Real Estate agents warned that even though they are technically exempt from new money laundering rules they could still get into trouble

Real Estate agents warned that even though they are technically exempt from new money laundering rules they could still get into trouble

New Zealand houses are becoming more attractive as a means of people 'laundering' dirty money - and real estate agents are being warned they could get into trouble if they, however unwittingly, assist money launderers.

The warning comes from the Real Estate Agents Authority (REAA), the independent government regulatory body for the real estate industry in New Zealand.

In its latest newsletter the REAA warns that until recently, "there were many easier ways to launder money; criminals often just simply banked their ill-gotten gains, remitted it overseas, or spent a few hours at a casino". But now NZ property was "even more attractive for cleaning 'dirty' money".

The Anti-Money Laundering and Countering the Financing of Terrorism Act (AML/CFT Act) took effect from the end of June last year. Some professions, including real estate agents and lawyers were temporarily excluded, but as the newsletter points out, real estate agents could still be culpable for laundering offences .

'Severely restricted'

"...Since July 2013 many of the most popular money laundering channels have been severely restricted; close supervision and extensive new compliance rules have been imposed on financial institutions like banks, casinos and money remitters," the newsletter said.

"Although international obligations require real estate agents and lawyers to comply with the same rules, in New Zealand these businesses remain temporarily exempt from the extensive new regulations.

"Ironically, this means that real estate agents and lawyers may not always know what to look for, at the very time that criminals' interest in misusing their services as a 'washing machine' has increased."

It is believed at least $1.5 billion and possibly up to $10 billion of criminal funds is laundered in New Zealand each year, including the sale and purchase of property.

'Facing big risks'

The newsletter said that estate agents "face big risks" even when they inadvertently help criminals.

Real estate agents who receive funds in the course of their business for settling real estate transactions already have existing obligations to:

  • verify the identity of certain people;
  • keep records of having done so;
  • and identify and report suspicious transactions.

"Agencies whose services are used by criminals, even inadvertently - and especially those without systems to spot obvious warning signs - can face severe penalties."

Penalties for real estate agents include fines up to $20,000 for individuals and $100,000 for companies - and up to 2 years imprisonment.

"Even aside from the financial risks, the reputational impact for any agency accused of helping criminals launder ill-gotten gains, even unwittingly, is obvious," the newsletter said.

Real estate agents commit an offence when there are "reasonable grounds" to suspect money laundering, which they fail to report.

Ignorance no defence

Not knowing the obligations is not a defence. In addition the actions of agents may be treated as being done by the licencees themselves, whether they knew about it or not.

"Directors and officers involved in the management of real estate companies may also be deemed guilty if the relevant acts or omissions by others took place with their knowledge, or even simply under their authority or with their permission or consent," the newsletter said.

The newsletter said many known techniques were used by criminals who choose real estate as a 'washing machine'.

"This means that at the very least licensees can turn these techniques to their advantage by helping staff recognise key combinations of 'red flag' indicators - and start building a virtual wall to help protect their business."

The newsletter said the most effective 'red flag' indicator systems were designed specifically for each agency's unique circumstances and operational needs, but some common 'red flags' included:

  • The use of cash, or disproportionate amounts of cash.
  • Purchasers not viewing the property and/or acting through intermediaries such as lawyers or 'friends', with little or no personal contact.
  • Prices that don't reflect market value and trends.
  • Purchasers unusually willing to pay the asking price or apparent lack of concern about price.
  • Urgency without good reason - quick commissions are tempting, but may prove 'too good to be true.
  • Multiple transactions where properties are re-sold in quick succession, sometimes with significant change in value in short timeframes.
  • Doubts about the real ('beneficial') ownership of funds or assets.
  • Reluctance to provide usual details (e.g. identification, residence, occupation) and/or inconsistencies in documentation (e.g. dates, signatures, mortgages).

"These indicators can also appear in legitimate transactions, so initial concerns about isolated 'red flags' can often be resolved with a credible explanation. However, unconvincing explanations and multiple red flags should be investigated more rigorously for real estate agents to avoid inadvertently helping launder criminal funds and exposing their businesses to unnecessary risks to their reputation and livelihood," the newsletter said.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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41 Comments

It could get very interesting here.
Some anecdotal information like an agent who offered multiple properties to an overseas buyer given the instruction  ''I will take the lot" may well be true.
It seems an easy guess to think that it is simpler for a buyer to spend $x million of dirty money on several residentials than to have to go through the OIO on a larger single property.

Absolutely. As one of the authors of the REAA newsletter quoted here, that is indeed one of the red flag indicators that agents should be aware of; it's not just briefcases full of cash - yet remarkably that still  happens in New Zealand too.

And perhaps the REAA should provide translations into other languages to allow the individual agent to know exactly where he/she stands.

LoL...

This is a timely article given the changes in Canadian visa regulations. 

."......New Zealand ... attractive for money laundering ......."
This does not qualify as NEWS !
Its common knowledge that something is wrong
Look at this :- An unemployed 22 year old paying cash for a $2,0 million home in Greenhithe ( My Neighbour)
There is enough smoke around to realise there is a fire somewhere.
RE Agents know exactly what is going on, and if they have not figured it out they are either plain dumb or criminally negligent  
Everyone in NZ holds the deep suspicion that all is not well with the rate of sales of property to supposed migrants who seemingly have deep pockets the size of the Taranaki basin . 
Its bollocks , and I dont know why we Kiwis risk our ethical reputation by turning a blind eye to it .

Sadly yes, that NZ is attractive to money laundering is not 'new' news, except that it's still happening on an industrial scale (conservative official figures of at least $1.5b laundered annually, some say up to $10b), and - for whatever reasons - all sorts of professionals still aren't sure what their obligations are, or what to look for. So newsletters by REAA, REINZ etc are tremendously useful, if enough agents and others involved in facilitating these transactions read them... 

People who don’t play by the “rules” need to be ruthlessly stamped out and dealt with significant consequences.
 
It is unfair to those who respect and follow the rules; creates huge imbalances in society – driving up prices beyond what the local economy can afford.
 
Problem is the quality and character of the real estate industry tends to attract the bottom end, with minimal integrity (refer to the many cases).
 
Also non-residents must build new and not be able / allowed to buy existing stock.
Just though one would get there tuppins worth in.

You were ripped off mate . Chicken is a staple there and sells for 1/10th price here .

Chicken is one thing I definitely would NOT go on a search for cheapest - yuk

I am not at all surprised. When you elect a PM who is one of the great Money Shufflers of recent times, then you can expect no less than immoral if not totally illicit practices to be ignored or even encouraged.

Mate, why are you so bitter and non-constructive?
Money laundering, money printing and its non-intended effects have been a world-wide problem and some in this thread are trying to discuss ways of dealing with it.
Your silly exaggerations and out-of-control emotions are not helpful at all...

The reality is that it took a long time under both Labour and National before our laws came largely in line with international norms. Most wealthy foreigners of course use legitimate funds. The trick is to identify funds derived from crime; not necessarily the 'usual' drugs etc, it may also be corruption. Nor is the biggest problem in NZ thought by many to be offshore funds or foreigners; it's believed that most money laundering is domestic. And whetver the source, yes it's possible that money laundering drives up prices (as documented in Miami), but there's no research on this here that I'm aware, and the 'gut feel' is that's it's probably only a very small effect, if any.

Is NZ the biggest tax haven in the Pacific ?

I wonder if you could include quantitative easing here.  Since the collapse of Lehman both the Chinese, Americans, and now Japanese have been flooding their economies with vast amounts of new currency.  Most people who hold US dollars realise that in some way or another QE will eventually devalue their dollars. 
Worse still is that governments all over the world realise things are actually worse now than they were in 2008 but they’re now “locked and loaded” with bail in documents.   In New Zealand our bail in document is called the “Open banking Resolution” but the same thing exists in pretty much every other country with a western central bank.  The FDIC / bank of England bail in template has already been successfully tested in Cyprus where people lost more than 40% of their savings and there are still capital controls in place. 
In the context of all of that, little old New Zealand with all its green pasture and plentiful resource has virtually no restrictions on foreign purchases of land.  If I was a Saudi Prince or Chinese communist party official with billions of USD I’d be buying as much hard assets (including NZ) as I could too.   Who are the losers from all of this, well New Zealanders of course, the ones who have money in the bank, or who are misfortunate enough not to already own three or four houses.            

Welcome to New Zealand ..... 100% PURE Clean and Green
The rule is :-
Your money must be Green , and if its dirty we will clean it for you .

Haha - very good Boatman.
I think the money laundering possible comes under the somewhat unclear definition of Financial Stability.
NZ is a great place to do business - because the Authorities will turn a blind eye if you have a loaded suitcase full of mulah.
Didn't NZ sort out the banks from doing the laundry and transfer this role to another group to take over....maybe NZ uses the tricks of the Hustler.

According to Gareth, we will need more old houses and no more farming!  I am wondering if he has checked it with Clint first?
https://blog.greens.org.nz/2014/02/12/we-can-make-history-in-2014/
 
 

Wonder whether the Investment Banks are advising and orchestrating these mass money movements from the money printing countries...

So why do foreigners stick their dirty money into our housing market - because they can!!! It is as simple as that.
We are mad!!

Yes, some is foreign funds, but many think that the most money laundering in New Zealand is domestic, eg drugs.

PS in our own little way we are a tax haven just like almost any other tax haven, and how is that - no capital gains tax, that is how

PS in our own little way we are a tax haven just like almost any other tax haven, and how is that - no capital gains tax, that is how

Kiwis are really clueless about how Capital Gains  Tax works
1) Histroically it has never brought asset  prices down
2) In fact house prices have increased in most cases when the tax was introduced 
3) If you tax the gains , you must allow the losses ( including capital losses )
4) Its a resentment tax that has always been brought in by left leaning Governments
5) It usually costs more to administer than it collects
6) There are too many loopholes that authorities have never been able to close making it a very hard tax to collect . Such as change of use of any asset from income to personal use
7) If you want less of something .... tax it .... do we really want fewer houses ?
AND MOST IMPORTANTLY :-
We already have Capital Gains tax in New Zealand
If you buy and sell more than 3 properties in 5 years , you are a deemed trader and subject to tax on the profit
The same goes for shares and any other asset class  
The issue is that people simply dont include these gains in their tax return

Absolutely. The problem in our housing market is government, fees, taxes, red-tape and general pointless crap. More government in the form of capital gains will achieve nothing.

Increase tax = increased prices. 
 
Increased bureaucracy = increased prices. 
 
You'll find that a CGT also decreases supply to the housing market as many investors will change to a buy and hold strategy.  Unintended consequences. 

Happy123 - should have got comment of the day.

A silver lining perhaps? If more than 3 properties in 5 years results in tax, perhaps some of the most prolific money launderers are at least paying tax! Not on the proceeds of crime, but when they place it into legitimate investments; an indirect CGT? Sadly, they're probably onto this one too, and run transactions through different people and entities. The only saving grace then is not for IRD but for NZ Police because this sort of activity exhibits classic red flag indicators, to which real estate agents and lawyers are hopefully alert... 

You are very naive. You really think real estate agents or lawyers care? They don't. And I'm speaking from personal experience here.

Sorry for your personal experience (and I declare in fairness that I am a lawyer), but in my experience the vast majority of lawyers do care. Bar a few rotten apples as in any industry, the vast majority would be horrified to learn their services or their trust account has been used for laundering criminal funds.
The issue, in my experience, is that many lawyers don't know what money laundering looks like, or key indicators they are obliged by law and by their professional obligations to be on the lookout for.
I accept you could say perhaps some don't care enough to figure it out, especially if it's law they should be following themselves. I don't have an easy answer to that...

it's going to get even higher now that they can't go to Canada and some restriction to Australia
http://www.zerohedge.com/news/2014-02-12/did-canada-just-pop-its-housing...
 

Read to the bottom and there are 66,000 potential unhappy Canada applicants to flood NZ

Front pages of some Asian papers are going on about how Canada is stopping the business visa program. Can we expect the dirty money that was going there to be added to the amounts that is already coming into NZ? Spoke to a Bayleys agent last week and he was convinced its all Chinese money that is getting out of the homeland before it is discovered.

I would that is not a long bow to draw

Certainly global flows can switch quickly to easier countries as others become more difficult, although the real constraints depend on NZ's own controls; if Canada becomes difficult and we remain difficult, there may be little effect. And if most money laundered here is domestically derived, even if some divfrets it may not affect the total much.
The Bayley's comment is interesting. I've not seen any reserach or other hard evidence of it but anecdotally it makes sense. If illicit funds (eg from corruption) are leaving China as they clamp down, NZ is indeed a possible location, and NZ real estate may be an attractive place to 'park' wealth - it is high value, may increase in value, can generate income, and is reasonably liquid. We also have a large and vibrant Chinese community and if the funds have been well 'washed' before arrival here and the person also generates no red flags (eg senior officials, etc), it can be difficult to distinguish 'dirty' from clean money.

Now, just why would any Chinese millionaire wish to move his funds into New Zealand, in fact anywhere.?
What would the temptation be to skip the land of his birth, the land of his forebears, for such a xenophobic lot as portrayed here.?
Why would they wish to pay over the odds to escape a booming economy, leave their factories, leave their homes, leave all their relatives behind and the fringe benefits, they so obviously enjoy?
Why does Canada not want them.?
Why.?
Not allowed to say.

Reasons why money and officials are bailing out of china
Reason 1.  Horrible life threatening pollution.
reason 2. The aggressive anti corruption campaign led by Xi of the Communist party.  Nice article here on zero hedge http://www.zerohedge.com/news/2014-01-21/chinas-epic-offshore-wealth-rev...
They even have a name for officials who've managed to get their families out of the country "naked officials" or "luo guan" who are now no longer eligible for promotion in the communist party.
Reason 3. The worsening financial situation, possible collapse of the bond market, where do they want to be when that goes down.

Coincidentally this evening, I came across a write up of the guy that profiled the way people were/ still are using cayman island trusts to invest in London real estate to hide money from their governments.
http://blog.longreads.com/post/how-to-write-about-tax-havens-and-the-sup...
 

Nice piece, thanks

Nice piece, thanks

"Property at risk from money launderers", Sunday Star Times, 16 Feb 2014. New regulations for banks risk driving black money into real estate. Available at www.amlAssurance.com (Resources/News)