Australian AML/CTF Law Amendments: Risks and Opportunities for Real Estate brands

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 real estate agents under the AML/CTF Act. These requirements are detailed and demanding. Real estate brands should be aware that their franchisees face a real risk of penalties if the franchisees fail to comply with those requirements. At the same time, other amendments to the AML/CTF Act will enable a ‘lead entity’ run by the brand’s head office to co-ordinate/assist franchisees with their AML/CTF compliance. That ‘lead entity’ mechanism will give a real estate brand another way to add value to its franchisees. Further, the level of AML/CTF support that a brand provides to its franchisees may provide an opportunity for the brand to differentiate itself from other real estate brands.

Why are AML/CTF obligations being extended to real estate agents?

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:

‘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 agents are often well placed to detect suspicious real estate transactions.

What are the proposed changes affecting real estate agents?

Under the Bill, it is proposed that any person or company engaged in “brokering the sale, purchase or transfer of real estate on behalf of a buyer, seller, transferee or transferor in the course of carrying on a business” will be a ‘reporting entity’ under the AML/CTF Act. The definition is not limited to licensed real estate agents. Instead, it would cover any person or entity engaged in these activities.

Broadly, a real estate agent (who, by definition, will be engaged in these activities) 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 real estate agent 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.

What is the opportunity for real estate brands?

The AML/CTF Act presently permits one entity in a company group to operate as a reporting entity for itself as well as for other reporting entities in the same group of companies, known as a “designated business group”. The Bill will introduce simplified ‘business group’ and ‘reporting group’ concepts to replace the existing ‘designated business group’ definition. This amendment will allow for a ‘lead entity’ of the reporting group to develop and maintain an AML/CTF program which is established for the entire reporting group, rather than have each member within the reporting group create their own AML/CTF program.  The way in which the ‘lead entity’ mechanism will work in the real estate agency context will most likely be subject to more detailed rules to be contained in revised AML/CTF rules. Those revised rules have yet to be released.

As noted above, the ‘lead entity’ mechanism will give real estate brands another way to add value to their franchisees. Further, the level of AML/CTF support that a brand provides to its franchisees may provide an opportunity for the brand to differentiate itself from other real estate brands.

An example of how this might work is given in the Australian Government’ Attorney-General’s Department Consultation Paper “Reforming Australia’s anti-money laundering and counter terrorism financing regime – Paper 5: Broader reforms to simplify, clarify and modernise the regime”

‘Home Sweet Home’ is a real estate brand made up of 30 Australian franchisees, led by HSH Group as the franchisor. HSH Group and its franchisees agree to amend their franchise agreement to make HSH Group responsible for overseeing the development and implementation of a group-wide AML/CTF program on behalf of the franchisees, who are all individual reporting entities. The franchisor and franchisees now meet the criteria of a business group and abide by the relevant business group obligations. As business group head, HSH Group must develop, implement and maintain a group-wide AML/CTF program and ensure that all reporting entity members comply with their obligations. Individual Home Sweet Home franchisees would remain responsible for fulfilling their own obligations within the group-wide AML/CTF program for the services they provide. 

What’s next?

The Bill has been referred to the Senate Standing Committee on Constitutional and Legal Affairs which is accepting 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 (and reforms concerning business groups and reporting groups) will be implemented in the first half of 2026.

Real estate brands need to consider a number of practical issues and legal risk allocation issues when creating a lead entity to develop and maintain an AML/CTF program for their franchisees. 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 real estate agency law and practice.

Queries

If you have any questions about this article, please get in touch with the authors 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.