It’s time to close the money laundering loopholes in Australia’s real-estate sector

There is irrefutable evidence that organised criminal networks are widely using Australia’s real-estate sector to launder the proceeds of crimes. And in the Panama Papers leak of over 11.5 million documents found there were over 320,000 offshore entities established between 1977 and 2015, with over 1,700 officers (directors, shareholders and/or beneficiaries) and 1,400 addresses connected to Australia. Evidence also showed that over 200 intermediaries (lawyers, accountants and trust and company service providers), were involved in helping set up or act as the registered agents for offshore companies, prompting the Australian Taxation Office to initiate investigations of over 800 Australians. 

The AML/CTF Act should be applied to commercial and residential real estate agents but also should be extended to property developers and property management companies too as these sectors are also at risk of being used to facilitate money laundering.

The following services offered by Real Estate Professionals must be included in the AML/CTF Act are:

• Managing client funds (other than sums paid as fees for professional services), accounts, securities, or other assets.
• Engaging in or giving instructions on behalf of a customer to another person for any conveyancing to affect the grant, sale, or purchase or any other disposal or acquisition of real estate or an interest in land.
• The transfer of a beneficial interest in land or other real property.

Real Estate – ML/TF risks in services they provide.

The money laundering and terrorism financing (ML/TF) risks associated with the real estate sector includes (but is not limited to):

• Real estate professionals are often involved in cash transactions, which can make it easier for criminals to launder money.
• Criminals may use complex ownership structures, such as shell companies or trusts, to hide the true ownership of a property and launder money through it.
• Real estate transactions involving large amounts of money can be attractive to money launderers.
• International real estate transactions may involve multiple jurisdictions, making it easier for criminals to move money around and conceal its origin.
• Real estate professionals may not conduct adequate due diligence on their clients, which can make it easier for criminals to use real estate transactions to launder money.
• Real estate professionals may conduct transactions without meeting clients in person, which can make it harder to detect suspicious activity.
• Criminals may engage third parties to buy and sell properties, adding a layer of anonymity.
• Criminals may use loans and mortgages and use illicit cash to reduce the balance and provide an offset account for future withdrawals.
• Criminals may use real estate to manipulate property values, for example, buying or selling at prices above or below fair market value.
• Criminals can apply structuring techniques using cash deposits to buy real estate.
• Criminals can buy and then lease out properties but provide the “tenant” with illicit funds to pay the rent.
• Criminals can buy property using illicit funds with the intention of conducting further criminal activity at the property (i.e., safe houses, stash houses or cultivating drugs)
• Criminals can also use illicit funds to renovate properties, gaining when property valuations rise after the completion of a renovation.

Tranche 2, should be applied to the following organisations:

• Residential and Commercial Real Estate
• Property Developers and Property Management Companies 

Arctic Intelligence also supports expanding the AML/CTF laws in Australia to other sectors including; lawyers and conveyancers, accountants and bookkeepers, real estate professionals, trust and company service providers and dealers in high-value goods.

Read Arctic Intelligence‘s full submission to the Attorney-General’s Department here.

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