The symbiotic relationship between organised crime and money laundering in Australian real estate

May 22, 2024
Wooden house model Australian dollars

Tranche 2 Anti Money Laundering and Counter Terror Financing Laws Protect Us All.

In 1988, I was a trainee detective with the Australian Federal Police working in Sydney, when Australia passed the Cash Transaction Reports Act 1988 (later renamed the Financial Transaction Reports Act). This was the beginning of the introduction of Australia’s Anti-Money Laundering & Counter Terrorism Financing Laws (AML/CTF). Australia was an early adopter and a global leader in combating money laundering. And for law enforcement agencies and the newly created Australian Transaction Reports and Analysis Centre (AUSTRAC) it was an exciting time. Because for the first time, police had available to them a source of financial intelligence and several new offences to attack the financial base of organised crime. A person operating a false name bank account could be prosecuted. And the large amounts of cash left for police to find during searches (which were designed to corrupt otherwise honest police), disappeared, as new money laundering laws with stiff penalties deterred criminals.

Driven largely by the damming results of Australia’s 3rd Mutual Evaluation by the Financial Action Task Force (FATF), Australia upgraded its AML/CTF laws with the passage of the first tranche of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. The second component known as tranche 2 which was designed to capture some services provided by lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious metals and stones was intended to be past a short time later. For almost 18 years progress on tranche 2 implementation stalled but after a further round of consultations and one more to go, Australia might finally fall into line with international AML/CTF (internationally known as AML/CFT) standards. Feedback from impacted parties has generally been positive.

Though there are still some misunderstandings about the drivers, benefits, and costs of tranche 2 implementation and not all affected sectors are happy. The ABC has quoted Leanne Pilkington president of the Real Estate Institute of Australia as saying: “Tranche 2 is all about activating the small business community to be the extended workforce for AUSTRAC and the Australian Federal Police to do their jobs effectively”. She apparently also questioned the collective cost-benefit analysis on mum and dad businesses in the real estate sector and claimed that substantial investment and training would be needed. These comments while not unusual, demonstrate a misunderstanding of the power and impact of organised crime and the benefit obtained by all businesses from operating in a safe business environment.

Money laundering and organised crime have a symbiotic relationship. One cannot exist without the other. Tranche 2 is designed to combat organised criminal activity and target harden vulnerable businesses, so they do not fall victim to money laundering and terrorism financing. Having worked in many overseas jurisdictions where organised crime controls industries or local communities, small businesses only operate there because they pay taxes (“extortion money”) to criminal groups. If a business does not pay, then it is attacked or the proprietor or a family member is kidnapped until payment is made. And businesses including real estate firms that are not laundering money or providing or channelling terrorist funds cannot compete with those firms that are. These are environments in which no Australian business would want to be in. Keeping our community safe from crime is a whole of society responsibility which benefits everyone including the real estate sector.

In relation to the claim that substantial investment and training would be needed. Again, this is misguided. The needs of each specified party (for example real estate firms) will be dependent on their money laundering/terrorism financing risk assessment. And common business sense. Regarding the latter, I consult and deliver training in countries that have broader AML/CFT frameworks than Australia. Frequently, I see potential clients engaging large accounting and consulting firms to provide AML/CFT consultancy and training services. Rarely is the training specifically crafted to the needs of the client and is provided at a “brain surgeon” price when the level of expertise & training required is at first aid certificate level. Bigger and a higher price is not always better.

Surprisingly, Ms Pilkington stated: “The regulatory creep from the Albanese government across all portfolios is growing and creating more pain points when you consider anti-money laundering reforms, privacy reforms and cybersecurity reforms.” This comment needs challenging. I would not want to deal with any organisation that does not take my privacy and its cybersecurity seriously. And no responsible business would expose their client’s privacy or their business to a cyber-attack. It is an absurd comment. As for Tranche 2, the primary driver behind Tranche 2 legislation is the FATF. If the Albanese Government does not implement Tranche 2 Australia will continue to be in non-compliance with the FATF Standards. When that occurs, some countries are “Blacklisted.” Australia should have been “blacklisted” over a decade ago. I have worked and continue to work in countries that have been blacklisted. When that occurs, businesses and individuals find it harder to transfer and receive funds from offshore. The financial cost of doing business especially for banks increases which are passed onto customers. Australian businesses with an offshore presence, could be denied financial services or credit or both. It is important that all Australian businesses, including real estate firms and professional organisations that represent them understand how globalisation provides substantial benefits, but it comes with the responsibility to uphold international standards & contribute to the protection of society.

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