A Guide for Australian Real Estate Professionals 

A vendor wants to list a family home they've owned for 25 years.

The next customer wants to buy a $5 million commercial building through several companies, using funds arriving from overseas.

Which customer presents a higher level of risk?

That's exactly what Enhanced Customer Due Diligence (Enhanced CDD) is designed to help you assess. Enhanced CDD is about making sure the level of due diligence matches the level of risk.

Why real estate is a target for money laundering

The real estate sector is considered high risk because property can be exploited to hold, move or disguise the proceeds of crime. Money laundering is commonly described as involving three stages, although these stages don't necessarily occur separately or in a particular order:

1. Placement – introducing illicit funds into the legitimate financial system or economy.
2. Layering – using transactions or assets to move value between parties and distance money from its criminal origins.
3. Integration – making illicit funds appear legitimate through property sales, rental income or other apparently legitimate investment or business activity.

Red flags myths

One of the biggest misconceptions is that high-value properties, overseas buyers or wealthy clients are automatically suspicious, but this isn't the case. 

A red flag is an indicator that may warrant closer attention. It could be something that doesn't fit what you know about your client, their circumstances, the nature and purpose of the business relationship, or what you would reasonably expect from their activity.

A single red flag doesn't necessarily mean money laundering or other criminal activity is occurring. There may be a perfectly reasonable explanation.

As a real estate professional, you're often well placed to notice these inconsistencies. Your direct interactions with clients and involvement in the transaction can give you important context about what makes sense and what doesn't.

Common Real Estate Money Laundering Red Flags:

Recently renovated properties being quickly sold

A recently renovated property that has been improved using significant or unexplained funds and is then sold shortly afterwards may warrant further attention—particularly where the source of funds for the renovation is unclear.

Sale prices well above or below market value

Buying or selling property significantly above or below market value, especially where there is no clear commercial reason, should prompt further review.

Back-to-back transactions involving rapidly increasing property values or purchase prices may also warrant closer attention.

The key is understanding whether the transaction makes sense in the circumstances rather than assuming an unusual price is suspicious by itself.

Complex ownership structures

Ownership through multiple companies, trusts or overseas entities isn't automatically suspicious.

However, where the structure seems unnecessarily complex, doesn’t make commercial sense, or makes it difficult to understand who ultimately owns or controls the entities involved, it may require further inquiry.

Third parties controlling the transaction

If someone other than the client appears to be controlling the transaction, with little involvement from the client, it’s worth asking further questions to understand why.

This could include a client appearing to follow another person's instructions, purchasing property in someone else's name without a clear reason, or requesting that sale proceeds be paid to an unrelated third party.

Frequent property flipping

Buying and quickly reselling properties can be a red flag, particularly where properties are repeatedly bought and sold without a clear reason, or where values or purchase prices increase rapidly.

Property development, renovation and resale are legitimate activities. The concern is whether the activity makes sense when considered against what you know about the client, their circumstances and the purpose of the transactions.

Sight-unseen purchases

Buying property without viewing it isn’t automatically suspicious. However, a sight-unseen purchase may be more concerning where it is accompanied by unexplained funding, unusual third-party involvement or reluctance to complete customer due diligence.

Unusual payment arrangements

Late changes to payment arrangements, or payment methods or transactions that don't follow normal commercial expectations should prompt further questions. Particularly where there is no clear reason for the change.

Other indicators may include unusual third-party payments, unexplained sources of funds, offshore funding, virtual assets, private lending arrangements or requests to direct sale proceeds to an unrelated third party.

Reluctance to provide documentation

Reluctance to provide information or documentation can be a red flag, particularly where there’s no clear reason for it.

A client who appears reluctant to undergo customer due diligence, is unusually secretive or obstructive, provides false or misleading information, or attempts to avoid identification or verification checks may present additional risk.

Trust your knowledge of the client

A red flag doesn’t always mean something suspicious is happening. There may be a perfectly reasonable explanation.

The key is to look at the bigger picture. Think about what you know about the client and whether their behaviour and the transaction makes sense. If something doesn’t add up, or you notice several red flags, you should ask additional questions and escalate the matter internally to your AML/CTF Compliance Officer (AMLCO).

Suspicious behaviour should always be assessed within the context of your business, your client base and the specific transaction. A behaviour that may be considered a classic red flag in one situation could be reasonable in another.

Rather than focusing on individual indicators in isolation, look for patterns of behaviour or inconsistencies between what you know about the client and the transaction.

What to do if you identify a red flag

If something doesn't feel right: Record your observations and why they concern you. Good records help the person reviewing the matter understand what happened and why it was raised. Record the facts, relevant information provided by the client and any inconsistencies you identified.

Ask follow up questions if required, but don’t reveal your concerns. Seek to understand the situation, without suggesting to your client that anything is wrong. 

Be mindful not to disclose information about an actual or potential suspicious matter report where doing so would or could reasonably be expected to prejudice an investigation. This can constitute ‘tipping off’ under the AML/CTF Act. Follow your agency's procedures for managing tipping-off risk.

Raise the concern in line with your internal reporting process. This could be with your manager or AML/CTF compliance officer. The appropriate person within your business can then assess the information and determine whether further action, including submitting a suspicious matter report to AUSTRAC, is required.

Remember - If it isn't documented, it didn't happen. Document what you observed, the questions you asked and the reasons for any decisions you made. Good record keeping is critical for demonstrating your decision making process during audits or regulatory reviews.

AML compliance is about understanding your clients well enough to recognise when something doesn't make sense. Real estate professionals are on the frontline, because they have conversations and insights that put you in a good position to spot red flags. By recognising red flags, identifying unusual behaviour, asking appropriate questions, documenting concerns and escalating them appropriately, you can help your agency meet their AML/CTF obligations while helping protect Australia's property market from criminal exploitation.

Contact AMLHUB today to book a demo or discuss how we can help your organisation transition seamlessly into the new regime.