Third-Party Payments in Real Estate: AML Obligations

Third-party payments — where someone other than the named buyer settles a property purchase — are one of the most common money laundering techniques used in Australian real estate. Under Tranche 2 of the AML/CTF Act 2006, real estate agents will be required to identify, scrutinise, and in some cases decline these arrangements when facilitating the purchase or sale of real property. With 54 days until the 1 July 2026 deadline, understanding your obligations around third-party payments is no longer optional.

What Is a Third-Party Payment in a Property Transaction?

A third-party payment occurs when funds for a property transaction come from someone other than the named purchaser. Common examples include: - Cash deposited by an unrelated individual on behalf of the buyer - Bank transfers from overseas entities not party to the contract - Company or trust accounts paying on behalf of an individual buyer - Payments split across multiple sources to obscure the true payer In legitimate transactions, third-party payments are entirely normal — parents helping a child into their first home is a classic example. But they are equally a favoured technique for money launderers seeking to introduce illicit funds into the property market while hiding the money's true origin.

Why Is Australian Real Estate a High-Risk Sector?

AUSTRAC has consistently identified Australian real estate as a high-risk sector for money laundering in its national risk assessments. Property offers several features that make it attractive for those seeking to "clean" illicit funds: - High transaction values allow large sums to move in a single deal - Transactional complexity — multiple parties including agents, lawyers, and settlement agents — creates opportunities to obscure beneficial ownership - Asset appreciation means laundered funds can grow in value over time - Relative anonymity compared to regulated financial markets Both domestic and foreign actors have exploited the Australian property market to layer and integrate criminal proceeds. Tranche 2 is specifically designed to close this gap by bringing real estate agents into the AML/CTF reporting regime.

What Will Tranche 2 Require of Real Estate Agents?

From 1 July 2026, real estate agents providing designated services — including facilitating the buying and selling of real property — will become reporting entities under the AML/CTF Act 2006. Key obligations directly relevant to third-party payments include: 1. Customer identification and verification (KYC): Identify and verify not just the named buyer or seller, but also beneficial owners — the individuals who ultimately control or benefit from the transaction. 2. Source of funds inquiries: Where third-party payments are involved, take reasonable steps to understand where the funds originated. 3. Ongoing monitoring: Monitor transactions for unusual patterns, including unexpected changes in payment source close to settlement. 4. Suspicious Matter Reports (SMRs): If you suspect a third-party arrangement is being used to facilitate money laundering, you are legally obligated to submit an SMR to AUSTRAC — even without certainty. 5. Record retention: Documentation related to due diligence and transaction monitoring must be retained for at least seven years.

How Do You Identify a Suspicious Third-Party Payment?

Not every third-party payment warrants heightened scrutiny, but certain patterns should prompt a closer look. Watch for: - Refusal to explain the relationship between the buyer and the third-party payer - Payments from high-risk jurisdictions or routed through multiple intermediary accounts - Last-minute changes to payment source without a plausible explanation - Overpayment followed by a refund request — a textbook layering technique - Payers who cannot be identified or verified through standard means - Corporate or trust structures that obscure the ultimate beneficial owner, particularly where offshore entities are involved - Pressure to settle quickly before standard due diligence is complete If any of these flags are present, your AML/CTF programme should dictate a clear escalation path before the transaction proceeds.

What Steps Should Agents Take When a Third-Party Payment Arises?

A structured approach protects both your client and your agency. Here is a practical process aligned with your Tranche 2 obligations: 1. Identify the payment source early — ask about funding arrangements at the point of offer, not at settlement 2. Collect documentation — request evidence of the relationship between buyer and payer, such as a statutory declaration, loan agreement, or gift letter 3. Verify the third party's identity — apply the same KYC steps to the payer as you would to the buyer 4. Assess the risk — use your firm's risk rating framework to determine whether enhanced due diligence is needed 5. Escalate if required — if red flags remain unresolved, escalate to your AML/CTF Compliance Officer before proceeding 6. Consider whether to proceed — in high-risk situations, declining the transaction may be the appropriate outcome 7. File an SMR if warranted — suspicion, not proof, is the legal threshold for reporting to AUSTRAC AMLify's platform supports agents through each of these steps, with guided KYC workflows, automated risk scoring, and integrated SMR filing. See how it works at /features.

When Does Enhanced Due Diligence Apply?

Enhanced due diligence (EDD) is required when a transaction presents elevated money laundering risk. For third-party payments, EDD is likely triggered when: - The payer is located offshore, particularly in a jurisdiction on the Financial Action Task Force (FATF) grey or black list - The buyer or payer is a Politically Exposed Person (PEP) or has a close association with one - The payment structure is unusually complex without a clear legitimate commercial reason - The property value is high and the source of funds remains unclear after standard enquiries - Standard due diligence raises concerns that cannot be resolved through normal documentation EDD goes beyond standard identity checks — it may include obtaining senior management approval, detailed source-of-wealth documentation, and more frequent monitoring of the transaction as it progresses toward settlement.

What Records Must Real Estate Agents Keep?

Under Tranche 2, your record-keeping obligations apply to every transaction involving a third-party payment. Retain the following for a minimum of seven years from the date the designated service is provided: - Identity verification documents for the buyer, any beneficial owner, and the third-party payer - Written records of your risk assessment and the reasoning behind any decisions made - Source of funds documentation provided by the client or payer - Records of any escalation decisions made by your AML/CTF Compliance Officer - Copies of any SMRs submitted to AUSTRAC, including the date of submission Digital compliance platforms like AMLify store these records securely and keep them audit-ready, removing the administrative burden from your agents. Explore how at /features.

Key Takeaways

• Third-party payments are a leading money laundering indicator in Australian real estate and must be treated as a trigger for heightened scrutiny under your AML/CTF programme
• From 1 July 2026, real estate agents become reporting entities under the AML/CTF Act 2006, with KYC, source-of-funds, ongoing monitoring, and SMR obligations applying to designated services
• Enhanced due diligence is required when third-party payments involve offshore payers, Politically Exposed Persons, or opaque corporate structures without a clear commercial rationale
• An SMR must be filed when you suspect — not just when you know — that a payment arrangement may be connected to money laundering or financial crime
• Seven years of records must be retained for all due diligence steps, making a reliable digital compliance platform essential before the deadline

Frequently Asked Questions

Q: Do I need to verify the identity of a third-party payer as well as the buyer?

Yes. Your KYC obligations under Tranche 2 extend to beneficial owners and, where relevant, the source of funds. If a party other than the named buyer is providing funds for the transaction, you should identify and verify that person or entity using the same standard applied to the buyer. This includes collecting appropriate identity documents and confirming the nature of their relationship to the purchaser.

Q: What should I do if my client refuses to disclose where the funds are coming from?

A refusal to provide source-of-funds information is itself a red flag under the AML/CTF Act 2006. You should escalate the matter to your AML/CTF Compliance Officer immediately. Depending on your risk assessment, you may need to decline to provide the service and consider whether the circumstances warrant an SMR to AUSTRAC. Proceeding with a transaction when a client has refused to cooperate with due diligence exposes your agency to significant regulatory risk.

Q: Is it acceptable for parents to pay for their child's property purchase?

Intra-family third-party payments are entirely lawful and common in Australian real estate. However, you still have an obligation to understand and document the arrangement. A statutory declaration or written explanation of the gift or loan, combined with identity verification for the contributing party, is typically sufficient for a standard-risk transaction. The key is that you have completed your due diligence — not that the payment came from the buyer directly.

Q: What penalties apply if I fail to report a suspicious third-party payment?

Failure to submit an SMR when required is a civil penalty offence under the AML/CTF Act 2006. AUSTRAC has the authority to impose substantial financial penalties and, in serious cases, refer matters to the Australian Federal Police for criminal investigation. Beyond legal consequences, reputational damage from non-compliance can be significant in a trust-based industry where clients and vendors expect agents to operate with integrity.

Q: How much time do real estate agents have to prepare for Tranche 2?

As of 8 May 2026, there are 54 days until the 1 July 2026 commencement date. That is enough time to finalise your AML/CTF programme, train your staff, and implement compliant systems — but only if you act now. Agents who have not yet begun should prioritise establishing their programme documentation, appointing an AML/CTF Compliance Officer, and onboarding a compliance platform capable of supporting ongoing obligations.

This is general information only and not a substitute for legal advice.

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