New AML/CTF compliance mandates for Australian real estate

As agencies prepare for the changes, industry leaders say understanding the new obligations and implementing the right systems and processes will be key to ensuring compliance.

Mandatory identity verification and risk assessment frameworks

Under the new rules, agents will need to complete “customer due diligence” on buyers and sellers. This includes verifying a client’s identity, assessing client risk, identifying and checking beneficial owners and screening individuals against sanctions and politically exposed persons lists.

Ongoing customer due diligence requires agencies to monitor clients for changes in risk, ownership or behaviour and conduct additional identity checks where necessary.

“Before commencing a sales campaign, the agent or the agency will need to identify that vendor and confirm that they are the owner of the property through those ID checks,” says Real Estate Institute of Australia president Jacob Caine.

“Then, prior to settlement on the property, they will need to identify the purchaser of that property through a similar process.”

Caine says technology platforms can help streamline the process and protect client information.

Real estate agencies will need to enrol with AUSTRAC by July 29, establish an AML/CTF compliance program, appoint a compliance officer, train staff, keep records after each transaction for seven years, and report suspicious matters to AUSTRAC.

“Agents will need to tune in to those red-flag moments in a sales campaign where their instincts tell them that something is a little bit off,” Caine says.

“It could be a buyer offering to pay the deposit on a $2.5 million property in cash. Or it might be a vendor asking the agent to sell the property significantly below market value.

“For example, the agent might value the property at $2 million, and the owner says they’d be happy to take $1.2 million. Then out of the woodwork comes a buyer who is willing to offer $1.2 million on a 14-day settlement.”

Expanding regulatory oversight to combat illicit financial flows

Historically, AML/CTF obligations have applied mainly to banks, casinos, pubs and clubs, remittance providers, and digital currency exchanges.

From July 1, the laws will also expand to include professionals such as conveyancers, lawyers, accountants, jewellers and real estate practitioners involved in buying and selling residential, commercial, industrial and agricultural property and land. 

Property management and commercial leasing are not included.

These sectors are included because they facilitate large financial transactions that criminals can exploit for money laundering.

Caine says the reforms are not a reflection on the conduct of real estate agents, but rather recognition of the industry’s unique position in dealing directly with buyers and sellers. 

“The intent of the reforms is to add in layers of oversight that will ultimately mean less money is laundered through criminal networks and there will be less severe, sophisticated crime such as human trafficking, drug smuggling, financing of terrorism activities and money laundering operations,” he says.

Caine says AUSTRAC has indicated it understands there will be teething issues as agencies implement the new requirements, but businesses should be able to demonstrate they are making a genuine effort to become compliant.

Operational roadmaps for agency transition and client communication

Ray White chief executive of performance and value Thomas McGlynn says the new laws represent one of the biggest nationwide regulatory shifts the industry has faced in years.

He urges agencies to approach the changes with a positive mindset and to break the process into phases.

“We’ve been working really closely with our businesses on not getting overwhelmed by all of the changes,” he says.

“It’s about breaking things down into phases. Phase one is: who is going to be your compliance officer? Then what training do you need in your organisation and how can you communicate this locally?”

McGlynn says agents should start the conversation with clients early, explain the systems and processes thoroughly and approach the new reforms as an opportunity to set themselves apart from the competition.

“If you look at it that way, you’ll come across to your owners and your buyers as very professional,” he says.

Caine agrees, noting that agents should explain that the additional checks are now a legal requirement, reassure clients that their personal information will be collected and stored securely, and emphasise that the reforms are designed to help combat serious crimes.