Published on the 21/11/2018 | Written by Heather Wright

But there is a cost for agents…

The Real Estate Institute of New Zealand (REINZ) is confident the majority of Kiwi real estate agents are prepared for new anti-money laundering legislation which comes into force in January – despite ongoing concerns from some in the sector about the burden the new legislation places on them.

Dee Crooks, Real Estate Institute of New Zealand spokesperson, says REINZ is supportive of the inclusion of real estate agents under the Anti-money Laundering and Countering the Financing of Terrorism legislation, while acknowledging that it will place additional burdens on real estate agents.

“It is a significant, and important, piece of legislation providing that whole herd immunity approach in ensuring that no one can slip through the cracks in terms of laundering money,” Crooks says.

“It is a significant piece of legislation providing that whole herd immunity approach to AML.”

Real estate joins a number of ‘gatekeeper’ professions to be regulated under the legislation, which has been in force for banks, casinos and other financial service providers since 2013. Accountants, lawyers, conveyancers and businesses providing trust and company services became regulated earlier this year.

The New Zealand Financial Intelligence Unit estimates around $1.35 billion of domestic criminal proceeds is laundered annually in New Zealand from drug and fraud offending.

“We know that people use the real estate industry to try and clean their money,” Crooks says. No estimates for how much money is laundered through the real estate market are available.

The Department of Internal Affairs AML/CFT guidance for real estate agents notes agents are ‘often more client facing than other sectors’ giving them potentially better insights into suspicious activities.

“For example, real estate agents will have some insight into whether a client is suspiciously under- or over-valuing a property, which may indicate the movement of illicit funds. They can also see how short a time period the client is holding on to a property, which may indicate the property is being ‘flipped’ to disguise the origin of the funds used to purchase it.”

The legislation has raised some concerns from real estate agents over the added burden placed on agents. It requires real estate companies to conduct due diligence on clients to ensure proof of identity and raise alerts on any suspicious activity, as well as submitting annual reports and having their risk assessment and compliance programme audited every two years.

iStart understands that compliance extends to requiring copies of trust deeds where applicable, and formal documentation on financing arrangements, on every real estate transaction agents process.

Crooks says there will be costs in establishing compliance programmes, staff training and ongoing auditing costs from the legislation. And no doubt agents will also need to deal with some client push back on the privacy front when requesting documentation normally reserved for trusted legal representatives.

“We are not 100 percent sure yet what agents are going to do with that cost – whether they will wear it or pass it on to the vendors and clients through increased costs they pay for real estate services. Some of the large organisations may be in a better place to absorb some of that cost, but some of the smaller companies won’t be in that same position.”

REINZ has partnered with Kiwi AML/CFT compliance software provider AML Solutions to provide an end-to-end cloud-based AML management system, covering vendor on-boarding, electronic identify verification checks, document storage, record keeping, ongoing compliance, transaction monitoring and reporting.

More than 1,500 people around New Zealand have taken part in REINZ training courses, with courses continuing over the coming weeks.

Crooks says it’s not expected that a significant number of red flags will be raised by real estate agents.

“This is about making sure it’s harder and harder for criminals to launder money. With all of the industry [involved] – banking, legal, accounting and real estate – there’s an opportunity for us to help the other professions pick up on any red flags and making sure offending can’t slip through the cracks.

“And reputationally, real estate agents don’t want to be associated with someone caught up with money laundering – that would be damaging for the individual, their brand and the industry as a whole, so it’s important reputationally that people comply with the legislation.”