Targeted legislation can curb money laundering activities

Australia’s real estate market has been a contentious political issue since the 1990’s with the centre of the problem being the ever-escalating property prices. According to credible research, during 2017, the housing-price-to-income ratio was twelve, which meant that twelve years’ worth of wages would have been needed to purchase a typical home in Sydney.

This is in stark contrast to the 1980’s ratio which stood at three. The practical implications Australia’s high property prices, coupled with a lack of effective AML/CTF regulations in the real estate industry, have led to a flood of laundered funds in the country. Research indicates that there are three main reasons why criminals use the Australian real estate market to launder funds. Firstly, the ‘overheated’ property market is a good place to integrate laundered money because the value of property is bound to increase. This leads to ‘double dipping’ because the criminals collect the illicit funds from their crimes and collect money from rental incomes/capital gains appreciation. Secondly, it is relatively easy to conceal beneficial ownership thus creating sufficient distance between the criminals and their assets which complicates the tracing process and thirdly, due to the high property prices in Australia, large amounts of money can be laundered through a single transaction. Improving the regulatory landscape Bart Puszko, Director of Lysis Australia stated that there are three federal money laundering (ML) Acts in Australia, but they all exclude real estate and related designated non-financial businesses and professions (DNFBP’s) from anti-money laundering (AML) and Counter Terrorism Financing (CTF) standards. Furthermore, here have been several attempts to introduce additional legislation over the years, but little has been achieved since the AML/CTF 2006 Act was introduced. It was not until 2016 that a statutory review of the AML/CTF Act was released.

This review lacked money laundering regulations for the non-financial ‘gatekeeper’ industries such as the real estate industry, lawyers, and accountants which served as the springboard for the proposed Tranche 2 legislation. The anticipated AML/ CTF Tranche 2 legislation refers to a set of new regulations aimed to include the ‘gatekeeper’ industries in the current AML/CTF legislation which already applies to financial institutions to help prevent money laundering and the finance of terrorism in Australia. In addition, it will bring Australia’s AML/CTF regulatory framework in line with international standards set by the Financial Action Task Force (FATF). It is expected that the AML and CTF Tranche 2 legislation consultation phase will be completed later this year. Bart added that “Australia can learn a lot from some of the AML and CTF measures which were implemented by other countries.

For example, New Zealand, Australia’s closest neighbour, has implemented a range of legislative requirements including: Thorough client due diligence in line with the AML/CTF regulations. Reporting suspicious transactions to the regulator. Screening for Politically Exposed Persons (PEP’s) to identify high-risk customers. Establishing Ultimate Beneficial Ownership (UBO), and Customers having to pass a ‘fit and proper’ test. The above could be incorporated into Customer Due Diligence (CDD) reviews and the on-onboarding process when properties are purchased. Currently, Australia falls short of all five requirements as listed above.” Bart concluded by saying that “The anticipated Tranche 2 AML/CTF legislation can go a long way to curb money laundering activities in the real estate industry.

However, since the legislation will be new and might be overwhelming for ‘gatekeeper’ industries it is important for them to partner with an expert in financial crime compliance. Furthermore, if one considers that most of the real estate owned businesses in Australia are small businesses, it is unlikely that they will have the internal expertise to address the compliance requirements once the Tranche 2 legislation is introduced. The Lysis Group has a solid track record of assisting organisations, no matter their size, to become and remain compliant with any existing and new AML/CTF legislation.”

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