Real estate transactions pose high money laundering and terrorism financing risks, according to a new appraisal by the global AML/CTF watchdog, but Australian anti-money laundering law still has a huge gap when it comes to real estate agents and other professional service providers.
The Financial Action Task Force, an inter-government body whose role is to develop and promote policies to protect the global financial system against money laundering and terrorist financing, has updated its guidance on the real estate sector with a recommendation that effective implementation of its standards must include coverage of the sector.
Of 32 countries evaluated by FATF, ML/TF risk was identified as “high” in 37 per cent, “medium-high” in 16 per cent and “medium” in 16 per cent.
In 78 per cent of the countries evaluated, real estate practitioners generally had a “poor” or “very poor” level of understanding of ML/TF risks.
The purchase of real estate allows for the movement of large amounts of funds, all at once in a single transaction as opposed to multiple transactions of smaller value. Buyers and sellers do not usually have ongoing relationships, which makes it more difficult to identify patterns of suspicious activity. And in many countries there are only limited requirements to determine the beneficial ownership or source of funds behind the entity making the purchase.
Real estate ownership may convey secondary benefits, such as conveying social respectability and helping with efforts to secure residency or citizenship.
The FATF report said: “The real estate sector’s understanding of risk should be addressed in order to allow for the adoption of adequate mitigation strategies that are fit to respond to the sector-specific threats.
“The assessment of the findings suggests the need to refine best practices and improve overall compliance with FATF standards. Identifying ML/TF risks in the real estate sector and clearly communicating those findings so they can become part of an overall strategy is foundational to countries’ overall AML/CTF effectiveness.”
Australia is lagging badly in this area. Currently, the country’s AML/CTF rules apply to financial institutions, money remitters, digital currency exchanges, gambling service providers and gold bullion dealers.
In 2015, FATF released a review of the Australian regime, which included the observation that one of its shortcomings was that "professional groups did not demonstrate an adequate understanding of their AML/CTF risks or have measures to mitigate them effectively".
In 2016, the then-Minister for Justice Michael Keenan released The Statutory Review of the Anti-Money Laundering and Counter-Terrorism Financing Act. One of its recommendations was that the regime be extended to cover other services that pose AML/CTF risk.
It said these might include new payment types (such as digital currencies) and professional services provided by lawyers, accountants and real estate agents – so-called tranche 2 reforms.
Later the same year, the Attorney-General’s Department issued a plan for “a program of work with industry” with a number of “priority projects” for AML/CTF. One of those was to work with industry on how to extend the regime to cover other services that pose AML/CTF risk, including professional services. That aspect of the program of