Last year, the global regulator against money laundering – the Paris-based Financial Action Task Force (FATF) – released a scathing report highlighting that Australian residential property is a haven for international money laundering, particularly from China, and recommended that Australia implement counter-measures to ensure that real estate agents, lawyers and accountants facilitating real estate transactions are captured by the regulatory net.
FATF’s findings were then backed-up by the Australian Transaction Reports and Analysis Centre (AUSTRAC), which has warned that “laundering of illicit funds through real estate is an established money laundering method in Australia”.
In 2003, Australia agreed to implement comprehensive anti-money laundering (AML) regulations that captured accountants, lawyers, real estate agents and other non-financial businesses. However, the second tranche of the reform to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, which would have captured these non-financial gatekeepers, has remained in limbo for a decade, and has yet to be implemented by the government. All attempts to pass legislation have been placed in the ‘too hard basket’ by our policy makers and delayed indefinitely.
As noted last year by Nathan Lynch, Head Regulatory Analyst for Australia & New Zealand at Thomson Reuters:
AUSTRAC’s surveillance efforts are… being frustrated by the fact that money launderers will often use unregulated entities as a “first point of contact” to help disguise their source of funds. If a criminal makes a suspicious cash deposit into a real estate agent or lawyer’s trust account, for example, the suspicious transaction is not required to be reported to AUSTRAC. Reporting entities, such as banks, are required to report transactions of this type within three business days of forming a suspicion. Lawyers are only required to report threshold transactions under the legacy Financial Transaction Reports Act 1988, not suspicious matters, while real estate agents have no reporting obligations.
Separately, Lynch noted that “politicians have been conspicuously evasive on their bipartisan commitment to follow through with a second tranche [of the AML legislation]… politicians are happy to turn a blind eye”.
On Friday, the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 was released, which among other things calls for the extension of anti-money laundering (AML) to non-financial gatekeepers like real estate agents, lawyers and accountants:
Real estate can be an attractive channel for criminals wishing to launder illicit funds for a number of reasons. Criminals can purchase a property using large sums of cash, live in the property, renovate the property (using illicit cash) to improve its value and sell the property at a later date for a capital gain. The ultimate beneficial ownership of real estate can also be easily concealed.
The increase in value of the Australian real estate market in recent years has increased the attractiveness of Australia as a location in which to invest illicit wealth, with high-value properties offering ideal opportunities to launder large volumes of illicit funds. This is particularly the case in the aftermath of the global financial crisis as Australia, with its relatively stable economy, is seen as a country in which it is ‘safe’ to invest or hide criminal wealth.
AUSTRAC released a strategic brief in 2015 that highlights some common methods of money laundering through real estate, including:
• the use of third parties to buy properties
• the use of loans and mortgage (for example, criminals take out a mortgage to buy a property and pay back the mortgage using lump sum cash payments)
• manipulating property values (that is, criminals buy and sell real estate at a price above or below market value)
• structuring cash deposits to buy real estate (that is, criminals deposit cash below the reporting threshold of AUD10,000 at different banks and then use these deposits to obtain a bank cheque to buy a property)
• buying and leasing properties, but providing the tenant with illicit funds to pay the rents
• buying a property using illicit funds with the intention of conducting further criminal activity at the property, and
• using illicit funds to renovate properties.Instances have been identified in Australia where real estate agents have taken large cash payments for tenancies over properties (some of which have later been used for criminal purposes, such as drug laboratories or for the storage of guns or drugs), as deposits for the sale of property, or as cash bonuses to the vendor in exchange for a lower contract sale price…
There are other conditions that make the investment of illicit funds in Australian real estate attractive, including the lack of AML/CTF regulation of DNFBPs that facilitate real estate transactions, which lowers the risk that the identity of the client or the source of the funds will be questioned, and eliminates the risk that the transaction will be reported to AUSTRAC.
Recently there has been significant attention on the purchase of real estate in Australia by foreign purchasers seeking to conceal their identity. The House of Representatives Standing Committee on Economics examined this issue in 2014 and recommended that the Government consider the purchase of residential property by foreign investors as a possible area of investigation for this review.
Addressing the ML/TF risks posed by DNFBPs
The non-regulation of DNFBPs under the AML/CTF Act generates a significant gap in Australia’s AML/CTF regime that provides opportunities for criminals to misuse DNFBP services to launder illicit funds…
The extension of the AML/CTF regulation to the remaining DNFBPs would deliver a number of substantial benefits:
• a current regulatory ‘blind spot’ would be removed and a broader range of information collected and reported to AUSTRAC, and shared with law enforcement
• suspicions about transactions would be reported earlier in the transaction chain than occurs currently, providing earlier opportunities for law enforcement to disrupt criminal activity, and
• more accurate information about the beneficial ownership of funds and assets would be collected when complex legal structures are first established.
This extended information base would allow AUSTRAC to generate financial intelligence to better assist law enforcement to ‘follow the money’, tackle serious and organised crime and protect Australia’s national security. Australia would also become more hostile to ML/TF threats, enhancing the integrity and credibility of Australia’s financial institutions and financial system, bolstering the attractiveness of Australia as a place to conduct business and more strongly aligning the AML/CTF regime with the FATF standards…
Recommendation 4.6
The Attorney-General’s Department and AUSTRAC, in consultation with industry, should:
a) develop options for regulating lawyers, conveyancers, accountants, high-value dealers, real estate agents and trust and company service providers under the AML/CTF Act, and
b) conduct a cost-benefit analysis of the regulatory options for regulating lawyers, accountants, high value dealers, real estate agents and trust and company service providers under the AML/CTF Act.
Now watch as this issue continues to be ignored by Australia’s politicians.
