New laws to stem drug dealers, corrupt officials and dirty money from heating up Australia's real estate market

Was that newly-bought house in your street paid for with money from criminal activities? (ABC News: Alistair Kroie)

Buying a home? Soon you won’t have as much competition from drug dealers, corrupt officials and criminals with dirty money thanks to new laws and a boost to enforcement.

For decades Australia has lagged the world in anti-money-laundering legislation, meaning real estate agents, lawyers, accountants and dealers in precious metals and stones didn’t have to report dodgy transactions or do “due diligence” — checks — on customers.

Attorney-General Mark Dreyfus says the reformed laws will work to stop dirty money.

“Each year billions of dollars of illicit funds are generated from illegal activities such as drug trafficking, tax evasion, people smuggling, cybercrime, arms trafficking and other illegal and corrupt practices,” he says.

“As a result of the former government’s failure to act, Australia is falling short of meeting the standards required to combat criminal abuse of our financial system, and at increased risk of becoming a haven for money laundering.”

Financial crimes agency AUSTRAC will get $166.4 million in the upcoming federal budget to help educate the professions that fall under what are called “Tranche 2” laws, as it cracks down on money laundering that has given a helping hand for criminal elements to use ill-gotten cash to buy property in Australia’s already hot housing market.

AUSTRAC estimates that, in 2020 alone, criminals linked to China laundered $1 billion through Australian real estate.

“The reforms are critical in supporting law enforcement partners in their fight against trans-national, serious and organised crime, and protecting Australians,” Mr Dreyfus adds.

Home clean-up

Over decades, campaigners have been calling on the federal government to stem the flow of money from criminals who have found a safe home in our property market.

Here it is “laundered”, converted from funds that can be linked to criminal activity into “clean” income that appears disconnected from its source.

“For far too long, Australia has been a very attractive destination for dirty money,” says Clancy Moore of anti-corruption group Transparency International Australia.

“These laws and the money announced in the budget today will make it much harder for criminals, organised crime gangs and corrupt officials to park their money in Australia.”

Out of more than 200 countries, Australia has been alongside China, Haiti, Madagascar and the United States that have not regulated Tranche 2 entities.

Last week the government began the next stage of consultation on reforms to Australia’s anti-money laundering and counter-terrorism financing regime, aiming to reduce the criminal abuse of our financial system after what the attorney-general called “nearly a decade of inaction by the former government”.

The $166.4 million will be used by the Australian Transaction Reports and Analysis Centre (AUSTRAC) to implement the new laws and to support industries to meet their obligations.

This will mean, for example, education programs for real estate agents on what to do when they’re confronted with a suspicious transaction.

Real deal

The problem is not theoretical.

A new report from Transparency International Australia reveals millions of dollars of dirty money could be flowing from the impoverished nation of Cambodia to Australia annually, with gaps in the law making Australia’s real estate sector an attractive destination for money laundering.

The report from advisory firm KordaMentha suggests that in 2022, 118 properties with a combined value of $110 million were settled in Australia by Cambodian foreign persons.

To give a sense of the scale, in 2020 more than $516 million in total funds was transferred from Cambodia to Australia. Much of it could be legitimate financial activity or investment.

But the value of money flowing from Cambodia is vastly disproportionate to the nation’s wealth — just under 1 per cent of Cambodia’s gross domestic product.

(The average income in the authoritarian state is just $1,690 annually).

“We know that Cambodia is an incredibly poor country with lots of people living in poverty,” says Mr Moore.

“But it’s also a regional hub for money laundering, human trafficking and the drug trade as well. So that amount of money (coming in) is quite concerning.

“It raises serious red flags as to the source of those funds.”

Those who work in the field have welcomed the news that greater diligence will be required in future when suspicious transactions are made.

KordaMentha partner Alice Saveneh-Murray, who works in the field of financial crime, says signing up to Tranche 2 laws will make the nation safer.

“This brings into focus the regulatory gaps in Australia’s regime and how AML/CTF reform will bring Australia closer to being compliant with its international obligations,” she says.

“We know that this issue is not isolated to Cambodia and the Asia-Pacific region, but our research clearly emphasises the need the to take urgent steps to reduce the risk of Australian real estate being used by criminals for money-laundering and terrorism financing, as well as in other industry sectors that will be covered by the AML/CTF tranche 2 reforms proposed by the government.”

‘Regulatory creep’

The laws will mean more work for real estate agents.

Real Estate Institute of Australia president Leanne Pilkington says current drafts leave some questions unanswered.

“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 argues.

Speaking before the full details of the announcement were available, Ms Pilkington noted that substantial investment and training would be needed.

“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,” she argues.

“Where is the collective cost-benefit [analysis] on the mum and dad business sector for this?”

The second stage of consultation over the laws closes on June 13, 2024.

The federal budget will be handed down on May 14, 2024.