How Can Australian Real Estate Agents Prepare For AML/CTF Compliance?

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Introduction

Australian real estate agents are facing new obligations with the upcoming extension of anti-money laundering and counter-terrorism financing (AML/CTF) laws to the real estate industry.  These changes, stemming from the AML/CTF Amendment Bill 2024 and referred to as Tranche 2 reforms, will regulate real estate professionals as reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). This amendment is a significant shift, requiring real estate agents to understand and comply with new measures designed to combat money laundering and terrorism financing within the Australian real estate sector.

This guide is designed to assist Australian real estate agents in complying with these new obligations. It will provide essential information on what these changes mean for real estate professionals, the key AML/CTF obligations they will need to meet, and practical steps to prepare their businesses for compliance. Understanding these new regulatory requirements is crucial for all real estate agents to ensure they meet their legal obligations and protect their businesses from potential risks associated with non-compliance.

Understanding the Expansion of AML/CTF Laws to Real Estate Professionals

Why Real Estate is Now Subject to AML/CTF Regulations

The Australian real estate sector is now included under AML/CTF regulations due to its vulnerability to exploitation by criminals. Real estate transactions often involve high-value assets, which can be used to disguise the origins of illicit funds and integrate them into the legitimate economy. As a result, the real estate industry has become an attractive avenue for money laundering and terrorism financing activities.

Additionally, internationally, the Financial Action Task Force (FATF) has identified real estate as a significant channel for money laundering. Previously, Australia was one of the few countries within the FATF Global Network that had not regulated real estate agents under its AML/CTF regime. However, aligning with international standards and addressing gaps in legislation have been key drivers for these regulatory changes. The amendments to include real estate professionals are designed to strengthen the integrity of the Australian property market and prevent its misuse for illicit purposes.

Who in the Real Estate Industry is Impacted by Tranche 2?

The expansion of AML/CTF laws, often referred to as Tranche 2 reforms, will impact various professionals within the real estate industry. Specifically, these reforms target those involved in brokering or directly facilitating property transactions. The following roles within the real estate industry are considered ‘Tranche 2 businesses’ and will be obligated to comply with the new obligations:

• Real estate agents: Brokers who facilitate the sale, purchase, or transfer of real estate on behalf of clients as part of their business operations. This includes traditional real estate agencies and similar intermediary businesses involved in property transactions.
• Buyer’s agents: Professionals who work on behalf of purchasers to locate and broker property acquisitions. Like real estate agents, they play a role in facilitating real estate transactions and will fall under the new AML/CTF obligations.
• Property developers: Businesses that engage in the direct sale or transfer of real estate without utilising an independent real estate agent. This category includes developers who sell properties they have developed directly to buyers.

These categories of real estate professionals will be considered reporting entities under the amended legislation and must comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).

Key AML/CTF Obligations for Australian Real Estate Agents

Enrolling and Registering with AUSTRAC

Real estate professionals who provide newly regulated services must enrol with the Australian Transaction Reports and Analysis Centre (AUSTRAC). Additionally, virtual asset service providers are required to register with AUSTRAC. To ensure you stay informed about when enrolment and registration become available, it is recommended to subscribe to updates on AML/CTF reform.

Enrolment involves providing essential details about your real estate business, including:

• Business Structure: Outline the organisational framework of your business.
• Services Offered: Specify the regulated services you provide.
• Key Personnel: Identify the main individuals responsible within your business.
• Contact Information: Provide accurate and up-to-date contact details.

It is crucial to keep this information current and notify AUSTRAC of any changes promptly. Real estate agents must enrol with AUSTRAC within 28 days of commencing to provide regulated services to avoid potential penalties. 

For those providing newly regulated designated services, the new laws commence on 1 July 2026, meaning enrolment must be completed by 29 July 2026. Virtual asset service providers have a slightly different timeline, with obligations commencing on 31 March 2026 and enrolment required by 28 April 2026.

Virtual asset service providers have an additional step: they must apply to register with AUSTRAC and be registered before providing designated services. From 31 March 2026, it will be prohibited to provide virtual asset-related designated services until AUSTRAC confirms registration. Non-compliance can result in criminal penalties.

Developing and Maintaining an AML/CTF Program Tailored to Your Business

An AML/CTF program is essential for protecting your real estate business from exploitation by criminals involved in money laundering, terrorism financing, and proliferation financing (ML/TF/PF). It serves as a critical tool for meeting your AML/CTF obligations and contributes to a more secure Australian financial system. 

Your AML/CTF program must be:

• Documented and Approved: Ensure the program is formally documented and approved by a senior manager.
• Regularly Updated: Reflect any changes in your business and incorporate risk assessments from AUSTRAC.
• Independently Evaluated: Conduct evaluations at least once every three years to ensure effectiveness.

A comprehensive AML/CTF program must include two key components:

1. ML/TF/PF Risk Assessment: Identify and evaluate the specific risks of money laundering, terrorism financing, and proliferation financing that your real estate business may reasonably face when providing its designated services.
2. AML/CTF Policies: Develop and maintain policies, procedures, systems, and controls that effectively manage and mitigate the identified risks. These policies must ensure compliance with all AML/CTF obligations and be appropriate for the nature, size, and complexity of your operations.

Effective governance arrangements are also necessary for your AML/CTF program. This includes:

• Oversight from Senior Management: Ensure that a governing board or senior management oversees the AML/CTF program.
• Qualified Compliance Officer: Appoint a qualified AML/CTF compliance officer responsible for the day-to-day implementation of the program. For sole traders, these responsibilities can be managed directly by the individual.

Real estate businesses seeking to share compliance costs may consider participating in a reporting group, if eligible under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and Rules. This allows entities to share risk management and compliance arrangements, including a group AML/CTF program established by a lead entity.

Conducting Customer Due Diligence (CDD)

Customer due diligence (CDD) is a fundamental obligation that helps real estate agents understand their customers and the potential money laundering, terrorism financing, and proliferation financing (ML/TF/PF) risks they may pose. The AML/CTF Act outlines different levels of CDD, each tailored to specific risk scenarios.

Initial Customer Due Diligence is required before providing a designated service. It involves establishing and verifying key information about a customer to mitigate ML/TF/PF risks from the outset of the business relationship. This includes verifying:

• Customer’s Identity: Confirm the identity of the customer.
• Sanctions Status: Determine whether the customer, any beneficial owner, or agent is subject to targeted financial sanctions, either domestically or internationally.
• Politically Exposed Persons (PEP): Assess if the customer is a PEP, holds a prominent public position, or is a close associate or relative of a PEP.

Ongoing Customer Due Diligence involves continuous monitoring of the customer relationship to manage evolving ML/TF/PF risks. This includes:

• Monitoring Transactions: Keep an eye on transactions and behaviours for any suspicious activities.
• Updating Risk Profiles: Regularly update the customer’s ML/TF/PF risk profile in response to specific triggers or events.
• Reviewing Customer Information: Continuously review, update, and re-verify customer information as necessary to maintain accuracy.

For customers who were clients before the commencement of the new obligations (‘pre-commencement customers’), there is no immediate requirement to conduct initial or ongoing CDD. However, CDD becomes necessary if:

• A Suspicious Matter Report (SMR) is required to be filed for the customer.
• There is a significant change in the business relationship’s nature or purpose, leading to a medium or high ML/TF/PF risk assessment for the customer.

Reporting Suspicious Matters and Transactions to AUSTRAC

Reporting certain transactions and suspicious activities is a critical obligation for real estate agents. This process is essential for maintaining the integrity of the financial system and assisting law enforcement in combating crime. Real estate agents may be required to submit several types of reports to AUSTRAC:

• Suspicious Matter Reports (SMRs): Submit these reports when there is a reasonable suspicion that a person is not who they claim to be or if a transaction or activity is linked to criminal activity or the proceeds of crime.
• Threshold Transaction Reports (TTRs): Required for transactions involving physical currency of AUD 10,000 or more.
• International Value Transfer Service (IVTS) Reports: Cover all international transfers of value transactions.
• Cross-Border Movement Reports: Necessary when physical currency or bearer negotiable instruments, valued at AUD 10,000 or more, are moved into or out of Australia.
• Annual Compliance Reports: Provide a summary of how the real estate business has met its AML/CTF obligations throughout the previous year.

Timely and accurate reporting is crucial to comply with AML/CTF regulations and avoid potential penalties.

Making and Keeping AML/CTF Records

Maintaining accurate and complete records is a fundamental AML/CTF obligation for real estate agents. Records must be kept for a minimum of seven years and serve as evidence of due diligence, risk management practices, and overall compliance with AML/CTF obligations. The types of records that must be created and retained include:

• AML/CTF Program Records: Documentation related to your AML/CTF program.
• Customer Due Diligence Records: Records of all CDD processes performed.
• Transaction Records: Detailed records of all transactions conducted.
• Staff Training Documentation: Records of any staff training sessions on AML/CTF compliance.
• AML/CTF Audit Results: Documentation of the results from any AML/CTF audits conducted.

Ensuring diligent record-keeping not only supports compliance but also provides a clear audit trail in the event of an investigation.

Preparing Your Real Estate Business for AML/CTF Compliance

Undertaking a Money Laundering and Terrorism Financing Risk Assessment

Real estate agents should begin preparing for the new AML/CTF obligations by conducting a comprehensive money laundering and terrorism financing risk assessment. This initial step is crucial for understanding and identifying the specific risks your business may encounter. According to guidance from the Financial Action Task Force (FATF), the assessment should encompass all facets of your operations.

Key areas to consider in the risk assessment include:

• Clients: Evaluate the potential money laundering and terrorism financing risks associated with different types of clients.
• Properties: Assess the risks linked to the properties being managed or sold, considering factors like location and value.
• Financial Transactions: Analyse transaction processes to identify vulnerabilities that could be exploited for illicit activities.
• Related Activities: Examine other business activities that might present money laundering or terrorism financing risks.

By undertaking a thorough risk assessment, real estate agents can establish a solid foundation for developing an effective AML/CTF program tailored to their specific business needs.

Reviewing and Enhancing Identity Verification Processes

Real estate agents are encouraged to evaluate and enhance their current client identity verification methods. The introduction of Tranche 2 AML/CTF obligations necessitates a more stringent approach to customer due diligence. Currently, practices within the real estate industry vary significantly, ranging from informal methods to manual checks.

To meet the new regulatory standards and ensure robust compliance, consider implementing digital Verification of Identity (VOI) solutions. These solutions offer several advantages:

• Enhanced Security: Digital VOI solutions utilise advanced technologies to minimise errors and improve the detection of fraudulent documents.
• Efficiency: They streamline the identity verification process, saving time and resources compared to manual methods.
• Compliance Assurance: These systems are designed to adhere to regulatory requirements, providing necessary audit trails and reporting capabilities.

By upgrading to digital VOI solutions, real estate agents can ensure they meet the enhanced Customer Due Diligence (CDD) requirements under the amended AML/CTF legislation.

Implementing Staff Training and Awareness Programs

Implementing comprehensive staff training and awareness programs is essential for real estate businesses preparing for AML/CTF compliance. Educating all team members about the new obligations is critical to fostering a culture of compliance within the organisation. These programs should emphasise the importance of understanding and mitigating the risks of money laundering and terrorism financing.

Effective training should cover several key areas:

• Understanding New Obligations: Staff must be fully informed about the new AML/CTF Tranche 2 amendments and what these obligations mean for their roles.
• Identifying Risks: Training should equip staff to recognise potential money laundering and terrorism financing risks in their daily activities.
• Reporting Suspicious Activities: Employees need to know how to identify and report suspicious transactions or client behaviours promptly and correctly.

By investing in thorough staff training, real estate agencies can ensure their teams are well-prepared to meet their new AML/CTF responsibilities and contribute to preventing financial crime within the real estate sector.

Consequences of AML/CTF Non-Compliance for Real Estate Agencies

Civil Penalties for Breaching AML/CTF Obligations

Real estate agencies must understand that failure to comply with anti-money laundering and counter-terrorism financing (AML/CTF) obligations can lead to significant civil penalties. Breaching these obligations is a serious matter, and the penalties imposed can be substantial, as seen in other sectors already regulated under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). These penalties are designed to act as a deterrent and underscore the importance of adhering to AML/CTF regulations.

Examples of substantial civil penalties in Australia highlight the potential financial repercussions for non-compliant entities. Consider these significant penalties awarded in recent years:

• Westpac: Faced a penalty of $1.3 billion for failures related to reporting international funds transfer instructions.
• Commonwealth Bank: Incurred a $700 million penalty due to failures in reporting threshold transactions received through intelligent deposit machines.
• Crown: Was penalised $450 million for AML/CTF program deficiencies and ongoing customer due diligence failures at its Melbourne and Perth casinos in July 2023.
• SkyCity Adelaide: Received a $67 million penalty for systemic non-compliance issues.

These examples demonstrate that civil penalties for AML/CTF breaches can reach hundreds of millions, and even billions, of dollars. The AML/CTF Amendment Bill 2024 introduces new civil penalty provisions, including penalties for governing bodies that fail to exercise appropriate oversight or take reasonable steps to ensure compliance. Therefore, real estate agencies must prioritise establishing robust AML/CTF programs and adhering to all obligations to avoid facing similar severe financial penalties.

AUSTRAC Enforcement Actions

Beyond civil penalties, AUSTRAC is an active regulator that employs a range of enforcement actions to ensure compliance with AML/CTF obligations. Real estate agencies should be aware that AUSTRAC’s regulatory toolkit extends beyond financial penalties and includes other measures to address non-compliance. These actions are intended to ensure that regulated entities rectify their AML/CTF shortcomings and operate within the legal framework.

In addition to seeking civil penalties, AUSTRAC has increasingly utilised enforceable undertakings against various reporting entities. Enforceable undertakings are legally binding agreements between AUSTRAC and a reporting entity, where the entity commits to specific actions to address identified compliance failures. AUSTRAC has recently secured enforceable undertakings from entities across different sectors, including:

• Banks
• Payment system providers
• Betting companies
• Bullion dealers

The use of enforceable undertakings demonstrates AUSTRAC’s proactive approach to enforcement. This indicates that AUSTRAC is prepared to take strong action against non-compliant entities in all regulated sectors, including the newly regulated real estate industry. Real estate agencies must recognise that AUSTRAC’s enforcement actions can extend beyond financial penalties to include legally binding commitments to improve compliance and risk management frameworks.

Conclusion

Australian real estate agents are now subject to new obligations under the AML/CTF Amendment Bill 2024, known as Tranche 2 reforms. These amendments will regulate real estate professionals as reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).  Understanding and preparing for these new obligations is crucial for Australian real estate agents to ensure compliance and safeguard their businesses from the risks of money laundering and terrorism financing.

These new obligations for Australian real estate agents include enrolling with AUSTRAC, developing a tailored AML/CTF program, conducting customer due diligence, and reporting suspicious transactions. To navigate these complex new obligations effectively, contact Client A today. Our specialised team offers proven solutions and unparalleled expertise in AML/CTF compliance for the real estate industry, ensuring your business is fully prepared and protected.

Frequently Asked Questions