Anti-money laundering a major regulatory overhaul for real estate industry

On 1 January 2019, all New Zealand real estate agents come under the watch of the Anti-Money Laundering and Countering Financing of Terrorism Amendment Act 2017 (the AML/CFT Act).

Its tongue-twisting title disguises one simple, yet game-changing rule: real estate agents (along with lawyers and accountants) now have to conduct a due diligence process confirming their client’s identity whenever they represent a person or entity selling or buying real estate.

This means that each and every time an agent represents a client in a transaction – no matter how well they know the client or how many times they have acted for them in the past – must request documentation confirming the client’s identity and, in some cases, verify that the source of their funds is legitimate. If the client can’t provide the documentation, it’s likely that their agent won’t be able to act for them.

In New Zealand, a large proportion of property owners use trusts for privacy and wealth protection. These clients will need to be prepared for a much more stringent review of their assets, including analysis of the source of their funds, before their property transactions can be actioned.

The AML/CFT Act is the biggest regulatory change to affect the industry since the Real Estate Agents Act 2008 came into force and requires major changes to the way both residential and commercial agents do business.

For many smaller, local agencies, the administration burden will be significant and bring additional costs. In addition to requesting, processing and securely storing confidential client information (which may require IT system overhauls), real estate agencies will need to implement and manage AML compliance programmes, appoint an AML compliance officer, report to the Department of Internal Affairs and meet regular audit requirements. The requirements raise significant security issues, as many small agencies may not have the IT capabilities needed to securely store client information.

The AML/CFT Act is intended to prevent a very real threat to New Zealand’s reputation as one of the least corrupt countries in the world and a safe place to invest. According to the Ministry of Justice, every year about $1.35 billion from the proceeds of fraud and illegal drugs is laundered through New Zealand businesses. Real estate agents are a prime target for those looking to filter dirty money into the legitimate economy through the purchase of high-value assets such as property. The onus is on real estate agents to report any suspicious activity.

Globally, this is nothing new and the AML/CFT Act’s extension to real estate agents merely brings New Zealand into line with international AML best practice. Nonetheless, some agents will take issue with being required to request burdensome compliance information from their clients, and doubtless some clients will resent having to provide it.

Agents need to have already taken steps in order to be ready for the changes. Some international agencies such as Savills already have AML processes and secure data storage systems in place. These have long been part of normal day to day operations for our offices in Australia, the US and the UK. We are also meeting with our clients and briefing them on the new requirements.

Like most agents, we know our clients, and we believe the process of bedding down the AML/CFT Act into the New Zealand real estate industry will be more successful if we take early action. Through our experience overseas, we are working to ensure that the impact on our clients will be minimised, through implementing best practice processes before the requirements come into force.