A national 80-branch real estate agency Property Brokers got the first formal warning in the real estate sector for not complying with anti-money laundering law but the chain's chairman Tim Mordaunt said the state only was trying to make an example of them.
Te Tari Taiwhenua Department of Internal Affairs issued a formal warning to the successful chain with 300 staff. No fines were imposed.
"This is the first formal warning issued to a real estate agent under this legislation," the department said of the agency's non-compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
Tim Mordaunt, Property Brokers' chairman, said today: " I think they are making an example of us because it's quite new legislation. We felt we were being very compliant but it's only been two years since it came in. We're all learning. We felt we were being very efficient."
Asked if staff at any particular office or area of New Zealand failed to comply or if it was more national, Mordaunt said: "No. They look at your processes. Accountants, solicitors and real estate agents - everyone is trying to get up to speed. It's quite simple for an individual like yourself, but when you've got a company or a trust, it's far more detailed and difficult to get the information you require. They're just looking at our processes and saying there are some aspects we could improve."
Training was one focus for Property Brokers to ensure legal compliance, Mordant said of the business with residential, rural and commercial property activities.
Internal Affairs said: "Property Brokers Limited have failed to meet several of their AML/CFT obligations relating to the establishment, implementation and maintenance of their AML/CFT programme and the hiring and training of compliance staff. They also failed to have adequate policies, procedures and controls for monitoring compliance or to follow guidance material from AML/CFT supervisors.
"They are not alleged to be involved in money laundering or the financing of terrorism."
Mike Stone, Internal Affairs' anti-money laundering group director said: "Real estate is a high-value asset often used domestically and internationally to launder and invest criminal proceeds. Businesses have an obligation to have robust processes in place to protect them from misuse.
"Our inspection of Property Brokers highlighted concerns and we have a responsibility to act on these concerns. New Zealanders need to have confidence and trust in the integrity of the New Zealand financial system," Stone said.
The chain must take immediate action to rectify all non-compliance areas and the department will continue to closely monitor it.
"Penalties for continued non-compliance can result in civil penalties of up to $200,000 in the case of an individual and $2 million, in the case of a body corporate and criminal penalties of imprisonment for up to two years or a fine of up to $300,000, in the case of an individual and $5m in the case of a body corporate," Internal Affairs said.
The law had established a system to detect and deter money laundering or the financing of terrorism and to maintain and enhance New Zealand's international reputation while growing public confidence in the financial system, it said.
The agency chain got its formal warning on January 14 but no statement was made until today.
Joanna Pidgeon of Pidgeon Law in Auckland said agents were required to comply, the same as lawyers, accountants and banks.
"Their compliance obligations started on January 1, 2019 and involve verifying identities of clients, source of funds, having a compliance programme, training staff, among other reporting requirements," she said.
Any professional service organisation operating a trust account was at risk. Parties using that trust account could launder or wash money because trust accounts impact on the ability to transparently seeing where funds are paid to at first glance because they hold funds on behalf of third parties, Pidgeon said.
"With a real estate agency, purchasers can pay a deposit into a trust account and then not proceed with a transaction. That can provide an opportunity to launder funds for the less scrupulous because the funds appear to have come from a reputable third-party source, in effect cleaning the money," she warned.
All firms acting in this area needed to do their part by ensuring that they implemented regulatory programmes to ensure financial system integrity.
"There are many consultancy firms who supply the services to assist with meeting those obligations," Pidgeon said.
Bindi Norwell, Real Estate Institute chief executive, said her entity had worked closely with the sector to help ensure it was ready and aware of obligations.
"We have held workshops, co-presented at several roadshows around the country, created information sheets and formed solid working relationships with several AML suppliers that can support our members in this space.
"Since 1 January 2019, we have continued to remind the profession of their obligations on a regular basis," she said.
The Property Brokers' warning was a surprise but the chain was a well-respected agency "and we're sure they will treat this warning as a matter of urgency and look to rectify any issues of non-compliance as soon as possible, she said.
The changes caused considerable costs yet $1.3b of illicit funds were laundered in New Zealand annually so it was essential the sector complied, Norwell said.
John Waymouth, a barrister specialising in property law, said compliance systems and processes were considered an essential part of all responsible real estate agencies business processes.
"It is surprising that a national real estate agency is non-compliant when other agencies engage third-party verification systems, appoint in-house fully-trained compliance managers and provide all their sales teams with extensive training.
"This breach is made all the worse by the fact that the Real Estate Authority provided compulsory verified training in past years," Waymouth said.