What the AML/CTF reforms mean for the property industry and property fund managers

As a preliminary point, the term ‘real estate’ is a newly defined term and refers to an interest in land within Australia where a person (including both individuals and ‘non-individuals’) has any of the following:

• ‘fee simple interest’ – which is the usual form of land ownership in most of Australia;

• leasehold interest of more than 30 years; and

• land use entitlement. 

Real estate also covers an interest, estate, right or entitlement in land in a foreign country that’s equivalent to one of the above interests or otherwise confers ownership rights. While the ‘real estate’ can be in a foreign country, you'll only have obligations under the new laws if the designated service has a geographical link to Australia. 

The definition of ‘real estate’ excludes interests such as:

• leases of 30 years or less;

• interests such as easements and restrictive covenants;

• mortgagee interests; and

• dwellings not attached to land, where the resident owns the dwelling but leases the land where the dwelling is located, such as caravan parks and some retirement villages.

AUSTRAC has clarified that a broker is a person who acts as an intermediary or agent for another person for consideration and that to provide this service, the provider must be operating as a broker when carrying on a business. A common indicator will be if the services provided include negotiating on behalf of the person they represent or seeking to find a person for the person they represent to transact with, in return for payment of a commission.

Typically, brokering conduct would capture buyer’s agents and seller’s agents.

Other key takeaways include:

• real estate doesn’t need to be bought or sold for consideration – brokering the transfer of property without consideration is sufficient; and

• both the buyer and seller (or transferee or transferor) of real estate will be the customer of the same reporting entity for the purposes of the designated service. 

Examples of this designated service include property developers and other businesses who sell any of the following:

• house and land packages;

• apartments off the plan; and

• blocks of vacant land in new subdivisions.

Some principles to keep in mind include:

• references to the ‘transfer’ of real estate make sure that situations where real estate is transferred for no value or consideration are still within scope of the designated service; 

• this service includes where the property developer or other business sells the real estate with their own in-house agents, sales or marketing employees rather than engaging an external agency for this work; and

• incidental sales of real estate by a business and private sales of residential property aren’t captured under these designated services.

Property fund managers should be aware of the risk that they may also be captured by the ‘planning or execution of a transaction’ (item 2, table 5) designated services if they sell or transfer real estate without engaging an independent real estate agent. 

This risk may arise where a property fund manager disposes of a fund’s real estate assets through its own in-house employees, rather than engaging an external real estate agent. For example, where the fund manager receives a direct offer or engages directly with a prospective buyer. 

Importantly, this risk applies even if the fund manager does not consider real estate sales to be their primary business. Although ‘planning or execution of a transaction’ only captures sales made ‘in the course of carrying on a business selling real estate’, AUSTRAC guidance indicates that a service may still be considered to have been provided ‘in the course of business’ even if it is not the only service provided by the business or is only provided once. 

Property fund managers may also be captured where they appoint a licensed real estate agent from within their broader corporate group to sell fund real estate assets on their behalf. This will only be the case where AUSTRAC determines the agent is not sufficiently independent from the fund manager. The term ‘independent’ is not defined in the new legislation, creating uncertainty as to how AUSTRAC will make such determinations. There is a particular risk where the entities share common ownership structures, directors, or senior management. However, a fund manager may be able to demonstrate independence where the real estate licensee operates with stand-alone dedicated employees who do not work across other parts of the business. 

To the benefit of Tranche 2 entities, the Department of Home Affairs and AUSTRAC have released proposed transitional rules to support the implementation of the AML/CTF reforms.

As part of these proposed transitional rules, Tranche 2 entities: 

• will have until 29 July 2026 to notify AUSTRAC of their AML/CTF compliance officer; and
• may be able to set an extended deadline for the initial independent evaluation of their AML/CTF policies, which will not be less than three years from the original commencement date (ie not before 1 July 2029).

For more details regarding the proposed transitional rules, see our recent article Transitional Rules update announced for Australia’s AML/CTF reforms – key guidance for reporting entities.