Developers Under Microscope as Property’s New Anti-Money Laundering Regime Begins

After a decade of delay, Australia has closed the loophole in its anti-money laundering rules that left real estate exempt, despite it being one of the country's biggest channels for concealing illicit funds. Anti-money laundering regulator the Australian Transaction Reports and Analysis Centre (AUSTRAC) estimated that in 2020, Chinese interests alone laundered more than $1 billion through Australian real estate. In a 2022 inquiry, the Australian Federal Police revealed that of the $187 million in assets it seized in the 2021 financial year, $116 million was real estate. As a result of these high-profile pushes against money laundering in property, AUSTRAC introduced major changes in July bringing the property sector in line with Tranche 1 entities such as banks, gambling providers and other financial institutions, all of which have been under the regime since 2006. But a little more than a week after the regime change’s first obligatory deadline by which developers needed to enrol with AUSTRAC and start implementing new systems and controls, the industry is still getting its head around the changes. Money-laundering rule changes for developers Under the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act, initially passed in 2024 and dubbed AML/CTF, developers are now considered Tranche 2 entities. Specific activities including brokering the sale, purchase or transfer of a real estate deal or directly selling real estate without the involvement of a real estate agent are two of the major activities or “designated services” with which developers need to be compliant under the new regulations. Holding Redlich special counsel David Chambers says that the immediate priority for the property sector is compliance with the reforms. ▲ Holding Redlich special counsel David Chambers: Significant penalties can be imposed. Reporting entities that provide a designated service must enrol with AUSTRAC within 28 days of first providing that service. Significant penalties can be imposed by way of AUSTRAC infringement notices of Federal Court penalty orders, Chambers says. “Reporting entities should already have undertaken a risk assessment, implemented a written AML/CTF program, established appropriate governance arrangements, allocated AML/CTF responsibilities, delivered staff training, embedded the program within their operating model, tested systems and controls, and retained records of testing, remediation and approvals,” he tells The Urban Developer . Property industry crackdown Authorities are moving quickly on the anti-money laundering rule changes. “The focus is shifting from implementation to enforcement,” Chambers says. “Those who fail to enrol or cannot demonstrate that their AML/CTF framework has been effectively implemented risk regulatory attention.” AUSTRAC has “extensive” coercive information-gathering powers, Chambers says, and may require any person with relevant information or documents to assist its compliance and enforcement activities. “Given AUSTRAC’s unique role as both Australia’s AML/CTF regulator and a member of the National Intelligence Community, reporting entities should expect scrutiny of how effectively their AML/CTF frameworks have been implemented in practice,” Chambers says. “As AUSTRAC’s attention turns to the property sector, reporting entities should expect closer examination of both their AML/CTF frameworks and day-to-day operations.” The next steps for developers Once signed up, developers need to get on the right side of compliance processes. “The key issue is not simply whether a business has complied with its AML/CTF obligations, but whether it can demonstrate that compliance through contemporaneous documents and evidence,” Chambers says. The starting point is an assessment of whether the company involves the provision of a “designated service”. “Businesses should ensure they can clearly evidence how that assessment was undertaken, the service lines considered and the basis for any conclusions reached.” ▲ Developers are being urged to make sure they are compliant with AUSTRAC's new anti-money laundering regulations. Even if the conclusion is that there is no designated service, the process shows a “reasoned conclusion, rather than remaining wilfully blind to the reforms,” Chambers says. And this may become more important than developers realise. A section 167 notice requires the production of information and documents relevant to AML/CTF compliance, often considered a “test” of whether a business has properly addressed its obligations. Failure to comply with the notice could be considered an offence and carries a maximum penalty of three months’ imprisonment and/or 30 penalty units. Costs of anti-money laundering compliance This additional obligation has been a point of friction in the industry, given the already complex, multi-party and time-sensitive nature of deal flows, particularly around off-the-plan sales and deposit handling, and purchaser onboarding. Regardless, the rule changes mean that sales channels need to be mapped out to determine which transactions are “designates services” and budget for compliance software and processes—which have been totalled at tens of thousands per year, especially for manual processes. It also means that developers need to have clarification on their agents. If agents are genuinely independent third parties, the AML/CTF obligations sit with the agent, rather than the developer. But if the agent isn’t independent enough from the developer, AUSTRAC can treat the developer itself as providing the designated service. “As the sector moves from implementation to enforcement, businesses that can clearly evidence their decision-making and compliance activities will be best placed to manage regulatory risk,” Chambers says.

Exclusive
Clare Burnett
Tue 11 Aug 26

Developers Under Microscope as Property’s New Anti-Money Laundering Regime Begins

Get the full story.