-money laundering regime. But the laws have also been expanded to cover not just banks, financial institutions and casinos, but also to include many roles in the real estate sector.
The changes aim to close gaps that criminals have been exploiting to launder money, with the government estimating that financial crime costs Australians up to A$82 billion a year . The rules will also bring Australia into line with the rest of the world.
Here’s what’s changing, and what to know if you are buying property now.
Why the changes are needed
Each year, billions of dollars of illicit funds are generated from illegal activities. These crimes include drug trafficking, tax evasion, human trafficking, cybercrimes and scams, arms trafficking and corruption. Criminals launder their proceeds of crime to avoid prosecution and conviction.
Real estate agents are vulnerable as they provide a range of services to a wide range of clients who may be criminals, money launderers or even terrorist financiers.
Criminals are highly adaptive and quick to exploit any weak links within an increasingly borderless world. Globalisation and advancement in technology pose serious challenges.
The main goal of this new law is to close those avenues to criminals. The changes also ensure international standards are more adequately met. This mitigates the risk of reputational and economic damage to Australia’s financial and economic systems.
The changes are timely as they ensure Australia does not fall behind international standards set by the Financial Action Task Force , which develops frameworks to combat money laundering globally.
Expanded powers for the regulator
These new laws expand the reach of the regulator, Australian Transaction Reports and Analysis Centre ( AUSTRAC ), into entities including dealers in gems and precious metals, lawyers, conveyancers, accountants, real estate professionals and certain other roles.
These professionals now face a range of new obligations .
Real estate agents need to enrol with AUSTRAC and to develop an anti-money laundering and counter-terrorism financing compliance program. They will need to identify and report suspicious activity when they carry out transactions for clients such as buying and selling real estate.
They will also need to train staff and appoint a compliance officer, among other obligations.
Accountants and others will need to meet new obligations when they manage client money or manage bank or savings accounts for clients.
Buyers will face new scrutiny
The regulator says the laundering of illicit funds through real estate is an established practice in Australia:
Compared to other methods, money laundering through real estate – both residential and commercial – can be relatively uncomplicated, requiring little planning or expertise. Large sums of illicit funds can be concealed and integrated into the legitimate economy through real estate.
Buying and selling real estate involve services of conveyancers and solicitors who may unwittingly or otherwise facilitate money laundering.
Examples are when a buyer:
- establishes complex loan and other credit arrangements to finance the property purchase
- disguises the ultimate owner of a property using structures such as trusts or companies
- pays for properties in cash.
Foreign and domestic buyers in the real estate market will face new scrutiny when they buy and sell real estate using the services of professionals.
Conveyancers and real estate agents are now regulated by AUSTRAC and will need to conduct due diligence on customers and report any suspicious activity. So buyers may be asked more questions and will be required to make more disclosures to real estate agents, who need to comply with the new laws.
For example, in a typical sale agreement, buyers may have to agree to a clause that may read as follows:
The parties hereto declare and confirm that all moneys received and paid by the respective parties are in compliance with the Anti-Money Laundering and Counter-Terrorism Financing 2006 Act.
Real estate investors should not be too worried or apprehensive when real estate agents, conveyancers and solicitors require more from them.
They may be required to provide more identification , give more information or agree to additional clauses in sale agreements. This is necessary so that the reporting entities avoid severe penalties for non-compliance of these new laws.
