The proposed second tranche of Australia’s AML/CTF regime is designed, amongst other things, to ensure that lawyers, real estate agents and jewellers are required to comply with the obligations under Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act).

Whilst the failure to introduce this second tranche of reforms has been the elephant in the room for nearly 10 years, the recent media attention on large property transactions in Australia involving overseas investors has reignited this debate and applies considerable pressure on the Federal Government to act.

The $39 million sale of Villa Del Mare in Point Piper, Sydney, caused controversy when its forced re-sale was ordered by the Federal Treasurer once it was discovered that the purchase by a Chinese national had allegedly breached the Government’s foreign ownership rules under the Foreign Acquisition and Takeovers Act 1975 (Cth) (the FAT Act). Under the FAT Act, a ‘foreign person’ must seek Government approval before acquiring an interest in certain types of residential real estate.

On 9 June the Federal Treasurer announced that the Foreign Investment Review Board has 195 cases of potential breaches of the FAT Act under investigation – adding further ammunition to the argument for the scope of AML/CTF Act to be extended to ensure that all aspects of real estate transactions involving overseas investors are adequately regulated.

Second tranche of regulation

In an attempt to tighten the investment rules, the Government has proposed various initiatives, including penalising third parties such as real estate agents, lawyers and accountants, who assist individuals or corporations to purchase property in contravention of the FAT Act.

Real estate agents are vulnerable to the risk of money laundering and terrorism financing through illicit investments in property. The investments can be made through a chain of transactions in real estate to disguise the source of funds. Various other methods of concealing and integrating large funds into the legitimate economy through real estate are outlined in AUSTRAC’s ‘Strategic analysis brief: Money laundering through real estate‘.

Lawyers are vulnerable because their services can be used to conduct transactions of behalf of foreign investors, establish trusts and other structures to hide identity, recover fictitious debts and make payments through trust accounts.

It’s not ‘new’ news that these industries are being targeted by the Government for AML/CTF regulation. The AML/CTF Act was always intended to be implemented in two tranches. The first tranche, relating to ‘designated services’ in the financial and gambling sectors and bullion dealers, was implemented by 2008. The second tranche is the extension of the AML/CTF obligations to real estate agents, jewellers and professionals such as accountants and lawyers. The impact of the global financial crisis meant that the second tranche was delayed.

Now, as Australia’s property industry is apparently in a bubble, there is increased focus on the foreign beneficiaries of property transactions in Australia and renewed calls for the AML/CTF Act to be amended.

The recently released FATF Mutual Evaluation Report on Australia’s AML/CTF Regime which criticised Australia’s failure to introduce the second tranche has also provided further impetus for change.

What will AML/CTF Act amendments look like?

Although draft legislation is yet to be released by the Government, it’s anticipated that the second tranche of AML/CTF regulation will be similar to the current compliance obligations imposed under the AML/CTF Act and also the Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules).

Under the new regime real estate agents and other new ‘reporting entities’ will be required to:

  • implement a risk-based AML/CTF program;
  • carry out a risk assessment of customers, designated services, methods of delivery for designated services and the foreign jurisdictions; 
  • understand the nature and purpose of the business relationship with our customers and the control structures of non-individual customers; and
  • carrying out minimum customer identification and verification procedures. 

If the new laws are introduced, members of the new industries who will become reporting entities under the AML/CTF Act will see their compliance obligations increase.  Their existing compliance programs should also be reviewed.

Hopefully by the date of their introduction, Standards Australia will have confirmed whether or not the new compliance standard ISO 19600:2014 Compliance Management – Guidelines will be adopted as an AS/NZS standard.

How can CompliSpace help?

CompliSpace provides a range of ongoing training services including high impact workshops designed for financial services executives and Responsible Managers. These practical group sessions are designed to keep attendees up-to-date with the latest industry changes, real life case studies and fast-track the practical development of new knowledge and skills.

Further details of our next sessions can be found here: /afsl-executive-workshop

CPD certificates and training material will be provided post workshop.