Representatives from anti-corruption group Transparency International and financial crime watchdog AUSTRAC have told a parliamentary committee that Australia is an attractive destination for criminal proceeds, particularly through its real estate.
Appearing before the Senate standing committee on legal and constitutional affairs on Tuesday (9 November), Transparency International Australia chief executive Serena Lillywhite stated it would be “reasonable” to think money laundering could affect the property market.
“It has devastating impacts both in Australia and overseas and can be reasonably argued it is driving up property prices in Australia and locking many Australians out of owning their own home,” Ms Lillywhite told the committee.
While she noted it would be difficult to track down records or documentation, Ms Lillywhite said she believed there is enough anecdotal evidence to suggest criminal activity could impact the housing market.
“We know that we do have this gaping hold in our law, that does mean that Australia is a more attractive destination than others,” she said.
Transparency International has called for reforms to target Australia’s “weak” anti-money laundering (AML) regime and to introduce a public register of beneficial ownership.
Similarly, AUSTRAC has raised the alarm on money laundering through the real estate sector, following its reports earlier in the year.
In its submission to the committee, it reaffirmed that the “use of real estate is an established method of money laundering internationally”.
In addition to buying high-value goods such as property to launder or conceal illicit funds, AUSTRAC reported criminals may also renovate and improve real estate – thereby increasing the value of their properties and potentially profiting if they sell.
Australia is one of a few countries that are yet to introduce the Tranche 2 reforms to its anti-money laundering laws, which would extend the legislation to regulate players outside of financial services, including lawyers, accountants and real estate professionals.
However, industry body Real Estate Institute of Australia (REIA) has somewhat pushed back against the government’s way of implementing Tranche 2 reforms.
The body has insisted that without proper consultation, the changes could impose burdensome costs on the 47,000-odd agency businesses in the sector, which could potentially be passed on to home buyers and tenants.
REIA president Adrian Kelly rejected that the cost for each Australian agency would align with an estimate from New Zealand practitioners, that it totalled around $10,000 for Kiwi firms.
He has instead placed it closer to around $50,000 per Australian real estate agency – which would potentially add up to billions of dollars across the industry.
“With the ongoing public policy debate around housing affordability, the introduction of these extra costs should be of concern,” Mr Kelly told the committee on Wednesday (10 November 2021).
He listed a range of obligations that could be forced on real estate agents under the Tranche 2 reforms, which included:
- Requiring small businesses of all sizes to potentially hire an AML/CFT compliance officer
- Conducting biannual compliance through hiring a risk firm, assess and document potential AML/CTF risks to the agency itself
- Creating an AML/CTF compliance program for each agency
- Verifying all times and the identities of all purchases and buyers
- Submitting reports on certain types of transactions
- Monitoring the accounts of customers to potential money laundering
- Investigating suspicious funds for reporting suspicious activity
- Submitting annual reports to the government
“We estimate that these activity streams will be a significant financial burden to real estate agencies of all sizes across Australia,” Mr Kelly said.
“If the anticipated activities for tranche two recording are required, the costs of the sector could easily reach the billions.”
Sarah Simpkins is the news editor across Mortgage Business and The Adviser.
Previously, she reported on banking, financial services and wealth management for InvestorDaily and ifa.