New rules to stop money laundering are about to hit the real estate industry, which is considered a high risk sector, according to the Justice Ministry.
Savills managing director in Christchurch Jonathan Lyttle said “it feels a little Orwellian” and some clients were unhappy about it.
The rules take effect from January 2019, and later next year will apply to companies selling jewellery and cars, to prevent criminals turning dirty money into clean money. A giveaway in the real estate sector might be when someone bought a property sight unseen, with cash, or in the name of someone else, a police document advises.
Suspicious scenarios include deposits containing counterfeit notes, cash with an unusual appearance or smell, large cash deposits using automatic teller machines, or drop boxes to avoid direct contact with bank staff.
Casino operators should watch for patrons wanting to exchange low denomination currency for higher valued notes, buying lots of gambling chips without gambling them before cashing up, notes with an unusual smell, and “patrons making verbal statements as to their involvement in criminal activity”, the police document said.
Suspicion will fall on people switching money in and out of several accounts, building up of large balances not consistent with the turnover of a customer’s business, and subsequent transfer to accounts held overseas.
Regular use of travellers cheques, early settlement of a loan with cash, or the use of shelf companies may also be suspicious.
Businesses can check the links on the police document to an official list of terrorist groups laundering money, ranging from Al-Shabaab, the IRA, ETA, Shining Path, and ISIL – the organisations may apply to the Prime Minister to be taken off the list.
Real estate firms have taken on extra staff or will use the services of third parties – one such company, AML Solutions, charges for an app and a subscription fee.
Businesses must provide formal verification of a client’s identity, and in some cases a detailed assessment of the transaction.
People using trusts must reveal specifically where the money for a purchase is coming from.
“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 – they must request documents confirming the client’s identity and, in some cases, verify that the source of their funds is legitimate,” Lyttle said.
“If the client can’t provide the documents, it’s likely that their agent won’t be able to act for them.
“Clients will need to be prepared for a much more stringent review of their assets, including the source of their funds,” Lyttle said.
Real estate agencies might have to overhaul their technology systems to deal with the additional requesting, processing and secure storing of confidential client information. They must appoint an AML compliance officer, report to the Department of Internal Affairs, and meet regular audits, Lyttle said.
Bayleys group general manager for legal and compliance, Caroline Williams, said clients will be required to show a passport, firearms licence, or driver licence along with another document such as a bank statement, plus a document showing their residential address – such as a local council rates bill or power bill.
Williams said Bayleys’ sales teams have received training outlining the intricacies of the new requirements so they can minimise delays.
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.