How Australian Real Estate Agencies Can Manage Money Laundering Risks for AML/CTF Tranche 2

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Introduction

The Australian real estate sector faces significant money laundering risks, making it a prime target for criminals seeking to legitimise illicit funds. Its high transaction values and potential for obscuring ownership attract organised crime, posing a considerable threat to market integrity and contributing to broader societal harm.

For Australian real estate agents, navigating these risks is crucial, particularly with the upcoming ‘Tranche 2’ reforms to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). This guide offers essential information and practical steps to help agents understand their exposure, recognise criminal methods, and prepare for the new compliance obligations enforced by the Australian Transaction Reports and Analysis Centre (AUSTRAC), commencing 1 July 2026.

Understanding Money Laundering in the Australian Real Estate Context

Money Laundering Basics for Real Estate Professionals

Money laundering is the process criminals use to disguise the illegal origins of their funds, making money obtained from unlawful activities appear legitimate. These illicit funds often stem from serious and organised crime, such as drug trafficking, fraud, or corruption. Criminals funnel this “dirty money” through various channels, including property transactions, to integrate it into the legitimate economy.

The process typically involves three distinct stages, which can sometimes overlap:

• Placement: This initial stage involves introducing illicit funds into the formal financial system. In the Australian real estate context, this might occur through:
  • Large cash deposits (potentially structured below reporting thresholds) to accumulate funds for a purchase
  • Using cash for initial payments or associated costs
  • Purchasing high-value assets like property or luxury goods
• Layering: The objective here is to obscure the money’s criminal source by creating complex layers of transactions. Real estate offers numerous layering opportunities, including:
  • Rapid buying and selling of properties (“flipping”), often at inflated prices
  • Using complex ownership structures like trusts, shell companies (especially offshore), or nominee buyers to hide the true beneficial owner
  • Moving funds through multiple accounts or countries to distance the money from its origin
• Integration: This final stage sees the laundered funds reintroduced into the legitimate economy, appearing clean. Successful integration makes it very difficult to trace the money’s illegal origins. This can happen when:
  • A property bought and layered with illicit funds is sold, generating seemingly legitimate capital gains
  • Rental income is generated from the property, potentially paid using disguised illicit funds

Why the Australian Real Estate Industry is a Target

The Australian real estate sector is consistently identified as highly vulnerable to money laundering, presenting significant opportunities for criminal exploitation. AUSTRAC, Australia’s anti-money laundering regulator, assessed the sector’s vulnerability as “very high” in its 2024 National Risk Assessment.

Several characteristics make Australian real estate particularly attractive to criminals seeking to legitimise illicit funds:

• High Transaction Values: Property deals involve substantial sums, allowing criminals to launder significant illicit funds through single transactions.
• Potential for Ownership Obscurity: It is relatively easy to disguise the true beneficial owner of a property using:
  • Complex legal structures like trusts and shell companies, often registered offshore
  • Third-party nominees This lack of transparency significantly hinders investigations.
• Market Stability and Investment Appeal: Real estate is generally perceived as a stable and secure investment that often appreciates, making it an attractive way to store and grow illicit wealth over the long term. Additionally, owning property provides a veneer of legitimacy.
• Historical Regulatory Gap: Until the upcoming ‘Tranche 2’ reforms commence (scheduled for 1 July 2026), key professionals involved in transactions, such as real estate agents, lawyers, and accountants acting as ‘gatekeepers’, are not fully covered by the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). This gap has made the Australian market potentially more attractive than jurisdictions with stricter regulations for these professions.
• Value Manipulation: The subjective nature of property valuations allows for manipulation through collusion, enabling criminals to over- or under-value properties to facilitate the laundering process.

Common Money Laundering Methods in Australian Real Estate

Using Complex Ownership Structures & Third Parties

Criminals often use complex legal structures to obscure the true ownership of property purchased with illicit funds. This makes it difficult for authorities like AUSTRAC and law enforcement to identify the beneficial owner – the individual who ultimately controls or benefits from the asset.

Common tactics include:

• Shell Companies: These companies exist only on paper, often registered in jurisdictions with high secrecy (tax havens), and lack genuine business operations. They are used solely to hold assets like real estate, hiding the owner’s identity.
• Trusts: Legal arrangements where assets are held by a trustee for beneficiaries. Criminals exploit trusts, particularly offshore trusts, to create layers of ownership that distance them from the illicit funds used to purchase the property.
• Nominees or Third Parties: Using unrelated individuals, family members, friends, or professional facilitators like lawyers and accountants (‘straw buyers’ or ‘cleanskins’) to purchase property on their behalf. This keeps the criminal’s name off official documents.

These methods complicate the money laundering process, making it harder to trace the origins of the funds and the ultimate control of the property. Real estate agents may encounter clients using such structures without a clear commercial rationale, which can be a red flag.

Manipulating Property Values & Transactions

Criminals use another established money laundering method to manipulate the value of property transactions. This can involve artificially inflating or deflating the purchase price, often requiring collusion with other parties involved.

Specific techniques include:

• Over-Valuation: Purchasing a property for significantly more than its market value. This allows criminals to launder more illicit funds through the transaction or secure larger mortgage loans, which are repaid using dirty money.
• Under-Valuation: Buying a property for less than its true worth, with the difference paid to the seller ‘off the books’ using illicit cash. This can help legitimise funds and potentially evade taxes like stamp duty.
• Rapid Resale (Flipping): Buying and quickly selling properties, sometimes multiple times in short succession. Only minor or cosmetic renovations are often done, yet the property is sold at an inflated price, creating seemingly legitimate profits that disguise the original illicit funds.

These manipulations distort the property market and create false transaction records, further layering the illicit funds away from their criminal source.

Exploiting Cash & Using Structured Deposits

Cash remains attractive to criminals due to its anonymity and difficulty of tracing. While large cash purchases for entire properties are less common, cash can still be exploited in real estate transactions, particularly during the placement stage of money laundering.

Methods include:

• Large Cash Payments: Using substantial amounts of physical cash for deposits, initial payments, or associated costs like renovations. This avoids the scrutiny of the formal banking system.
• Structured Deposits: Breaking down large amounts of cash into multiple smaller deposits, each below the AUD 10,000 threshold that triggers mandatory reporting to AUSTRAC (Threshold Transaction Reports or TTRs). These structured deposits are often made across different accounts or institutions before being used for property purchases.

By bypassing or manipulating banking controls, criminals introduce significant amounts of illicit cash into the financial system undetected to fund real estate acquisitions.

Misusing Property Loans Mortgages & Rental Income

Criminals also exploit legitimate financial products like loans, mortgages, and rental income streams to launder money through real estate. These methods help integrate illicit funds into the legitimate economy.

Common approaches include:

• Fraudulent Mortgages: Obtaining home loans using falsified documents, such as inflated income statements. The mortgage repayments are then made using illicit funds, effectively ‘cleaning’ the money as it repays a legitimate debt.
• Loan-Back Schemes: Using illicit funds, often held offshore, as collateral to obtain a loan from a legitimate financial institution. This loan is then used to purchase property, and the original illicit funds are used to repay it.
• Rental Income Manipulation: Purchasing a property with illicit funds and renting it out. The rental payments are made using disguised illicit funds (e.g., providing cash to tenants to pay rent, or depositing fake rent payments), creating a seemingly legitimate income stream from the property.

These techniques abuse standard financial practices to legitimise criminal proceeds through property ownership and associated financial activities.

Key Red Flags for Real Estate Transactions

Client Behaviour & Identity Red Flags

Real estate agents should be alert to certain client behaviours and identity issues suggesting potential money laundering or terrorism financing risks. A primary money laundering red flag is when a client shows reluctance or outright refuses to provide necessary identification documents or information regarding their source of funds or wealth. Evasiveness, secrecy, or providing vague, inconsistent, or questionable information should also raise concerns.

Other behavioural indicators include:

• Using intermediaries like lawyers, accountants, or relatives unnecessarily, or appearing detached from the transaction while seeming to act for an undisclosed third party
• Avoiding face-to-face meetings without a valid reason or being unusually difficult to contact
• Presenting identification documents that seem questionable, false, or inconsistent with their financial profile
• Demonstrating unusual indifference towards the property’s price, condition, associated fees, or investment potential, sometimes being willing to pay significantly above market value without negotiation
• Having a stated occupation, business, or age that doesn’t align with the value of the property being purchased
• Exhibiting an unusual sense of urgency to complete the transaction without a clear commercial rationale
• Showing little interest in the property itself, such as its condition or specific location details
• Being identified as a Politically Exposed Person (PEP) or having links to PEPs or high-risk jurisdictions known for corruption or weak anti-money laundering controls, without a clear legitimate reason for the transaction
• Being associated with adverse media reports linking them to criminal activity or financial crime

Funds or Wealth Red Flags

The origin and nature of funds used in a real estate transaction are critical for scrutiny. Several red flags relate specifically to the money involved in the purchase.

A significant indicator is using large amounts of physical cash for deposits or other payments, particularly if attempts are made to structure cash deposits into amounts below the AUD 10,000 reporting threshold required for TTRs to AUSTRAC.

Further red flags concerning the source of funds include:

• Funds originating from multiple bank accounts or third parties, especially if these sources seem unrelated to the client or their connection to the transaction is unclear
• Money being transferred from offshore accounts or financial institutions located in high-risk jurisdictions known for banking secrecy or inadequate anti-money laundering controls, particularly when there’s no logical link to the client’s circumstances
• The stated source of funds or wealth appears inconsistent with the client’s known age, occupation, business activities, or overall financial profile
• The use of complex legal or corporate structures, such as shell companies or layered trusts (especially those registered offshore), for funding purposes where there is no apparent legitimate economic or business reason for such complexity
• Sudden, last-minute changes in the source of funding close to settlement, like the unexpected introduction of private loans, third-party financing, or unexplained offshore funds
• The use of virtual assets, such as cryptocurrencies, for payments, which can offer greater anonymity

Transaction Pattern & Structure Red Flags

The structure and pattern of the real estate transaction itself can reveal warning signs of potential criminal activity. Agents should be aware of deviations from standard market practices.

One common red flag is the rapid buying and selling of property, often called ‘flipping’, particularly if it involves inflated prices without corresponding improvements or occurs between related parties or entities.

Other unusual transaction patterns to watch for are:

• Requests for unusual fund flows, such as asking for deposit refunds or overpayments to be disbursed to unrelated third parties or directed to accounts different from the source
• Transactions involving unnecessarily complex structures, such as multiple properties being exchanged or numerous interconnected parties without a clear commercial justification
• The purchase price is significantly above or below the independently assessed market value without a reasonable explanation or negotiation
• Buyers purchasing high-value property without conducting normal inspections or due diligence, sometimes referred to as buying ‘sight-unseen’
• An unusual sense of urgency pressed by the client to finalise the deal, lacking a clear commercial driver
• The use of unconventional payment structures or settlement terms that deviate from typical industry practices
• Transactions involving individuals or entities known or suspected through reliable information to be involved in criminal activity
• Requests to cancel a transaction shortly after making a significant deposit, followed by a request for the refund to be sent to a different account or third party

Your Real Estate Agency’s AML/CTF Obligations Under Tranche 2

The AML/CTF Act & AUSTRAC’s Role An Overview

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) is Australia’s primary legislation to prevent criminals and terrorist groups from exploiting the financial system. It establishes a risk-based framework requiring regulated entities to identify, assess, and mitigate money laundering and terrorism financing risks.

AUSTRAC, the Australian Transaction Reports and Analysis Centre, serves a dual role under this Act as the regulator and the national financial intelligence unit. As a regulator, AUSTRAC oversees compliance by more than 17,000 reporting entities across various sectors. It provides guidance, monitors adherence to Anti-Money Laundering and Counter-Terrorism Financing obligations, and enforces the law through penalties and other measures.

In its intelligence capacity, AUSTRAC collects and analyses financial transaction reports—including Suspicious Matter Reports (SMRs) and TTRs—to detect patterns of illicit activity. This intelligence supports law enforcement agencies like the Australian Federal Police in investigating and disrupting criminal networks.

Real estate agents and related professionals are not fully covered under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). However, the upcoming Tranche 2 reforms will extend these obligations to real estate agencies, recognising the sector’s high vulnerability to money laundering and terrorism financing risks.

Your Real Estate Agency’s Key Obligations from July 2026

From 1 July 2026, Australian real estate agencies will become designated reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), requiring them to comply with new regulatory obligations. These include:

• Enrolment with AUSTRAC: Agencies must register their business and key personnel through the AUSTRAC Online portal to become recognised reporting entities.
• Developing and Maintaining an AML/CTF Program: Agencies are required to implement a tailored program that addresses their specific money laundering and terrorism financing risks. This program must include documented policies, procedures, and controls, such as risk assessments, governance structures, staff training, and independent reviews.
• Appointing an AML/CTF Compliance Officer: A senior individual must be designated to oversee the agency’s Anti-Money Laundering and Counter-Terrorism Financing program, ensuring effective implementation and compliance.
• Customer Due Diligence (CDD): Before providing designated services, agencies must identify and verify the identity of clients, including beneficial owners of companies and trusts. This process also involves understanding the source of funds and wealth, especially for higher-risk clients such as PEPs or those from high-risk jurisdictions.
• Ongoing Monitoring and Reporting: Agencies must continuously monitor transactions for suspicious activity and promptly report any suspicions to AUSTRAC by lodging SMRs. They will also be required to submit TTRs for cash transactions of AUD 10,000 or more, including cash deposits held in trust accounts.
• Record-Keeping: Detailed records of customer identification, transactions, and Anti-Money Laundering and Counter-Terrorism Financing program activities must be maintained for a minimum of seven years, ensuring availability for audits or investigations.

These obligations align with international standards and aim to close existing regulatory gaps that have allowed criminals to exploit the real estate sector.

Consequences of Non-Compliance for Your Real Estate Agency

Failure to meet Anti-Money Laundering and Counter-Terrorism Financing obligations under the Tranche 2 reforms carries significant risks and penalties. AUSTRAC has the authority to impose a range of enforcement actions, including:

• Financial Penalties: Corporations may face fines reaching millions of dollars, depending on the severity and nature of the breach.
• Criminal Liability: Individuals, including agency directors and officers, can be subject to criminal prosecution for deliberate non-compliance or obstruction.
• Remedial Directions and Enforceable Undertakings: AUSTRAC can require agencies to take specific corrective actions to address compliance failures.
• Reputational Damage: Public disclosure of enforcement actions can harm an agency’s reputation, losing client trust and business opportunities.

Given the serious consequences, real estate agencies must prioritise compliance and prepare proactively for the commencement of these obligations. Early adoption of Anti-Money Laundering and Counter-Terrorism Financing measures will help mitigate risks and position agencies to meet regulatory expectations effectively.

Practical Steps for Your Real Estate Agency to Mitigate Risks & Prepare

Developing Your Real Estate Agency’s Risk-Based AML/CTF Program

Developing a tailored Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) program is fundamental for real estate agencies preparing for Tranche 2 obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). This program must begin with a specific money laundering and terrorism financing (ML/TF) risk assessment, carefully considering the unique aspects of your agency’s business.

When conducting your risk assessment, consider factors such as:

• Your typical clientele (such as overseas investors or those using complex structures)
• The types of properties you handle (like luxury or commercial real estate)
• Your geographic market

The findings from this risk assessment should directly inform the creation of your documented AML/CTF program. This program serves as a roadmap, outlining the policies, procedures, and internal controls your agency will use to identify, mitigate, and manage the identified ML/TF risks.

Key components typically include:

• Documented risk assessment methodology and findings
• Internal controls designed to address specific risks
• Clear governance structures, including the appointment and responsibilities of an AML/CTF Compliance Officer and senior management oversight
• Procedures for ongoing monitoring of transactions and client relationships
• Arrangements for regular independent reviews (audits) to ensure the program’s effectiveness and compliance, often recommended at least every three years

Implementing Robust CDD for Property Clients

Establishing a clear and robust CDD, often called Know Your Customer (KYC), is a critical obligation for Australian real estate agents under the upcoming Tranche 2 reforms. These procedures are essential for identifying and verifying the identity of all clients involved in transactions, including buyers and sellers. Verification should rely on reliable and independent documentation or data sources.

A crucial element of CDD involves identifying the ultimate beneficial owner (UBO) when dealing with clients who are companies, trusts, or other complex legal structures. Simply identifying the director or trustee may not be sufficient; reasonable measures must be taken to understand who ultimately owns or controls the entity.

Furthermore, understanding the source of your client’s funds and wealth is vital, particularly in situations deemed higher risk, such as transactions involving:

• PEPs
• Clients from high-risk jurisdictions
• Large cash amounts or unusual payment methods
• Complex or opaque ownership structures

Agencies must maintain detailed records of all CDD activities, including identification documents, verification steps, beneficial ownership information, and source of funds inquiries, typically for a minimum of seven years.

Training Staff & Building Compliance Culture in Your Real Estate Agency

Creating a strong compliance culture within your real estate agency is essential for effectively mitigating money laundering and terrorism financing risks. This begins with comprehensive training for all relevant staff, including agents, property managers, and administrative personnel. Training programs should ensure employees understand their obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and are equipped to identify potential risks.

Key training topics should include:

• The fundamentals of money laundering and terrorism financing, and how they relate to the real estate sector
• Common methods criminals use to launder illicit funds through property
• Recognising red flags associated with suspicious client behaviour, funding sources, and transaction patterns
• The agency’s specific Anti-Money Laundering and Counter-Terrorism Financing policies, including procedures for conducting CDD/KYC
• Internal processes for escalating concerns and reporting suspicious matters to the designated AML/CTF Compliance Officer

Regular, role-specific training helps embed compliance into daily operations, fostering an environment where staff feel empowered and obligated to prioritise Anti-Money Laundering and Counter-Terrorism Financing measures and report suspicious activity appropriately without delay. This proactive approach is crucial for protecting the agency from facilitating criminal activity and meeting regulatory requirements.

Conclusion

Australian real estate agents face significant money laundering risks due to the sector’s vulnerabilities, requiring awareness of criminal methods like complex ownership structures, value manipulation, and misuse of funds, alongside vigilance in identifying red flags. Understanding and preparing for the upcoming Tranche 2 reforms to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), commencing 1 July 2026, is crucial for developing compliant Anti-Money Laundering and Counter-Terrorism Financing programs and robust customer due diligence processes.

To navigate these complex regulatory changes and safeguard your agency, contact AML House today for specialised legal and consulting services tailored to the real estate sector. Our experts can assist you in transforming these Anti-Money Laundering and Counter-Terrorism Financing compliance challenges into strategic opportunities, ensuring your business is prepared and protected.

Frequently Asked Questions