Real estate agents to be called into fight against money laundering

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Key points

  • Reform of the AML/CTF Act would make agents, lawyers and accountants report any money-laundering red flags.
  • As part of the reform the government is looking at introducing a beneficial ownership register.
  • Real estate industry leaders are concerned the reform could impose a heavy cost on agents.

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Real estate agents, along with lawyers and accountants, could be forced to act as quasi gatekeepers of Australia’s anti-money-laundering regime under a mooted expansion of legislation introduced 17 years ago.

The push by Attorney-General Mark Dreyfus would potentially require agents and other professionals to verify the identity of their clients, ensure the funds are legitimate and report suspicious transactions to authorities.

Australian real estate has been pinned as an attractive avenue for money laundering.Credit:

The introduction of tranche two of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 comes amid mounting pressure on the Albanese government by the international financial crime watchdog to close the gaps that make Australia an attractive destination for illicit funds.

The Financial Action Task Force says that Australia is now one of only five countries – including China, Haiti, Madagascar and the United States – out of more than 200, that do not regulate tranche-two entities.

The global watchdog says that, without a reform of our current anti-money-laundering measures, Australia risks being “grey-listed”, which could result in significant harm to the economy.

Attorney-General Mark Dreyfus’ push would potentially require agents and other professionals to verify the identity of their clients.Credit: Alex Ellinghausen

At the same time, other countries such as Britain and New Zealand have strengthened their anti-money-laundering protections.

“Left unaddressed, Australia’s financial system would remain vulnerable to criminal exploitation through the use of professional services,” Dreyfus said in a statement.

“The need to streamline obligations has long been called for by industry and was recommended by the 2016 Report on the Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

“The former government had six years to implement the 2016 recommendations but left office without taking action to address these industry concerns.”

As part of the reform, AUSTRAC is recommending a beneficial ownership register be introduced, which would offer more transparency about the ultimate owners of some of Australia’s most expensive homes.

A Senate inquiry has heard that of the $187 million in assets seized in the 2021 financial year, $116 million were real estate assets.Credit: Moment RF

“A beneficial trust register would make my job easier because I need to know who I’m dealing with, and that I’m not dealing in illicit funds or people who are on the [international] sanctions list,” said prestige agent Ken Jacobs, of Forbes Global Properties.

“That said, this is a government responsibility, and it is best placed to be the gatekeeper, given it has the greatest reach nationally and internationally.”

Jacobs says beneficial trusts make up a low percentage of purchasers, and are predominantly for privacy reasons or estate planning.

Forbes Global Properties’ Ken Jacobs says a small number of high-end properties are purchased in a beneficial trust.Credit: Peter Braig

When the Anti-Money Laundering and Counter-Terrorism Financing Act was introduced in 2006 it was always intended to be done in two tranches, of which the first applied to bullion dealers, gambling authorities, some lawyers and financial institutions.

It took more than a decade after tranche one was introduced before the first civil penalty for non-compliance was ordered by the Federal Court, which was for $45 million against Tabcorp.

Tranche two of the legislation extends reporting responsibilities to include lawyers, accountants, real estate agents, dealers in precious stones and people who deal in high-value goods, taking the number of businesses regulated by AUSTRAC from about 17,000 to 100,000 businesses.

But Real Estate Institute of NSW chief executive Tim McKibbin said the reforms could be one of the most dramatic shake-ups of the real estate industry if applied along the same lines as it is already rolled out in New Zealand.

“Large and mid-tier agencies in New Zealand have been required to hire an additional employee to discharge their compliance obligations, which is an extra cost on that business,” McKibbin said.

“If the legislation makes Australia a safer and better place, and curtails real estate as a haven for money laundering, then that’s a good thing, but we would want to have discussions with government about the implementation of this beforehand.

“Making agents gatekeepers to the government’s anti-money laundering regime effectively outsources their work to industry, and places an additional burden on the whole conveyancing process.”

The Real Estate Institute of Australia has echoed McKibbin’s concerns, saying that in New Zealand the cost to businesses to implement gatekeeper transactions has ranged from $30,000 to $100,000 per real estate agency.

In a submission to a Senate hearing into Australia’s money laundering laws in 2021 the Australian Federal Police said that, of the $187 million in assets in seized in the 2021 financial year, $116 million were real estate assets.

In March, the Senate Legal and Constitutional Affairs References Committee recommended the implementation of the tranche two reforms as essential, given the scourge of money laundering and terrorism financing on Australian society and the undermining of Australia’s financial system.

“The need for action cannot be ignored, and the government has dragged its feet for too long,” was among its conclusions, as well as an acknowledgement that a robust beneficial ownership register would mitigate the burden on small businesses of “know your customer” searches.

The attorney-general’s office released the first of two consultation papers on the proposed reforms on Thursday, for which submissions close on June 16.

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