Lawyers: It’s time to clean up the mess

LAWYERS and property professionals say they welcome moves to curb tainted cash flowing into real estate, but worry about the industry impact amid a lack of detail on the proposed reforms. 

Real Estate Institute of NSW chief executive Tim McKibbin said the potential negative effect of the reforms was a concern, but it was hard to assess given the changes remained unclear.

In May, the federal government announced a second stage of industry consultation on the reforms, following feedback from an initial consultation round in 2023.

“We’ve had the benefit of a presentation from the Attorney-General’s department but that presentation indicated that they were still in consultation,” McKibbin told Australian Conveyancer.

“They are certainly trying to minimise the impost both from an administrative commitment and costs, nonetheless there will still be a significant burden.”

McKibbin said one aspect was clear – property professionals would need to get across a range of new terms that would accompany the extra obligations on the sector.

He pointed to terms such as client due diligence (CDD), verification of identity (VOI), know your client (KYC), anti-money laundering (AML) and counter-terrorism financing (CTF). “We do know that people will have to comply with all of those obligations and there’s going to be overlap,” he said. “What we are hoping to be able to do is to work with other service providers in the property transaction so there is not a doubling up of costs.”

Even so, he forecast big set-up costs for businesses in getting compliant.

“I am concerned, based on what New Zealand real estate agents have been through,” McKibbin said, referring to the introduction of stricter AML/CTF laws there.

When Tranche 2-style reforms were introduced in New Zealand, they required many real estate agents to hire extra staff, with additional costs said to reach $NZ100,000.

While most mid-size and large businesses in New Zealand were able to cope with the extra costs, some smaller players were hit hard, according to McKibbin.

“Some of the smaller offices over there found the burden too onerous and as a consequence they closed the business or merged with other businesses.”

Lawyers, too, are worried about the burden of the new laws, especially at small firms.

Indeed, the Law Council of Australia, in its submission to an inquiry into the reforms, said it was key that sole practitioners and small practices, particularly in regional and remote areas, were not burdened with excessive AML/CTF obligations. 

The small end of town also needed expert support to get its existing risk management practices up to speed with best practice, the legal peak body said.

David Chung, founding director of Brisbane-based Creo Legal, said he was worried about the impact of the changes on small firms. 

“The Tranche 2 reforms make sense on paper, but my concern as a boutique law firm principal is the cost and burden of compliance,” Chung told Australian Conveyancer. “Before my firm grew, I was a sole practitioner and any sole practitioner would have a hard time with the additional admin and reporting involved.”

In Chung’s view, it was likely that small firms would “simply stop offering certain services that trigger the Tranche 2 rules” once the tougher laws took effect.

The alternative was for lawyers to charge more for impacted services.

“Our clients ultimately are the ones who bear the cost of the legislative changes,” he said.
“Lawyers already use their common sense and notify the authorities of any suspected criminal behaviour. There is no incentive for lawyers to facilitate the crimes of their clients.”