Aussie real estate corruption exposed

Max Opray, Schwartz Media’s morning editor, has done a terrific job summarising real estate corruption exposed by the Pandora Papers document leak, which show an array of Australian properties that have been secretly purchased by hidden overseas entities with links to corruption.

In a nutshell:

  • Four large-scale farms in Tasmania were bought by two Australian companies funded by a Canadian, who in turn sourced the money from a oil company connected to money laundering in Nigeria, according to the ABC.
  • A Sri Lankan power couple has been linked to alleged misappropriation of government funds used anonymous offshore trusts to buy two Sydney luxury apartments.
  • Chinese steel baron Du Shuanghua, who has been implicated in a bribery scandal to secure a Rio Tinto contract, used a Singapore company to buy hundreds of millions of dollars worth of commercial real estate in Sydney, according to The AFR.
  • Experts have called for the Morrison Government to follow through on plans it proposed years ago to implement a register of ultimate beneficial owners (UBOs) behind companies.
  • Treasurer Josh Frydenberg told Four Corners the federal government is working to consolidate Australia’s business registers, which will “enable the development of a beneficial ownership register”.
  • Labor Senator Deborah O’Neill responded to the Pandora Papers leak by calling for long-delayed reforms to enforce stricter requirements on accountants to report suspicious transactions.

None of this is surprising given the federal government has refused to implement global anti-money laundering (AML) laws pertaining to real estate gatekeepers, thus making Australia a haven for money laundering criminals.

As noted by Transparency International Australia (TIA) in last month’s submission to the Senate Inquiry into the adequacy and efficiency of Australia’s AML-CTF regime:

The FATF has said Australia is seen as an “attractive destination for foreign proceeds, particularly corruption-related proceeds flowing into real estate, from the Asia-Pacific”.

Our weak AML/CTF legislation and enforcement, favourable liquidation processes and a stable banking system creates a ‘perfect storm’ for criminals. Australia’s Doors are Wide Open…

The real estate sector has continually been identified as a weak spot and a large compliance hole in Australia’s AML/CTF regime.

Large sums of illicit funds can be concealed and integrated into the legitimate economy through real estate. Criminals may be drawn to real estate as a channel to launder illicit funds due to the ability to buy real estate using cash, to disguise the ultimate beneficial ownership of real estate, the relative stability and reliability of real estate investments, and the opportunity to renovate and improve real estate, thereby increasing its value…

The AUSTRAC said in a 2015 report that the laundering of illicit funds through real estate was “an established money laundering method in Australia”…

Criminality finds opportunity. Australia’s system provides opportunity through its inability to meet the FATF recommendations and to keep up with emerging ML issues and with the variety of ways that money is laundered. Systemic and large-scale breaches have occurred – undetected by the AUSTRAC in recent years…

Australia has been considering passing the second tranche of its AML/CTF Act since 2006. Australia must extend the AML/CTF legislation to cover DNFBP professions as the current rules are not enough to prevent ML/TF…

To support the AML/CTF regime, Australia needs to also implement a publicly accessible centralised beneficial ownership register…

Australia needs to keep up with global developments to prevent it becoming even more of a hotspot for the world’s dirty money…

This farce has been going on for most of my professional life. When I worked at the Australian Treasury between 2003 and 2006, the FATF developed global AML rules which Australia committed to implementing in 2006. Some of my Treasury colleagues in the International Economy Division worked directly on the issue.

Fifteen years later, we are still waiting for the Tranche 2 AML rules to be applied to real estate gatekeepers (i.e. real estate agents, accountants and lawyers). Over that time, Australia has become one of the world’s worst laggards on AML and our property market has become one of the worst havens for dirty money.

The federal government conducted stakeholder consultations on AML in 2008, 2010, 2012, 2014, and 2017. And each time the rules were put into the ‘too hard’ basket and postponed.

So don’t expect anything to change. Shadowy “vested interests” negatively impacted by reforms will push back and will get their way. In the property narco state of Australia, corruption wins every time.

Unconventional Economist


    • C'est de la folieMEMBER

      The simple answer is ‘No we do not allow foreign nationals to buy Australian real estate, and we do not allow foreign companies or even Australian companies without identifiable Australian beneficiaries to buy Australian real estate either.’

      And any entity wishing to dispute a ruling on the subject can have their books audited by the pinecone up the sphinctre Unit of the Corruption Proceeds Monitoring Section of whatever regulatory and policing Department we like.

      Though they could rent at any time, subject to visa requirements……

      I have been at MacroBusiness for about ten years now, commenting and writing in any given month about the role that laundering corruption proceeds from offshore adds to buyer demand (and prices in particular areas – particularly Sydney and Melbourne).

      That it has taken this long for a government to approve the anti money laundering laws recommended circa 2008 and which include reference to real estate is simply explicable with no other narrative than that the government and relevant public sector authorities know precisely what is going on with regards to laundering corruption proceeds in Australian real estate, and simply dont want to do anything about it.

  1. Amazing how the ATO can data mine the F out of an unemployed person, and drive them to suicide on the robo debts…but can’t data mine the corrupt!

    • Much more obscured is what I gather, but yes surely other countries solve this problem via certain checks and balances. I’d love to know which countries do a really good job of stopping the super wealthy from hiding or stashing their gains in real estate in their countries. Clearly Australia has chosen to not do this and the rot starts at the head which is the Fed Government and Liberal party.

      This actually makes me want to vote Green. 😀

    • Knocking over the disadvantaged or financially insecure brings successful prosecution kpis up. Not to mention what I imagine in Australia is the career limiting move of chasing a large, cashed up and most importantly, well connected, defendant.

      I think the US overcomes some of this by promoting younger prosecutors with ‘big wins’ to DA status – but I may have watched too many US movies. Setting up an incentive system like that also requires a lack of rot at the head of the fish which we clearly don’t have nor will ever have without a toothy fed icac

  2. Why don’t we, as a nation, compile a list of jurisdictions that are known to be exploited for tax evasion and corruption, and make them unrecognised in Australian tax law. Thus any money into or out of them is taxed at 50% or some other arbitrary rate that makes their use pointless?

    Just say NO.

    Aren’t we a “zero tolerance” nation?

  3. Ailart SuaMEMBER

    A toy monkey on a stick would know the federal government’s not serious about implementing AML. Even the ‘stick’ knows. Our deep rooted ‘convict culture’ lives on. Is it any wonder people don’t trust governments enough to get the jab. The hole they’ve dug for themselves is so deep they’re almost through to China.

    • Spot on. Given a choice between following advice provided by the Austalian government and advice provided by Satan, I’d choose the latter.

      They have no credibility or moral capital whatsoever. The sensible default choice is to believe that everything they say is spin and bullshido, largely aimed at lining their pockets.

  4. 1. ATO data-matching getting really really good.
    2. Also now tie in to state Revenue Offices and ASIC
    3. They are now starting to go back and with history visit developers using main res etc. so suspect will find some “developments” going forward
    4. they do investigate a lot on HNW but as with anything in Aus – if you have the funds to fight … and its often kept out of the papers unless or until goes to court.
    5. I suspect not everything done in Pandora Papers is illegal in Aus or other countries (I don’t have privy to the info or various taxpayers and their structures and more often than not the MSM get it wrong or is selling papers driven rather than what is legal or not) That is not to say legal = moral. Anyhow – we will leave Baker Mc to deal with it (since seems their name all over much of it). Guess they will score mega fees resolving it all.

  5. Camden HavenMEMBER

    Rewrite laws including the tax code with a strict list of permissible transactions. Any transaction not on the list is illegal.

    Laws Acts Regulations not longer than 20 a4 pages.