The Anti-Money Laundering and Counter-Terrorism Financing Bill 2024 (Bill) is here
A new bill proposing reforms to Australia's Anti-Money Laundering and Counter Terrorism-Finance Act 2006 (AML/CTF Act) was tabled in Parliament on 11th September 2024. The Bill proposes to extend the list of 'designated services' to new activities including real estate services and professional services. Providers of such services will be required to register with the regulator AUSTRAC as reporting entities and will need to meet compliance obligations in the Act.
The Bill represents a major milestone in AML/CTF reform. It follows a review of Australia's laws in 2015 by the international body known as the Financial Action Task Force (FATF). FATF identified a number of gaps in the coverage of our legislation. The reform has been a long time coming, with some very intense consultation during 2023. There is now significant momentum to implement the proposed new law. The explanatory memorandum identifies the need to comply with international regulatory expectations to avoid 'grey listing' by FATF as a key driver.
The amendments are proposed to commence from 31st March 2026. Businesses carrying on the additional classes of designated service will need to ensure that they are in a position to comply by that date (with only minor transitional relief available to some professional service providers).
The Bill also proposes some reforms relevant to existing reporting entities which the Government has indicated are intended to make compliance obligations simpler and clearer and to modernise the legislation to reflect new technologies and new methods by which criminals launder money.
Direct impact on real estate industry participants
Two new real estate services will be captured. These are:
- 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; and
- selling or transferring real estate in the course of carrying on a business selling real estate, where the sale or transfer is not brokered by an independent real estate agent.
The first of these items is clearly intended to pick up real estate agencies and similar businesses. If an entity acts as a broker, then the Bill identifies that its customer for that service includes both the seller and transferor and the buyer/transferee. The consequences of identifying both parties as the 'customer' for the services include that the service provider will need to conduct Know Your Customer (KYC) check on both sides of the transaction.
The second item captures developers and other businesses that sell or transfer real estate other than through an independent real estate agent. For example, this will capture property developers that engage in direct sales of their stock to purchasers.
What is 'real estate' in this context?
A key consideration will be whether an underlying transaction relates to 'real estate'. The Bill proposing a fairly wide definition that includes the following interests in Australian land:
- fee simple;
- leasehold interest; and
- land use entitlement.
There are some exemptions embedded in the definition including 'incorporeal hereditaments' (which would include rights such as easements, covenants or caveats), the interests of a mortgagee (noting that lending businesses are already separately regulated under other designated services) and leasehold interests of 20 years or less (excluding options). The intention of the reform therefore is to capture only longer term leases and so most commercial leases would fall outside the regime.
Interests in foreign land similar to those described above are also captured (with corresponding exemptions).
The explanatory memorandum identifies some additional specific interests that the legislation is not intended to be captured such as:
- profits a prendre and rent charges;
- Native Title; and
- dwellings (such mobile and modular homes) not attached to the land that are sold as chattels, where the dwelling is located on leased land such as caravan parks and retirement villages.
This last reference does not necessarily reflect a general exemption for retirement villages, but appears to be limited to the sale of the dwelling only.
There are a number of key definitions that support a wide meaning for the term real estate. These include a land use entitlement which is defined as an entitlement to occupy land conferred by ownership of shares in a company and units in a unit trust scheme (or a combination together with a lease or licence).
The definition of land also references land that is the subject of a subdivision arrangement. This extensive definition picks up arrangements like:
- strata titles, community titles, unit titles, cluster titles and similar arrangements;
- certain arrangements where land is owned by a body corporate with a holder of shares being granted the right to occupy under its constitution (with or without an accompanying licence or lease); and
- collective property arrangements that are structured by trust.
The use of the terms 'land use entitlements' and 'subdivision arrangements' between them pick up a wide variety of non-freehold arrangements.
The Bill proposes that the regulations can also determine with a particular type of interest is brought within the definition of real estate (or is to be exempt).
Providers of professional services are also caught
In parallel with the new real estate services, providers of professional services are also proposed to be captured within the ambit of the AML/CTF Act for the first time. There are 9 new proposed categories of professional services. The services are described in a functional way rather than by profession. The explanatory memorandum identifies a number of different types of professions that provide these types of services and could be captured. These include:
- legal practitioners & conveyancers;
- accountants and insolvency practitioners;
- financial planners and wealth advisory businesses;
- business brokers and professional consultants; and
- trustee and company secretarial service providers.
Advisors to the real estate sector are specifically captured by the following new item in the list of designated services:
assisting a person in the planning or execution of a transaction, or otherwise acting for or on behalf of a person in a transaction, to (a) sell real estate; or (b) buy real estate; or (c) transfer real estate (other than a transfer pursuant to, or resulting from, an order of a court or tribunal); in the course of carrying on a business
There are also a number of other designated services that are likely to be relevant to persons providing services to participants in the real estate sector including:
- certain types of services connected with receiving, holding and controlling money, accounts, securities, virtual assets or other property for another person(e.g. 'transit moneys');
- persons who assist in certain transactions relating to the sale or transfer of a body corporate or legal arrangement; and
- persons who set up or restructure a body corporate or legal arrangement.
The term legal arrangement is widely defined to include common business structures that are not companies such as express trusts, joint ventures, partnerships and unincorporated associations.
This list is not exhaustive and advisors to the property industry should consider the full list in the proposed new table of professional services. For example, acting as a director or power of attorney for a body corporate or arranging for someone else to do so would be a designated service, where that activity is performed in the course of carrying on a business.
The carve out for 'exempt legal practitioner' which is referenced in some of the existing designated services in the financial services table will be removed. The Bill contains provisions that seek to protect the operation of legal professional privilege in relation to information and documents.
Consequences of being a regulated entity
Reporting entities are subject to significant requirements under the Act. These include obligations to:
- register with AUSTRAC;
- establish an AML/CTF compliance program;
- conduct KYC procedures for customers;
- engage in ongoing customer due diligence and enhanced customer due diligence;
- report certain matters to AUSTRAC including suspicious matter reports, threshold transaction reports and international funds transfer instructions;
- respond to information requests from the regulator AUSTRAC; and
- keep records for up to 7 years.
These obligations have been expressed in the past in highly prescriptive rules in the AML/CTF Act and in the accompanying AML/CTF Rules. Some of these obligations are being modified by the Bill with intention of streamlining and modernising the compliance obligations. However, the compliance obligations will still be substantial. It is also expected that there will need to be changes to the AML/CTF Rules to reflect the amendments.
Failure to comply with AML/CTF obligations may result in a breach of a civil penalties provision. Some of the biggest civil penalties in Australian corporate history have been awarded over the last 5 years including civil penalties of:
- $1.3 billion payable by Westpac, associated with failures to report international funds transfer instructions;
- $700 million payable by Commonwealth Bank, associated with failures to report threshold transactions received through its 'intelligent deposit machines';
- $450 million payable by Crown for breaches associated with deficiencies in its AML/CTF Program and ongoing customer due diligence obligations in relation to its Melbourne and Perth casinos (July 2023); and
- $67 million payable by SkyCity Adelaide for systemic non-compliance.
A number of additional new civil penalty provisions are proposed in the Bill, including a new civil penalty the applies where the governing body of a reporting entity fails to:
- 'exercise appropriate oversight' of; or
- 'take reasonable steps' to ensure the reporting entity meets,
certain risk and other compliance obligations under the AML/CTF Act.
AUSTRAC is an active regulator and has a number of tools in its belt when dealing with reporting entities. For example, in addition to seeking civil penalties, AUSTRAC has recently obtained a number of high profile enforceable undertakings against several banks, a payment system provider, betting companies and a bullion dealer. This suggests enforcement activity across all of the major categories of services presently within the operation of the AML/CTF Act.
Next steps in planning for AML/CTF compliance
Participants in the real estate industry and their advisors will need to consider the impact of the new designated services on their businesses. Many businesses not presently regulated by AML/CTF will be regulated for the first time. Some businesses that are already regulated may find that a substantial part of their business that was not previously regulated will become subject to AML/CTF regulation.
While much of the detail about how to comply is subject to the final passage of the Bill (and the issue of new AML/CTF Rules), participants in the property industry and their advisors should consider whether they are likely to be impacted so that they can start planning for implementing AML/CTF compliance.
Given the extensive obligations that apply to reporting entities, it is critical to identify early whether you are likely to be affected, so that you can be in the best position to comply when the reforms are expected to take effect on 31st March 2026. If you have any questions about the imposition of AML/CTF regulation on the real estate industry, contact us to discuss.
