What in the world is AML/CFT?
There has been a regulatory change that will affect ALL Vendors and Purchasers.
The Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) Amendment Bill was passed in August 2017, meaning that lawyers, accountants, real estate agents, the NZ Racing Board and high value dealers will now need to comply with the AML/CFT act (phase 2). Real Estate Agencies will need to be compliant from 1 January 2019. Lawyers' obligations under anti-money laundering legislation began on the 1st July.
I hear you already wondering “what’s this got to do with the price of fish?”
This is relevant to real estate agents because from July the 1st, lawyers are required to verify the identity of their clients, including their vendor and purchaser clients.
As it turns out, real estate transactions are an established method of money laundering internationally. Criminals are drawn to real estate to launder funds due to:
- the ability to disguise the ultimate beneficial ownership of real estate (through Trust and company structures)
- the relative stability and reliability of real estate investment; and
- the ability to renovate and improve real estate (often paying in cash) thereby increasing its value.
While some of the above activity may be hard to detect, there are many internationally documented indicators or "red flags" that assist to identify potential money laundering.
- Purchasers appearing to be acting on behalf of another person and showing a reluctance to identify those they represent.
- Purchasers buying or vendors selling multiple properties in a short period of time.
- Purchasers buying or vendors selling property above or below market value while apparently unconcerned about the economic outcome of the transaction.
- Purchasers paying deposits and then cancelling agreements under due diligence clauses (for example) and asking for the deposit to be refunded to a different person or bank account (often overseas)
One of the things that will affect Vendors and Purchasers is that many lawyers will not agree to act for someone until they have been able to complete the identity verification process.
This could take days and sometimes weeks, particularly where trusts and companies are involved. If the identity can’t be verified, the lawyer cannot act for the client and therefore conditional periods can lapse, property settlements can be delayed and, worst case, deals can fall over. It is HUGELY important that vendors and purchasers are aware of identity verification requirements.
Real Estate Agencies will be subject to the same obligations as existing reporting entities. These include:
- appointing an AML/CFT Compliance Officer;
- preparing and maintaining an AML/CFT written Risk Assessment;
- preparing and maintaining an AML/CFT written Compliance Program;
- training and vetting staff;
- conducting customer due diligence (CDD);
- monitoring transactions for unusual behaviour and reporting any suspicious activity to the Police Financial Intelligence Unit (FIU);
- filing prescribed transaction reports (in relation to domestic cash transactions over $10,000) to the FIU;
- filing an annual report with the DIA and
- completing an independent audit of AML/CFT documents and procedures every two years.
The AML/CFT Act requires all Real Estate Agencies to conduct Customer Due Diligence (CDD) on their vendors and, if the agent is acting as a buyer's agent, the buyer. This will include conducting CDD on those individuals who own or control the client (in the case of companies and Trusts for example)
CDD involves collecting copies of identification (e.g. passport/driver's licence), proof of address and, in some cases. verifying source of wealth or source of funds. Carrying out CDD can take some time, especially when complex Trust or company structures are involved or where parties reside overseas.
While most of this background stuff will be transparent to you, as you can see there is a lot more work involved for lawyers and real estate agents.
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