Australia’s property money laundering disgrace

By Leith van Onselen

It appears international pressure on Australia to police money laundered into Australian real estate has finally spurred some action, with the second tranche of the reform to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, which would rope in accountants, lawyers and real estate agents (among other non-financial businesses), expected to be tabled in Parliament by the end of the year, according to The AFR.

Earlier this year, the Paris-based Financial Action Task Force (FATF) applied a blowtorch to Australia’s anti-money laundering (AML) regime, releasing a scathing report highlighting that Australian residential property is a haven for international money laundering, particularly from China, and recommending that Australia implement counter-measures to ensure that real estate agents, lawyers and accountants facilitating real estate transactions are captured by the regulatory net.

Under Australia’s existing AML regime, financial institutions like banks, casinos and bullion dealers are required to report suspicious activity, whereas other gatekeepers including those involved in real estate are exempted. This had led to the perverse situation whereby if somebody wants to set up an account to place a $100 bet at Sportsbet, or invest $1,000 into a managed fund, then they must provide sufficient identification under the AML Act. But if they want to launder millions of dollars through an Australian home, few questions are asked.

It makes absolutely no sense, and is part of the reason why foreign funds have gushed into Australia’s property market, particularly in Melbourne and Sydney, helping to price-out young Australians and adding to financial stability risks:

ScreenHunter_8437 Jul. 21 13.03

As noted recently by Nathan Lynch, Head Regulatory Analyst for Australia & New Zealand at Thomson Reuters:

AUSTRAC’s surveillance efforts are… being frustrated by the fact that money launderers will often use unregulated entities as a “first point of contact” to help disguise their source of funds. If a criminal makes a suspicious cash deposit into a real estate agent or lawyer’s trust account, for example, the suspicious transaction is not required to be reported to AUSTRAC. Reporting entities, such as banks, are required to report transactions of this type within three business days of forming a suspicion. Lawyers are only required to report threshold transactions under the legacy Financial Transaction Reports Act 1988, not suspicious matters, while real estate agents have no reporting obligations.

Separately, Lynch has noted that “politicians have been conspicuously evasive on their bipartisan commitment to follow through with a second tranche [of the AML legislation]… politicians are happy to turn a blind eye”.

It beggars belief that the Australian Government has gone to the effort and expense of launching attacks on foreign nations and monitoring citizen’s internet use, in a forlorn attempt to thwart terrorism and boost national security, but in the meantime has turned a blind eye to the billions of dollars of corrupt money flooding Australia’s property market, including from a Chinese firm involved in international arms dealing.

Enough is enough. It’s time to end nine years of neglect and bring Australia’s real estate gatekeepers into the AML net, as was intended when the legislation was first drafted in 2006. The politico-housing complex has protected criminals for long enough.

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Leith van Onselen
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Comments

  1. Not to worry! There’s won’t be much loot about to launder anywhere, very soon….

    Unsure what to make of the renewed disaster in Chinese trade figures….From Q3 2002 through Q3 2008, quarterly export growth was never less than +20%. For China, anything less than that is a disaster, especially at this late stage of the “recovery”, and at this point the country might need to see +40% or +50% to avoid broad oversupply liquidations….From September 2012 through September 2015, China’s exports grew by 10%; total, not per year. From September 2005 through September 2008, China’s exports grew 94%; that is the baseline upon which all of China, Inc. is based. All the internal “stimulus” and monetarism was never aimed at changing that, instead it was designed to be a bridge between the collapse in 2009 and the ‘full and steady recovery’ that every economist and central banker around the world assured the world was coming.

    http://www.alhambrapartners.com/2015/10/13/china-trade-figures-starting-to-matter/

    Liquidation of foreign assets parked here and there; from Soverign Wealth portfoliuos to private property holdings is coming to an economy near us all as we all try to balance our books at the same time…..

    • That’s silly!!! Everyone knows Balance of Trade figures don’t matter! CAD’s don’t matter!! Foreign debt doesn’t matter!!! Selling the bloody country off to pay for our excess consumption doesn’t matter!!
      You’re being silly

      Everyone knows all we need to do is make nominal IR’s negatve given RAT rates habve been negative for decades!
      Print baby! PRINT! Money for the masses that’s all we need! PRINT!! PRINT!!! We can pay for everything just by printing and lower IR’s! Get with it! This is modern economics – you’re so out dated!

      As an aside…..For anyone thinking China is going to run out of foreign funds – to add to their store of over 3TRILLION USD they had a Current Account Surplus of USD76.6 BILLION in Q2 to add to their store of virtual toilet paper! They’ll continue to want to be exchanging it for real assets somewhere and with our farms, mines and houses going cheap, combined with our ‘Don’t give and eff attitude – just give us what we want now’ we can expect that the Chinese flow of funds will continue heading our way.

      So MB and the likes of fellow clowns like Bill Evans et al are trumpeting lower IR’s to give us a combination of an A$ in the cellar, waaaaayyyy negative RAT interest rates, no alternatives left as far as macro policy goes other than a RE/Population ponzi and we’re thinking that real estate in Sydney and Melbourne is going to crash??????
      Maybe we ain’t seen nuthin yet!!!!!

      • As a wise man once said: there is nothing more futile than searching for a black cat in a dark room; especially when there is no cat.

        How long before RE starts offering settlement in hedged bitcoin?

  2. Raschist! Criminals who belong to minorities should be let off to avoid the appearance of raschism!

    Boys who shoot innocent people should be treated as victims of they belong to a minority group.

    Is this where we are at?

  3. The Chinese rats fleeing the sinking ship are pouring money into RE in numerous countries, not just Oz. Are any other countries handling the issue better?

    • Not necessarily on the RE thing but the implication of the Paris report seemed to be that we were worse at preventing money laundering than many other OECD countries which is a much wider issue than foreigners pumping up RE prices.

  4. Sometimes it is almost comical how desperate the politico-housing complex is to keep the money pouring in… in the sense of sheer absurdity.

    Can’t take out 10k cash without a nod to the gvt… can secret three million into a house no questions asked.

  5. OK call me clueless but FIRB rules aside what EXACTLY is illegal about these RE transactions?

    Are you suggesting that Chinese businessmen arrive in Australia with a suitcase full of RMB and attempt to buy a house paying Chinese cash? Really?

    Are you suggesting that the same businessman arrives in Australia with a suitcase full of Aussie dollars and buys a house?

    Are you suggesting a chinese drug mule arrives with a suitcase full of Meth exchanges it for a suitcase full of Aussie dollars and buys a house with the proceeds?

    Seems to me that in almost all other cases the funds for the house are transferred through the international banking system just like with any other commercial transaction. What’s different about housing vs any other commercial transaction that we need special laws that reveal the “source” of the funds? Seriously what would an RE agent do with the information if they had it. Lets assume an international arms dealer buys a house in Mosman, so what? In the end the seller gets real dollars and the RE agent gets their commission, where is the “crime” as regards the Australian transaction. What Illicit transaction will you have the AFP search for? Same goes for rich Chinese businessmen buys Sydney house and transfers money from a Caymen islands trust controlled from a HK bank. It’s real money…if a crime ever occurred it has to do with how the funds got into that Caymen islands account, not with how they left the account…. which is all the Australian gov’t will ever see.
    As I said call me clueless!

    • @UE Leith mate if you really want to understand the reasons why wealthy Chinese are establishing Caymen Islands Irrevocable trusts and controlling them through HK companies / banks you’ll need to understand the reasons for establishing the trusts. If you like I can give you some good HK “private banking” contacts but to be honest GS has the best Chinese private banking diversion in the game.

    • Sorry China-Bob, you said to call you clueless…

      I too am aware of many of the back-door methods that can be used to get funds out of China, from Guang Zhou BoC branch looking the other way for certain “friends” to the role HSBC plays in HK, to the HK trusts controlling shells in more than just the Caymans to “I need Yuan and you need USD so lets get together and do a swap” arrangements. Casinos in Macau are also a big avenue for laundering. It is all about the source of funds or as a Chinese high court judge I know says – “Where are the official tax receipts for funds, not these counterfeit receipts you bought off the Bund”.

      • You sound like a man who has played the game or at least had some lessons.
        I’d completely forgotten about buying fake tax reciepts on the Bund, shows you how out of touch i am.
        All I’m saying is that there are legimitate reasons why businessmen use these opaque Private Banking structures, very often they do skirt around some aspect of Tax law somewhere (Probably not Australian tax law) however you can be certain theres a room full of internationsl laywers employed to make sure everything stays a gnats whisker on the lawfull side of the line.

      • Friends in high places

        Agree – it served a purpose for the central government under previous leaders but Xi has a different view on it (or so I am told repeatedly by the party faithful). AML is something I have fought hard too avoid knowing to much about (a close friend owns a company that does the automated checks for the banks for Know Your Client) but it is clear that it is not just China, but Malaysia, Vietnam (think corrupt generals who funnel money into Oz property and UK property that I am aware of and nothing done by Oz authorities), Cambodia and Thailand. And these are the areas I am aware of hot funds from. I know some transactions go Vietnam -> China -> Oz -> US just to clean money so person can get US green card.

      • I was just remembering a HSBC presentation that I got a few years ago. The sound track was a slightly modified Tina-Turner song and went something like:

        All the men come in these places
        And the men are all the same
        You don’t look at their faces
        And you don’t ask their names
        You don’t think of them as human
        You don’t think of them at all
        You keep your mind on the money
        Keeping your eyes on the wall

        I’m your private banker, a banker for money
        I’ll do what you want me to do
        I’m your private banker, a banker for money
        And any old music will do

      • Having children studying in Australia to buy the property for the family is an oldie but a goodie…the naïve think that Chinese and Indian students are studying here because they actually want to learn hospitality or any of the other micky mouse training provider (non Uni) courses out there.

    • Even StevenMEMBER

      China-Bob

      Oxford definition of money laundering.

      The concealment of the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses.

      Whether a crime has occurred is unknown. Because we don’t check. Unless you are supportive of money laundering, I fail to understand your position.

      • CB is saying personal morals aside,firsty that how the hell do you check every transaction through this maze? Secondly even if you can you are likely to end up with a legitimate structure of some sort. You may not like it but that is the fact.
        I deal with many companies in China who have offices in HK and the keep USD there. Where they move thjem and why I’ve no idea but they ARE legitimate dollars earned by enterprises.

        THEN back to my posts of yesterday and today…the Chinese have 3 TRILLION USD they need to get rid of. As well they accumulated a further surplus of $76.6 BILLION of them in Q2 alone.
        As long as we are prepared to sell our businesses farms mines and houses it WILL keep coming here.
        If we aren’t prepared to flog off our children’s future this economy is going to collapse in a way that almost nobody can imagine.
        Choose your poison!

        P.S. I’m not commenting on the flouting of Aus Law. I’m commenting on the notion that we can check the money source and judge it to be corrupt.

      • @ES I dont support money laundering BUT if laundering occurred it occurred before the Aussie RE transaction. The laundering occurred within the international banking system the Aussie RE purchase was likely the end sequence of the laundering rather than being a part of the laundering process.
        If verification of the origin of funds was required it needs to happen at the banking level otherwise I’ll just add one more hop to satisfy what ever depth of search our Aussie RE purchase rules come up with. To be clear I dont support illegal transactions but I do understand how they’re done.

      • Ultimately residential RE transactions involving non-residents are unnecessary. The onus should be on the purchaser to prove the money is clean.
        Currently if a drug dealer tries to launder $5000 at Sportsbet or Crown they are under more scrutiny than if they try to launder $500,000 or $2mill via real property transactions.

      • FFS! CB makes a factual observation and he gets this personal abuse crap. Can’t we leave it out?

      • What was it that Dubya said “you’re either with us or against us” stupid me I always assumed the us was meant to be GS because that’s the only way i can make any sense out of the resultant financial transaction rules.

      • Flawse,

        That bob tries to rationalize decades of intentional low ethical behavior, which was spurred on by the Usual Suspects, under the guise of certain schools of economic thunkit [payed propagandists] is just par for course.

        Skippy… you idgits bang on about “money illusion” and “human nature” or stuff was stolen 50ish years ago but for the life of you can’t articulate a factual argument. Want to know why its all so screwed up – ???? – you and bob should go look in a mirror… and get a psych evaluation.


      • CB makes a factual observation

        There were no facts in CB’s ramblings, or anything purporting to be a fact.

      • Not sure either of you blokes actually read what CB said or you just read some of the words that suited your what you wanted to derive from it.

      • Flawse,

        Read it and stand by my statement e.g. this is more than a banking issue as all things flow from the econ schools to gov, law, reg, banking.

        Skippy… hard to reconcile an opinion from someone that admits to sealing for a day job and on the other hand white wash money laundering.

      • Geeze Skip mate….Fair suck on he sauce bottle….next thing I know you’ll be blaming me for AWG and the up coming El Nino.
        familiarity with the inner workings of some somewhat opaque international financial structures doesn’t make me a war criminal anymore then it makes me a drug dealer, I’m simply a somewhat financially literate individual.
        I’m also sufficiently introspective to see the reality of the completely legal financial tools and methods that I use on a daily basis, maybe a little introspection is what’s actually missing from your righteous ramblings. One of the big differences that I see between Eastern and Western philosophy is that all western philosphy struggles with the morality question whereas most Eastern philosophy struggles with the reality question. I’ve lived a few too many places to simply don my Judeo/Christian glasses and judge the world, frankly I’ve got not time for that I’d rather examine my own actions and the role they play in the betterment of this world.

      • Philosophy died some time ago, I guess you did not get the memo see Einstein vs Bergson.

        Must be great having vapors to rationalize your lack of altruism.

        Skippy…. American psycho is relative here… as Hayek said… paraphrasing – price cannot be a hostage.

    • “During the 1970s and 1980s, a number of Royal Commissions exposed links between criminals who engaged in activities such as major tax evasion, fraud, organised crime and drug trafficking, and money laundering techniques. These links were not unique to Australia and there was growing concern in government and law enforcement circles about the size of the problem globally. The Financial Transaction Reports Act 1988 (FTR Act) received Royal Assent on 15 June 1988. While the FTR Act was very effective for many years, globalisation and rapid technological changes meant reforms were necessary to bring Australia’s regulatory regime into line with international best practice to deter money laundering and terrorism financing (ML/TF).”
      “So nearly three years after the Second Tranche was mooted what we are left with is half an AML/CTF regime and a virtual roadmap for criminals and terrorists as to which industries they should target.”

      That was written five years ago.

    • Seems anti money laundering measures are more targeted towards locals than the Chinese. We know there are lots of drug money being laundered through the Aussie real estate, and Chinese money are not involved in that. Local Aussies are the true target of AML.

      Only source of Chinese money that might get caught up in AML are probably embezzled money from escaping Chinese officials, but they don’t make up majority of the Chinese birds.

      • Also, property is the favorite way for those cash only businesses to launder their undeclared income.


      • Local Aussies are the true target of AML

        Which is a good thing if they are involved in organised crime. It’s laughable for politicians to talk of, for example an ‘ice scourge’ without strong AML laws which make it difficult for drug wholesalers to collect their profits, just as it’s laughable to drone on and on about boat turn backs without strong AML laws which ensure that people smugglers are unable to use Australian assets to launder their profits.

    • China-Bob, I find you posts interesting to read but this is just idiotic. It is a known problem in Oz and other places the real estate is used to ‘launder’ money. Governments turn a blind eye as they want the capital flowing in as their productive capacity is crap.

      • OK let me start again because most of you seem to be missing my simple point.
        My point is that the purchase of Aussie RE is the final stage of the laundering process so by design the money looks clean at this stage, this stage -1 it probably also looks clean, stage -2 …who knows.
        Second point: this opaque money will almost always be clean wrt any Australian crime so the AFP can investigate all they please they’ll never find a crime they can prosecute…its a jurisdictional issue
        Third point: Even if the AFP invests their resources they probably wont be able to identify the “crime” that this structure was used to obfuscate. In most cases if you dont know why a structure exists it’s hard to guess what law it;s skirting around…the structure might be an estate planning tool, it might be a sort of transfer pricing thing for keeping legitimate business proceeds earned outside China also outside of their view. Sometimes structures are used to enable complex forms of insider derivative trading a sort of invisible hedged bet. How would you expect any AFP investigator to know all the possible laws covering many countries that may or may not have been violated by this structure. Furthermore what would he/she do if he/she did discover a violation? Seriously what would he/she do? Specifically wrt Chinese transactions you need to be VERY aware of whose toes you might be stepping on.

      • The point of AML law is not to uncover the original crime that may have generated the money. It’s to identify money that has no apparent legitimate source and make it difficult/impossible to use.

        Your position is like saying that if a bunch of people turn up at a hotel and take a body-sized bag out of the boot of their car and carry it up to their room, the guy at reception has no reason to tell anyone because he has no way of knowing whether it really is a body in the bag, if it is, how it got there and whether or not that was a crime. I mean, it could just be someone carrying out a complicated kidnap fantasy, right ?

      • OK OK clearly I’m the Dummy in the room, please oh wise ones tell me how this is supposed to work.
        Give me some clear guidelines that an honest RE broker could use to vet the source of international funds. Also since UE keeps referencing the ABC hackjob please give specific examples of illicit Chinese funds used in the purchase of Ausse Re AND demonstrate how these transactions should be vetted. In all honestly I want to know.

      • As I said before, purchase of residential property by persons domiciled in other countries is unnecessary – the onus should 100% be on the purchaser to prove the pedigree of the money, not on the vendor or their agent.

        An honest RE broker would be one that never excepts funds from overseas for a RE purchase without an indication of FIRB approval. According to the Foreign Takeovers Act, that approval is not to be given without following the money to its ultimate source in order to establish true ownership (and hence nationality), which isn’t the end of the matter but some kind of start.

        For the rest, as Patrician observes below, what is required is simply that funds for RE purchases are scrutinised to the same standard as funds for any other asset purchase. What possible reason could there be for not applying that scrutiny?

        UE might reference Chinese RE purchases or whatever, but whether or not a single RE purchase has occurred with laundered money (and there certainly have been as there have been prosecutions) is not strictly relevant nor is the nationality of the money launderers – there’s supposed to be a fence (in terms of anti-money laundering legislation), the fence has a hole (less scrutiny is applied to money used in purchasing RE than to other money, with no particular justification), the hole needs to be fixed BEFORE someone gets through the hole, not after.

        Your argument appears to be that the fence is insufficient so we shouldn’t fix the hole. Of course we should – the insufficient fence will still work on some occasions, and knowing that the breach is there will attract people who could get around the fence with some effort, but are pleased to go to less trouble.

        Also if a decision has been made not to scrutinise RE purchases wrt dirty money, not much dirty money is going to be found – the police in Amsterdam don’t prosecute many people for possession of small quantities of cannabis, but that doesn’t mean that no one in Amsterdam has any cannabis about their person…

  6. The legislation will be present to politicians in Canberra, where it will be watered down full of holes then delayed thru senate committees. In the mean time, the housing industry will swing into gear, a combined force of State Governments, HIA, immigration agents, accountants and lawyers will lobby for further watering downs and holes.

  7. Fingers crossed. Amnesty/reward period should be offered to “complicit” agents/lawyers/accountants to assist with retrospective application of money laundering laws and subsequent confiscation of the property in guilty verdicts.

    • Yes, let’s get those drug dealers, cash business owners, and dodgy construction contractors. It’s not often reported, but they are probably one of the biggest launderers through real estate.

      Then, there are the foreign investors with embezzled money.

      • All of the above Kevin, absolutely! They are all criminals, all deserve jail, all deserve confiscation of their proceeds of crime “wealth” and all should be liable to pay for their own prosecution and jail time expenses even if this debt takes a lifetime to pay back to the government.

        My statement was meant to convey an opportunity for complicits to turn informant with benefits of amnesty and potentially $ to assist with fast tracking the much needed clamp down.

  8. The questions isn’t “Why have AML/CTF laws?” but rather “Why have RE transactions been specifically excluded from the AML/CTF laws?”

    Why has no one asked the Attorney-General this question?

    Why has the Attorney-General left the door wide open on Terrorist organisations laundering cash and financing their operations through Australian RE?