On our radar: AML/CFT review

On 30 June 2022, the Ministry of Justice presented a report to the Minister of Justice on how the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act has performed since 2017, making recommendations for changes to the Act and/or regulations. Melisa Beight discusses the potential ramifications for real estate professionals of a proposed sweeping change to the AML/CFT regime.

We have all been concerned by the prospect of a sweeping change to the AML/CFT regime. Not only because of its requirement of licensees to not only complete customer due diligence on their vendor client (unless they are a buyer’s agent) but also/instead be required to do due diligence on purchasers/prospective purchasers. The implications for the real estate profession would be immense.

REINZ and members strongly opposed this proposal for a multitude of reasons:

▪ Ordinarily a real estate agent does not have a business/contractual relationship with the purchaser

▪ A real estate agent is expressly prohibited from having a business/contractual relationship with both parties in the same transaction; it would contravene an agent’s legal obligations

▪ It would be unduly onerous, impractical and in some cases impossible for real estate agents to complete due diligence on prospective purchasers

▪ It would create further impediments to an already time-poor profession

▪ There would be a doubling or tripling of financial costs depending on what stage in a transaction a real estate agent would be conducting customer due diligence on the purchaser, for very little gain given others do due diligence on purchasers, including their banks and lawyers

▪ These other professionals (banks and lawyers) are better placed than real estate professionals to detect red flags.

REINZ filed detailed submissions opposing a change to the status quo and facilitated two extensive feedback rounds, enabling members to explain their concerns to the Government regulators directly. Below are some of the likely repercussions if the radical change proposed were adopted:

▪ The introduction of additional AML obligations in relation to non-client purchasers in certain circumstances would likely become a de facto requirement for real estate professionals to complete due diligence on all purchasers. Other than a suitcase full of cash or overpayment of the deposit, what else is likely to raise red flags to a real estate professional who has no prior knowledge of, or contractual relationship with, a prospective purchaser?

▪ It would significantly change the New Zealand property market. Purchasers could decide not to satisfy AML to get out of an otherwise unconditional sale. It would create uncertainty and delays in every sale. It would likely undermine how we transact real estate in New Zealand.

While we have received a reasonable degree of comfort (verbally) that there will be no unwanted surprises for the real estate sector, we aren’t able to let out that collective sigh of relief just yet — not until the long-awaited report is released.

We hope the recommendation for the real estate sector will be to take a closer look at where the risk lies and how that risk can be mitigated before recommending any farreaching changes. Because at this point, we haven’t seen hard evidence that anything within real estate professionals’ sphere of control needs changing.

As always, we will keep you updated on any further progress.

Melisa Beight, General Counsel, REINZ