By Gareth Vaughan
The Real Estate Agents Authority (REAA), an independent Crown Entity, says it is best placed to supervise the real estate sector for compliance with the Anti-Money Laundering and Financing of Terrorism Act (AML/CFT Act).
The REAA argues this in its submission on the Government's plans to implement so-called phase two of the AML/CFT Act, drawing in the likes of real estate agents, lawyers and accountants.
"We do not think that the real estate sector sits comfortably with any of the existing sector supervisors [Reserve Bank, Financial Markets Authority and Department of Internal Affairs]. We believe that we are the agency best suited to be the supervisor for the real estate industry, given that we already carry out many of the activities of a supervisor," the REAA says.
Under the AML/CFT Act as it currently is, the Reserve Bank supervises banks, life insurers, and non-bank deposit takers for compliance. The Financial Markets Authority supervises securities, trustee corporations, futures dealers, collective investment schemes, brokers and financial advisers. The Department of Internal Affairs supervises casinos, money changers, trust and company service providers, and what are described as "reporting entities" not covered by the other two.
In its consultation paper the Ministry of Justice has suggested once the AML/CFT Act is expanded through phase two meaning a whole new range of professions must comply, a single supervisor model such as Australia's AUSTRAC could be established, or a combination of the existing supervisors, plus self-regulatory bodies along the lines of what as Britain does, could be used.
"While there is potential for duplication of effort and resource between supervisors in the multi-agency model, an advantage of retaining it is that the resources, systems and oversight of existing industry regulators can be utilised," the REAA says.
It goes on to say that, based on about 1000 reporting entities, six to nine full-time staff would probably be needed to supervise the real estate sector for AML/CFT Act compliance, with up to a year needed to prepare. No mention of cost is made.
In other submissions responding to the Ministry of Justice, the New Zealand Bankers' Association and Chartered Accountants Australia and New Zealand are calling on the Government to establish a new, single supervisor to oversee compliance with the AML/CFT Act as it moves to introduce phase two. However, both the New Zealand Law Society and Auckland District Law Society want the NZ Law Society to supervise lawyers' compliance. (Also see: If you're going to do something, do it properly).
'An attractive option for money launderers'
In a quarterly typology report last year, the New Zealand Police Financial Intelligence Unit said real estate remained an attractive option for money launderers, both in the layering and integrating of the proceeds of crime. Further, real estate was "increasingly becoming an international business which creates the opportunity for complex transactions, and to layer real estate deals across many jurisdictions."
Meanwhile, the REAA goes to say that it has no oversight of property traders and finders operating on the fringes of real estate agency work, but the requirements of the AML/CFT Act should also be extended to them. Additionally although leasing and property management services provided by real estate agents, and Body Corporates, aren't intended to be covered by the AML/CFT Act, the REAA argues they ought to be.
"We consider that the due diligence requirements could be applied at the time the agent enters into an agency agreement with their client. Residential property managers are not currently regulated; however they have a high turnover of income in and out of their rental accounts. While some rent levels might not be high enough to seem significant, over the life of a rental agreement they can add up to significant sums," the REAA says.
"Similarly, Body Corporates receive money in and out of their levy and maintenance funds. Again, this can amount to significant funds over a period of ownership of a unit title property. We consider that these parts of the real estate sector should be subject to the AML/CFT regime."
Areas of risk
The REAA notes real estate agents generally receive funds from customers in two situations being via purchase deposits, and through advertising and marketing fees. Other scenarios it highlights where agents can be exposed to risk include:
- When a property is bought and sold in rapid succession for increases or decreases in value that do not correlate to the current market. This can have the effect of artificially increasing the value of a property to the detriment of loan providers and the end purchaser.
- When a property is bought and sold multiple times between family members or associates.
- When the purchaser on a sale and purchase agreement is recorded as “… or nominee”.
- When the purchaser is an overseas resident or where a purchaser is acting on behalf of an overseas buyer.
"We consider that any person or business carrying out activity that involves real estate agency work should be subject to the AML/CFT [Act]," the REAA says.
The REAA also says it supports extending current requirements to report suspicious transactions to the reporting of suspicious activities, albeit with a threshold defined that should apply to suspicious activities. The REAA also supports information sharing between regulators, AML/CFT Act supervisors and other government agencies.
*This article was first published in our email for paying subscribers early on Wednesday morning. See here for more details and how to subscribe.
10 Comments
Impressive. Other professionals argue that only restricted areas of their work should be covered by AML/CFT obligations. Even the (rushed?) proposals themselves adopt the simplistic old-style whack-a-mole form of regulation, covering one gap and then looking perplexed as the displacement effect does its thing, and criminals continue laundering in the many others remaining.
REAA just say it straight. Nor do they artificially limit it to a specific class, even real estate agents. Pretty much, when anyone involved in property transactions becomes aware of something that looks dodgy, that's the test.
It seems that REAA understand the reality of money laundering, the modern direction of anti-money laundering control, and policy effectiveness better than other professions, and better than the proposals in the consultation document itself, stuck in the time-warp of the way things used to be, or that a vast infrastructure built on the sand of good intentions will somehow magically morph into a solid foundation.
Even on the regulatory model, REAA put their hands up to be the regulator for real estate only "if the current multi-agency model is retained".
If there's going to be just one regulator, REAA just might do the best job too. Or the Ministry should at least appoint whoever wrote their submission onto the board of the super-regulator. Either way, we'll really start to detect, prosecute and prevent a lot more serious crime when there's a genuine focus not just on whether we have regulations, but whether the system actually works.
I for one tip my hat to REAA.
"The Real Estate Agents Authority (REAA), an independent Crown Entity, says it is best placed to supervise the real estate sector for compliance with the Anti-Money Laundering and Financing of Terrorism Act (AML/CFT Act)."
Laughable, next we will have the Lawyers Society and the Police saying they are the best to regulate their respective groups, hey wait on........
Yep, lawyers have said just that. Police at least no longer regulate themselves. My guess is they're probably grateful for it. When the Independant Police Conduct Authority rules in their favour, they can't be accused of a cover-up. And when IPCA slams them, they do something about it. So, they (and we) are all better off.
Like Police (unlike lawyers) real estate has split the functions already. As I understand it, REAA is the regulator, REINZ is the representative body. So, no conflict. Better for all of us, and for agents.
Like you, I was a bit tongue in cheek promoting REAA to be the regulator. The serious point is that they seem to 'get' making AML work, ie finding ways that (materially and demonstrably) actually help detect and prevent serious crime affecting our communities and economy.
Under the current 1996 Money Laundering Act who do Real Estate Agents report to, and how many cases have been reported in 20 years and what were the outcomes?
I'd like to know how that's been working
Remember the REAA has oversight of the industry. Have they been doing any oversight. The police have cited the RE industry as being a money laundering conduit and repository. What were the REAA doing?
Under the 1996 FTR Act, there is no regulatory body with oversight for AML issues. (So, REAA, NZLS, CAANZ, etc have no regulatory oversight role in relation to that legislation).
Under FTRA1996 real estate agents, lawyers and accountants, in certain circumstances, have obligations to detect and report (to Police) suspicious transactions.
My comment was too brief. In saying oversight I mean the REAA, NZLS, CAANZ bodies all have intense an interest that their members are fulfilling all their obligations
Example. In the case of Accounting bodies, they have NO regulatory responsibility to ensure their members dont commit fraud, or murder, or falsify their tax affairs. But they sure as heck pay attention and disbar members guilty of such acts. Same with lawyers and doctors
So when the police come along and flag to the REAA that their members have been aiding and abetting money laundering, you would think the REAA would make enquiries of their membership as to whether they have been playing by the rules.
Great point.
In some cases the agent is protected, rightly so, when they lodge an STR and police catch the (typically) drug dealer buying houses, and prevent further harm to communities/economy.
In some cases, an agent may not be culpable, even when laundering happens. In any risk-based system, things can get through (and crims have been getting more sophisticated hiding assets and evading STRs). The issue isn't defalcation, but training, awareness and adjusting policy settings.
When an agent is complicit, knowingly helping criminals, that's easy, police and REAA can take care of that. That's a matter for enforcement, as you've said.
Likewise an enforcement matter for those wilfully blind, happily selling houses enabling drug dealers to continue and expand their criminal operations, ignoring red flags and not asking questions. These ones are equally blindly opening themselves up to huge risk. Even years down the track, when police intercept another big drug shipment, follow the money trail, and find a string of clearly dubious house purchases, the agent could get a knock on the door...
In response to your other question (about the actual outcomes), my thesis is I believe the first serious piece of work traversing exactly that. It examines not just the prosecutions (there have indeed been very few, and I've found a couple extra that few people seem to know about), but I also figured out a way to examine and assess cases that didn't result in prosecutions where the services of lawyers, accountants and real estate agents were used to launder criminal proceeds. The research also goes back before FTRA1996, starting in 1992 (the first proceeds of crime legislation). As readers here might recall, it's framed in policy effectiveness, so it strips bare the regulatory framework and seeks to focus on what actually works.
Sorry, can't say much more until it's formally submitted, lest having to cite myself and lose the ability to submit as original. [The "Findings" chapter (125pp) is going to the supervising professor tomorrow].
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.