AML/CTF Law Amendments: New Obligations for Australian Property Developers

The Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth) (Bill) was introduced into Parliament in September 2024. When enacted, it will amend the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act). Those amendments cover several things, including new federal regulatory requirements to be satisfied by property developers under the AML/CTF Act.  These requirements are detailed and demanding. Property developers face a real risk of penalties if they fail to comply with those requirements when enacted.

Why are AML/CTF obligations being extended to property developers?

The Australian Federal Attorney-General’s Department Consultation Paper ‘Reforming Australia’s anti-money laundering and counter-terrorism financing regime – Paper 1: Further information for real estate professionals – May 2024’ notes that:

‘Criminals buy high-value goods, such as real estate, as a way of laundering or concealing illicit funds. The use of real estate is an established, well-known method of money laundering, internationally and in Australia. Australia is seen as an attractive destination for the investment of foreign proceeds of crime in real estate….Compared to other methods, money laundering through real estate, both residential and commercial, can be relatively simple and requires little planning or expertise. Large sums of illicit funds can be concealed and integrated into the legitimate economy through real estate. Real estate professionals are the front door to buying and selling property. Real estate professionals have a different relationship with purchasers and sellers to other parties involved in a property transaction and can provide unique insights. For example, real estate professionals are well-placed to know if the client:

• is located inexplicably far away from the property being purchased
• purchases property without viewing it
• shows little interest in price
• appears to be acting under the instruction of a controlling third party
• pays a large deposit in cash and the balance is financed by an unusual source, or
• alters a transaction after being asked for further information.’

In other words, besides providing a “high risk” service capable of being used for money laundering and terrorism finance purposes, real estate professionals like property developers are often well placed to detect suspicious real estate transactions.

What are the proposed changes affecting property developers?

Under the Bill, it is proposed that any person or company engaged in “selling or transferring real estate in the course of carrying on a business selling real estate, where the sale is not brokered by an independent real estate agent, will be a ‘reporting entity’ under the AML/CTF Act.

Broadly, a property developer selling or transferring real estate (in a sale or transfer that is not brokered by an independent real estate agent) must:

• enrol as a ‘reporting entity’ with AUSTRAC, the regulator under the AML/CTF Act;
• lodge annual returns with AUSTRAC;
• have and comply with an AML/CTF program, comprised of an AML/CTF risk assessment and AML/CTF policies (this will require the property developer to assess, understand, manage and mitigate money laundering, terrorism financing and proliferation financing risks associated with providing its services to a customer);
• undertake customer due diligence, including the initial verification of the identity of a prospective customer (there is a due diligence component too, involving identifying the ultimate beneficial owner of customers which are not individuals, as well as checking whether individual customers are ‘politically exposed persons’ and undertaking additional due diligence if they are);
• comply with suspicious matter reporting and ongoing customer due diligence requirements;
• comply with record-keeping requirements; and
• comply with various other obligations under the AML/CTF Act.

The Australian Federal Attorney-General’s Department Consultation Paper ‘Reforming Australia’s anti-money laundering and counter-terrorism financing regime – Paper 1: Further information for real estate professionals – May 2024’ indicates how the AML/CTF Act will apply to property developers:

Proposed designated service: Selling real property in the course of carrying on a real property selling business without the involvement of a real estate agent. The customer is the buyer of the real property.

It is intended to trigger AML/CTF obligations for businesses, such as property developers, when they sell real property directly to buyers. This proposed designated service is intended to capture different types of properties such as house and land packages, apartments off the plan, and blocks of vacant land in new subdivisions.

What would this look like?

For example, Sky High Developments has decided to purchase an office building in Adelaide and re-develop it into a residential tower with 50 apartments, which are to be sold before the project is completed. As the apartments near completion, Sky High Developments decides to list the properties themselves, using their in-house sales team to advertise the new apartments and show potential buyers around a display suite which is located off-site. Naomi requests to purchase one of the apartments. As Sky High Developments would be providing a designated service to Naomi when selling the apartment, it must fulfil the necessary AML/CTF obligations in relation to Naomi before proceeding with this sale, as well as the sale of all other apartments as part of the project. 

What’s next?

The Bill has been referred to the Senate Standing Committee on Constitutional and Legal Affairs which accepted submissions until 14 October 2024.

In the meantime, the Senate Standing Committee for the Scrutiny of Bills has expressed some specific concerns about aspects of the Bill (see Scrutiny Digest 12 of 2024).  Additionally, the Federal Opposition has expressed more general concerns about the Bill.

Nonetheless, it appears to us that there is a realistic prospect that changes affecting real estate agents will be implemented in the first half of 2026.

If you have questions or require our assistance, please contact our project team, comprised of AML/CTF subject matter specialists as well as practitioners with several years’ experience in acting for property developers.

Queries

If you have any questions about this article, please get in touch with an author or any member of our AML/CTF real estate agency project team.

Disclaimer

This information is general in nature. It is intended to express the state of affairs as of the date of publication. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.