Real estate laundering attracts Austrac, Tax Office

Australian authorities are "tightening the noose" around money laundering involving real estate, amid concerns that inflows of illicit funds into established residential property may be over-heating some capital city markets.

There are growing concerns at federal government level that Australia's failure to capture real estate agents, accountants and lawyers under the country's anti-money laundering regime may have made Australia a soft target for illicit money flows.

The government has also identified hundreds of transactions that may have breached foreign property ownership laws, which bar non-residents from buying established houses.

Speaking at a Thomson Reuters risk summit in Sydney earlier this week, senior officials from the Australian Taxation Office and the Australian Transaction Reports and Analysis Centre said there were warning signs around the Australian property market.

Further, the attractiveness of Australian real estate for money laundering and offshore flight capital was highlighted in the recent mutual evaluation report on the effectiveness of the country's money laundering regime.

Bradley Brown, acting national manager for strategic intelligence and policy at Austrac, said his agency was limited in what it could do in this sector  because real estate agents, lawyers, accountants and other gatekeepers were not caught under Australia's Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

This leaves Austrac looking to use other forms of financial intelligence, including records of wire transfers and transaction reports from banks, when analysing suspicious property transactions.

At the same time, there is no obligation on professional facilitators to report suspicious transactions, unlike the obligations on banks, casinos and bullion dealers.

There is evidence mounting of offshore organised crime groups using "professional facilitators" to launder their criminal proceeds through Australian real estate.

Australian housing is viewed across Asia as an attractive vehicle for parking illicit funds, particularly among corrupt officials, the report found.

This takes on new meaning in conjunction with influential people such as the governor of the Reserve Bank of Australia, who also warned recently that "crazy" property prices in some east coast capital city markets could lead to a host of problems, including financial instability, if there was a sudden fall in speculative demand.

In response to growing public concerns over Australian residential real estate prices, the government has tasked the ATO and the nation's anti-money laundering agency with cracking down on any suspect property transactions.

Brown said it was crucial to first distinguish between flight capital and money laundering when looking at suspicious property purchases involving foreigners.

"There's a whole lot of legal, legitimate funds from offshore that are used to purchase property, so I think that's a fundamental consideration in anything that Austrac does," Brown said.

"One of the extreme challenges that we face is actually differentiating between what may be capital flight and what may be money laundering. It comes back to a question of what the origin of those funds is. I think that's one of the greatest challenges for reporting entities and it's also one of the greatest challenges for us," he added.