Australia considers tighter anti-money laundering rules for real estate, gems

[SYDNEY] Australia is considering tightening its anti-money laundering regulations to include real estate agents and precious stone dealers, sources said, following red flags from a global watchdog over potential illicit cash entering the country.

While tighter regulations would not be aimed at inflows from any one country, Australian authorities are reacting following a surge of cash from wealthy Chinese buyers looking for a safe haven away from the market turmoil of their home markets.

Property has long been on Chinese buyers' radar, but in recent months they have been snapping up Australia's rare pink diamonds, part of an unprecedented capital outflow from China that is rattling Beijing.

The Paris-based Financial Action Task Force (FATF), which assesses the ability of countries to fight illicit financial flows, told Reuters a lack of scrutiny by Australian authorities in the property and precious stones sectors was "an increasing high risk" in the global fight against money laundering and financing of extremists.

Australia's Attorney General's Department, responsible for the country's law and justice framework, is reviewing its rules to address those concerns, people familiar with the plans said. The rules already cover banking, remittance and gaming. "The review is considering the potential extension to services that pose high money laundering and terrorism risks, including services provided by precious stone dealers, lawyers, accountants and real estate agents," one of these people said."The review report will recommend options for reform." Under Australian regulations, foreigners can splurge millions in cash for precious stones or a prime property without having to identify themselves or the source of their funds.

The latest asset of choice for wealthy Chinese buyers appears to be pink diamonds - prized for their rarity. They make up just 0.01 per cent of the world diamond market.

Wealth managers and precious stones dealers said Chinese, already the second-largest buyers of diamonds globally, are increasingly flocking to buy the gem in Australia, which produces 90 per cent of the world's pink diamonds.

There is no national data on sales, but these sources say anecdotal evidence shows a sharp rise in buying in recent months. "Rich Chinese are coming to Australia to buy pink diamonds, only the finest and rarest of pinks are mined here," Rami Baron, president of the Diamonds Dealers Club of Australia, said.

The price of pink diamonds has nearly doubled in the last five years. Jewellers say one carat of top quality pink diamond can cost more than A$1 million (US$690,000) versus about A$23,000 for a flawless white rock.

However, sellers of diamonds are under no obligation to ask buyers where their funds come from, Baron said. "We are in full support of all steps which eliminates the rogue element in our industry. However, we are neither police nor the tax man."

Chinese individuals are limited to moving US$50,000 a year offshore. But an explosion in capital outflows since a slump in stocks markets last year and an unexpected devaluation of the yuan, has raised concern in Beijing that funds are being moved out of the country illegally. Authorities have announced measures to tighten loopholes.

Reflecting the increased pressure on capital outflows, China's foreign exchange reserves - the world's largest - fell a record US$512.66 billion in 2015 to US$3.33 trillion.

Anti-money laundering experts say diamonds offer many advantages for those looking to skirt cross-border financial restrictions. They are light, small and portable and unlike cash, don't have to be declared to customs and cannot be spotted by metal detectors.

The FATF said Australia agreed in 2003 to extend strict controls to sectors including precious stones and real estate, but had yet to act on those promises. Lax policing of a requirement for visitors to declare cash exceeding US$10,000 per head at Australian airports is compounding its concern, FATF said. "From the data and the on-site discussions it seems that custom officials would generally not pro-actively question a traveller who declares such large sums of cash," the FATF said last year in a report, which cited the risk of illicit funds flowing from China and other Asia-Pacific countries.

Australia is much more at risk from money laundering or cash smuggling in the property sector, experts say, with cash purchases rampant for most price ranges.

Among Chinese property buyers, about 70 per cent pay in cash and fewer than a tenth use bank funding, said Simon Henry, co-CEO of juwai.com, the largest real estate portal that targets Chinese buyers looking abroad.

Apart from bringing suitcases of cash from China, money laundering experts say many wealthy buyers use fake invoices and underground banking to expatriate funds. "I know (Chinese) use various schemes to get around the restrictions including using multiple family members and friends, etc," said John Cassara, a money laundering expert and former US Treasury agent. "But I suspect they also use (underground banking). And I also suspect that a number of Chinese imports from Australia are over-valued, thus allowing excess payment to be made to fronts in Australia."

REUTERS