HOW THE NEW ANTI-MONEY LAUNDERING RULES EFFECT BUYING & SELLING REAL ESTATE
What is money laundering?
Money laundering is the process criminals use to ‘clean’ the money they make from crimes such as fraud, dealing in illegal drugs and tax evasion. By making the money look like it comes from a legitimate source, they can cover their tracks and avoid detection. They do this by buying, selling and channelling funds through things such as property, expensive goods and financial services. They then spend the money or use it to fund criminal activities. Money laundering makes it harder for authorities to find out where ‘dirty’ money comes from, stop crime, prosecute criminals, and seize illegally earned money and assets. People who finance terrorism use similar methods to money launderers to channel funds to violent causes and to disguise who is providing and receiving the money.
How big is the problem in New Zealand?
Money laundering is happening every day across the country. It’s estimated about $1.35 billion from fraud and illegal drugs is laundered through legitimate businesses in New Zealand each year. However, the true cost and impact is many times that figure when you factor in all the crimes that generate “dirty” money and the suffering they cause. For example, tax evaders and international criminals try to take advantage of our clean reputation to launder funds through New Zealand businesses. Crimes like fraud and illegal drug dealing take a human toll on victims, their families and the wider community. New Zealand is also exposed to threats relating to financing of terrorism, including the potential for financiers of overseas groups within New Zealand, and overseas based groups who may seek to use New Zealand as a channel for funds. While the frequency of terrorism financing is low, the potential consequences are significant. It is important for businesses to watch for ‘red flags’ that may indicate terrorism financing activity.
How do criminals launder money?
Criminals exploit weak points in the financial network. For example, they target businesses or professions that don’t confirm customers’ identities, or don’t have the right checks and balances in place to detect suspicious transactions, activities, behaviour or financial arrangements (the financing of terrorism uses similar techniques). Criminals use different methods to launder the proceeds of their crimes. They may buy and sell assets like property and expensive goods like cars or jewellery, or channel funds through financial structures such as companies or trusts. Money laundering often involves complex series of transactions. By moving funds around different parts of the financial system, they disguise who and where it came from – making their illegally earned ‘dirty’ money appear legitimate or ‘clean.’
Criminals may:
- try to hide their identity by using companies and trusts to own or buy assets
- carry out a series of transactions with a bank or business that are below the monetary thresholds that trigger money laundering ‘red flags’
- buy foreign currency or send money overseas to move it through accounts and financial products, which makes it hard to trace
- pay cash for a house or car, then sell it and use or bank the money
- buy gambling chips then redeem them in different currencies or denominations.
Why does the Act apply to real estate agents?
Criminals often use real estate to convert the money they make from illegal activities into legitimate assets. Introducing AML/CFT measures will deter criminals from using real estate and help detect them if they do. Importantly, it will also strengthen the overall AML/CFT system. For example, a real estate agent may detect ‘red flags’ that might not be picked up by banks or other financial service providers who interact with the same customers. That’s because real estate agents may have more information about the people or funds involved in a particular transaction.
When do the changes come into effect?
From the 1st of January 2019, real estate agents will have to comply with increased measures when representing a buyer or seller – some of which means they will require additional information from you, their clients. In reality, the new safeguards will soon become the ‘new normal’, however in the short term it is worthwhile knowing that your chosen real estate agent isn’t asking for additional information to be difficult, they simply are complying with the new legislation and may suffer severe penalties for not doing so.
On an ongoing basis, agents will be;
- verifying the identity of their clients. This means your agent will be asking to see your passport, or two alternative forms of ID (Drivers License and Credit Card for example). It should be noted that one form of ID must have a photograph.
- Verify the identity of property purchasers who pay cash deposits of $10,000 or more. In some circumstances (for example in the case of companies or trusts), your agent may require you to provide bank statements or information to show source of wealth/funds, as well as verifying other people (company directors, other trustees) involved.
What happens if I don’t wish to provide the requested information (ID, source of wealth/funds) to my agent?
If your real estate agent is unable to complete the required customer due diligence, then they are unable to take you on as a customer, the agency agreement cannot proceed and the real estate agent won’t be able to market & sell your property.
What happens if I don’t have a passport, and I don’t drive?
For customers who may not have the required identification documents, your agent will put in place exception handling procedures. Exception handling will only be used where the customer legitimately does not have the documents (for example young people), and will involve an agency Compliance Officer and Senior Manager making the approval – clearly documenting the reasons for the exception.
What if I am a non-NZ resident customer?
You will still need to provide the same information, and certified copies will be required following local laws. For example if a Justice of the Peace is accepted as a valid certification method in the overseas country where you are living, then this will be acceptable. From there it can be emailed and the listing can go forward. However original documents must still be posted and filed on arrival.
My real estate agent is requesting to take a photo of my ID using a mobile App. Is this legitimate?
If the agent you are dealing with is using AML Solutions, then they will have downloaded an App for the collection of ID verification. This information is scanned and sent to the secure AML Hub. It is not at any time stored on your agents’ phone. The AML Hub is secure and a select number of people have access to it. The information is compiled and allows your agents business to have a compliant AML/CFT programme.
If It’s all too hard, should I just go to another agent?
Please remember this is a change to Government legislation, so from 1st January 2019, all Licensed New Zealand real estate agents must comply with the new law. In order to open an NZ bank account you must identify yourself, and going forward the purchase or sale of property will require this also.
Source: Ministry of Justice Website https://www.justice.govt.nz/justice-sector-policy/key-initiatives/aml-cft/
Disclaimer: The material and information contained herein is for general information purposes only and is not intended to form professional legal advice. Harcourts Group Ltd does not accept liability for any claim or other action that may arise directly or indirectly from the use or reliance on the material and information herein. Harcourts Group Ltd recommends you seek independent legal advice if you are unsure of your legal position.