Austrac puts lawyers and real estate agents on notice

Organised crime groups are using increasingly complex commercial structures to support their activities and launder money and, as a result, are engaging the services of professionals such as legal practitioners and real estate agents more often.

The anti-money laundering and counter-terrorism financing regulator Austrac has issued briefing papers to help legal practitioners and real estate agents identify suspicious activity and put customer due diligence programs in place. It wants to see more reporting of suspicious activity from the professions.

Austrac's move follows the report of the Foreign Action Task Force into Australia's AML/CTF regime earlier this year, which said one of the regime's shortcomings was that "professional groups did not demonstrate an adequate understanding of their ML/TF risks or have measures to mitigate them effectively."

FATF said: "Some improvements are needed for preventive measures and supervision for non-financial businesses and professions."

The Austrac paper said legal practitioners were an entry point for those seeking to use financial and corporate systems to launder illicit funds.

Legal services that are susceptible to money laundering include the management of clients' assets, debt recovery, buying and selling real estate and the establishment and administration of foreign trusts and other structures.

The paper provides a number of case studies showing how lawyers may be complicit or unwittingly involved in setting up bank accounts and using them to move funds that are the proceeds of crime.

Lawyers' trust accounts may be used in similar ways. "The movement of funds through legal practitioners' trust accounts provides legitimacy and credibility to transactions that may otherwise appear suspicious," Austrac said.

In one case, a foreign investor transferred a large amount into a law firm's trust account, saying it was to purchase property and make other investments. The investor later advised the firm that the proposed investments were not proceeding and requested that the money in the trust account be paid to a number of other people.

In other cases, foreign companies have approached local lawyers requesting debt recovery services, where the "debt recovery" is actually the transfer of illicit funds.

Under the Financial Transaction Reports Act, solicitors are obliged to report significant cash transactions (A$10,000 or more) to Austrac.

Legal practitioners are not subject to the provisions of the Anti-Money Laundering and Counter-Terrorism Financing Act, although they may be covered if they offer "designated services" such as running an investment scheme.

Austrac endorsed a Law Council of Australia recommendation that the introduction of AML customer due diligence requirements would contribute to the risk management strategies of legal practitioners.

When it comes to real estate, Austrac said money laundering through real estate was well established in Australia. "Compared to other methods, money laundering through real estate 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," it said.

Like lawyers, real estate agents are not covered by AML/CTF law. However, the New South Wales Government has detailed fraud prevention guidelines for the industry and Western Australia has upgraded the real estate industry's verification of identity requirements in recent years.

Purchase of property using illicit funds often involves a "cleanskin" third party. Austrac said these people often provided false documentation to support transactions.

Manipulation of property values was often an indicator of money laundering. For example, the contract price of a property may be less than the market value. The purchaser then secretly makes an additional payment to the vendor to reflect the market value of the property.

This done for two reasons: The criminal buyer is able to claim that the amount in the contract is consistent with their legitimate financial means; and the property can be sold at its market value, which legitimises the illicit funds.

Austrac said real estate agents should be on the lookout for large cash deposits, rent or mortgage repayments banked months in advance, payments from unusual sources and a variety of different sources, customers buying a number of properties over a short period of time and the use of complex commercial structures in property transactions.