Milan Cooper: Michael West Media
As the debate over the housing crisis ramps up in Parliament, the impact of money laundering driving up property prices has been largely ignored. Behind the scenes, work is being done for Australia to catch up to global standards, but for renters and first home buyers locked out of the market, the damage is done. Milan Cooper reports.
Money laundering is a global menace that threatens the integrity of financial systems, and its consequences extend far beyond the realms of finance. One sector that is being significantly affected by it, is the Australian property market.
In recent years, Australia has experienced a massive surge in illicit funds flowing into its real estate sector. In 2021, Transparency International Australia provided a list of 10 publicly-reported examples showing money laundering in the property market, from Sudan, China, Malaysia, Papua New Guinea, and Russia.
The examples described money-laundering in property by Sudanese generals, Malaysian bankers, PNG’s political elite, and Chinese high-rollers. And just as recently as February this year, the AFP conducted a money-laundering bust uncovering millions of dollars worth of Sydney homes – 20 addresses in total – and cryptocurrency and luxury items.
ANZ CoreLogic’s Housing Affordability Report for 2023 revealed it takes an average of 14 years for a person living in the Greater Sydney Area to save for a house deposit; and a person living in Greater Sydney is spending almost 34 per cent of their income on paying rent, and almost 63 per cent on servicing a new mortgage.
Situations like these are prime examples of how money laundering exacerbates the existing challenges that are already present in the property market, including the ongoing rental crisis.
Here’s how it really impacts us and its connection to the rental crisis in Australia.
Its grip on the property market
Australia’s robust and stable property market has long attracted international investors seeking secure investment opportunities. However, this desirability has also made it an attractive destination for money launderers. Criminals exploit various methods to launder illicit funds, including purchasing high-value properties, primarily in major cities like Sydney and Melbourne. They often exploit legal loopholes, shell companies, and complex ownership structures to obscure the true origins of the funds.
The consequences
- Inflated housing prices: Money laundering inflates property prices, making it increasingly difficult for ordinary Australians to enter the housing market. As illicit funds artificially increase demand, housing becomes more unaffordable for first-time homebuyers and low-income families, leaving them no choice but to rent, which increases demand and prices in the rental market.
- Distorted market dynamics: Money laundering distorts the supply-side dynamics of the property market, further exacerbating the pressures applied by an increase in post-covid net migration and a decrease in new builds caused by the collapse of multiple property developers. When properties are bought purely for money laundering purposes, they are often left vacant, reducing the number of available homes and worsening the housing crisis.
How it plays in the Australian rental crisis
There is no doubt that Australia is currently experiencing one of the worst housing crises we’ve seen in a very long time. The current demand for rental properties far outweighs supply, which has severe consequences; such as skyrocketing rental prices and even an increase in homelessness.
Australians from all demographics, young and old, are suffering as a result. And money laundering is compounding this crisis by diminishing the available rental stock, increasing rental prices and creating unfair competition for rentals – worsening the situation for vulnerable individuals and families.
According to superannuation fund Australian Retirement Trust, super releases on compassionate grounds are running at a record high, up 68% per cent year on year, with the key reason for early withdrawal being to make payments on a home loan. That’s an alarming number of Australians who are struggling to make mortgage repayments.
There’s no doubt that individuals and families are under huge financial strain and are struggling to find affordable housing due to the rising cost of living, interest rates and also having to compete with money launderers.
Just in the last year alone, according to property insights group PropTrack, the number of Australian properties listed for under $400 per week has halved. In 2022, 30.2% of all listings were under $400 – today, we’re looking at a measly 16.2%. And when you look at money launderers with their seemingly bottomless funds – they can outbid legitimate tenants or buyers, and further create unfair competition.
How Australia can combat this growing problem
Due diligence: Strengthening due diligence processes for property transactions is crucial. Real estate agents, lawyers, and other professionals involved in property transactions must exercise greater vigilance and conduct comprehensive Know Your Customer (KYC) checks to identify potential money laundering risks.
Improved regulatory framework: The Australian government should enact stronger regulations and legislation to address money laundering in the property sector. This may include stricter reporting requirements, increased transparency of ownership structures, and penalties for non-compliance. There are a number of red flags that indicate a money laundering transaction could be at play, including using a third-party to purchase the property. Regulation should exist to enforce reporting of such suspicious transactions.
Collaboration and information sharing: Effective collaboration among regulatory bodies, law enforcement agencies, and the private sector is essential. Sharing information and intelligence can help identify and mitigate potential money laundering risks in the property market.
The Australian property market, once a symbol of stability and prosperity, is being infiltrated by the dark underbelly of money-laundering. The consequences of this illicit activity extend beyond financial integrity, exacerbating the already dire housing crisis. It is imperative for regulators, industry professionals, and the government to take swift and decisive action to combat money laundering in the property sector.
Editor’s Note: for ten years we have put questions to successive governments about what was holding up the introduction of the Tranche II of the AML-CTF legislation which the Howard government promised would be introduced in 2008. The response has been that discussions are afoot with “stakeholders”.
As the laws would compel reporting on source of funds by lawyers, accountants and property developers, it is a reasonable bet that the lobby groups for these sectors have held up these vital reforms, leaving Australia to be condemned as an outlier globally on AML-CTF or as former ASIC chairman Greg Medcraft once put it, “a criminal paradise”.
Milan Cooper is Chief Executive Officer and Co-Founder at First AML. He formerly worked at Bain & Co, Air New Zealand and AJ Park Intellectual Property. He was educated in Auckland and Cambridge University.
