Real estate sector a target for Anti-money laundering in the digital age

28 June 2018

Adam Simms, Partner, Forensic Services |

In the digital age, anonymity is easy. Transactions are made online, and people can conduct a huge range of activities without ever having to meet in person. While this has been great for making all our lives' easier, it's also made it much simpler for criminals to launder the proceeds of their illegal activities.

Until now. Australia, which ANZ Bank recently called a "place of choice" for money-laundering, will finally catch up with its global counterparts through the introduction of Tranche Two. Although the legislation is only proposed, it seems likely that it will be implemented some time in 2018 or early 2019.

In particular, it will affect real estate and other gateway industries such as lawyers, accountants and companies that create trusts.

Real estate businesses a target for AML

AUSTRAC has provided examples of significant amounts of money being laundered through real estate. These include:

  • The use of third parties to buy properties
  • The use of loans and mortgage (e.g. criminals take out a mortgage to buy a property and pay back the mortgage using lump sum cash payments)
  • Depositing cash below the reporting AUD10,000 threshold at different banks, and then using that money to buy real estate
  • Buying and selling real estate above or below market value (which can lead to inflation of property prices).

Lawyers, accountants and companies that create trusts

The Panama Papers and Paradise Papers clearly indicate that law firms and accountants are being used to establish complex ownership and trust structures to facilitate tax evasion and money laundering. Clients of entities that establish trusts aren't often the companies themselves, but are instead lawyers and accountants acting on behalf of the clients. Naturally, this affords extra anonymity, and the current registration processes do not ensure enough information on the beneficial owners of companies is readily-accessible.

How to prepare for Tranche Two

The new legislation extends the AML/CTF Act 2006 to these other entities. In order to prepare for Tranche Two, organisations should do the following:

  1. Conduct a full risk assessment that takes into account all areas of the business that will be affected by Tranche Two.
  2. Prepare to register with AUSTRAC
  3. Start putting in place Customer Due Diligence processes to identify high risk individuals such as PEPs (politically exposed persons). Know how to carry out Enhanced Due diligence for these people.
  4. Start creating processes for enabling reporting to AUSTRAC Online of transactions that require submission to AUSTRAC of Threshold Transaction Reports, International Funds transfer, and Suspicious Matter Reports.
  5. Provide enhanced training and awareness programmes so employees know how to detect suspicious activity.

AML/CTF legislation is hugely complex, and Tranche Two will make it even more so. To be truly prepared, therefore, businesses should turn to people with AML expertise, who can assess where organisations can change to meet the new requirements. To find out more about BDO's anti-money laundering services, contact our team of experts.