What does money laundering have to do with conveyancers?

What is Anti-Money Laundering & Counter Terrorism Financing?

When you hear the phrase ‘money laundering’, your thoughts might drift to popular TV shows like Narcos, Breaking Bad or Ozark. This criminal practice has been a key part of some of the most successful pop culture movies and TV shows in recent years. But these shows are a far cry from conveyancing and the property industry in Australia. Despite this, discussions about money laundering in conveyancing forums are increasingly relevant.

According to the Australian Institute of Criminology, it is estimated that serious and organised crime cost the Australian community up to $60.1 billion in 2020-21. Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF) are essential measures designed to combat these kinds of financial crimes. AML & CTF initiatives help safeguard the integrity of our financial system by preventing criminals from legitimising illegal earnings or funding harmful activities. 

OK, so who is AUSTRAC, and how are they involved?

In Australia, the regulatory framework for AML & CTF is coordinated by AUSTRAC (a.k.a. the Australian Transaction Reports and Analysis Centre). AUSTRAC oversees compliance, ensuring that financial activities remain above board. Essentially, they’re Australia’s financial intelligence unit, and they are mandated to prevent money laundering, terrorism financing, and other such financial crimes. AUSTRAC plays a pivotal role in collecting financial intelligence and sharing its findings with law enforcement like the Australian Federal Police (AFP) and other entities, helping to uncover criminal operations. 

Operation Avarus-Midas: A Case Study

In 2023, AUSTRAC was instrumental in Operation Avarus-Midas, which led to the identification and arrest of nine members of a criminal syndicate in NSW. From 2017 to 2022, the group laundered over $150 million through property, cash, and luxury items.

As a result of the AFP investigation, orders were subsequently issued under the Proceeds of Crime Act 2002 (Cth) in relation to more than 20 properties in Sydney. These included multiple commercial buildings, two high-value houses in Sydney’s eastern suburbs and a 360-hectare tract of land near the site of Sydney’s second international airport worth $47 million. This case illustrates how criminal enterprises exploit legal financial and property systems to mask their operations.

So, how does this impact Australian property conveyancers?

The Australian Government is currently reviewing its AML/CTF legislation with plans to extend its reach to ‘Tranche 2’ services. Tranche 2 services are certain high-risk professions that the Attorney General has identified as part of the reforms and include professionals like lawyers, conveyancers, accountants and real estate agents. Historically, these professions have been outside the scope of the most stringent AML/CTF requirements. The proposed changes aim to bring these professions under the AML/CTF regulatory umbrella, making it much more difficult for criminals to misuse assets, such as real estate, for laundering illicit gains.

For conveyancers, these legislative changes mean more than just additional paperwork. Specific compliance measures outlined in the second stage consultation Paper 2, require conveyancing practitioners to enact specific compliance measures:

  1. Enrollment with AUSTRAC: Under the proposed reforms, conveyancers would be a reporting entity and thus required to register with AUSTRAC.
  2. AML/CTF Programs: It is proposed that they develop and maintain an AML/CTF program tailored to their operations. This would involve assessing and mitigating risks associated with their clients and services.
  3. Due Diligence: Customer due diligence would be a key component of the reforms, requiring conveyancers to both initially assess the legitimacy of their clients and the sources of their funds, as well as throughout their business relationship.
  4. Reporting: Certain transactions and activities would be required to be reported to AUSTRAC via your online account.

During the earlier consultation phase, feedback from various industry bodies suggested that some or all of these measures may be unduly onerous on the conveyancing community, which is comprised largely of small businesses. In the second consultation phase, the Attorney General outlined broader reforms to simplify the proposed regime, including introducing  a ‘business group’ concept, where groups of related entities could choose to manage their common risks and compliance obligations.

It is important to note that these reforms are still in the consultation phase. Stage 2 consultation closed on 13 June 2024, and it is anticipated that regulations will not be updated until at least 2025.

What happens next? 

As we approach the implementation of the Tranche 2 reforms (however they end up looking), conveyancers and real estate professionals have the opportunity to prepare for a shift in how they manage their responsibilities. It is crucial that industry takes the lead in embedding best practices into their business and aligning themselves with partners who will support them and equip them with the tools to ensure compliance with minimal impact on their business and team. 

Scantek is closely monitoring the developments of this latest consultation phase and is committed to supporting our clients in making the transition to the new regulations as smooth and seamless as possible.

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