AUSTRALIA’S money laundering watchdog investigated more than $3 billion in suspicious transfers by Chinese investors last year, including $1 billion in property transactions.
The Australian Transaction Reports and Analysis Centre (AUSTRAC) has confirmed $3.36 billion worth of transactions contained in 5886 “suspect matter reports” filed with the intelligence agency by banks and remitters in 2015-16.
Of those, SMRs with a combined value of approximately $1 billion were related to real estate and property, AUSTRAC said. The suspect matter reports are not in themselves proof of wrongdoing.
But that figure, accounting for 4.4 per cent of the $76.7 billion in cash that flowed between China and Australia, has raised doubts about the ability of Australian and Chinese regulators to crack down on rorting of foreign investment rules.
Under Australian law, foreign investors can only purchase new homes or units — they are prohibited from buying existing dwellings. And Chinese citizens are restricted to moving a maximum of $US50,000 ($66,000) out of the country a year.
But rorting of the system is rife, The Australian reports. Many Chinese skirt the system by transferring the cash to agents in Australia via multiple small payments through networks of family and friends. Others may use networks of companies to purchase properties.
In 2015, a report from the Paris-based Financial Action Task Force (FATF) warned “large amounts” of cash were laundered out of China into the Australian real estate market, but under current anti-money laundering regulations, only financial institutions are required to report suspicious transactions.
The FATF criticised Australia for failing to include real estate agents, solicitors and accountants in its reporting requirements, as is the case in other major economies.
“There is a widespread belief that the renminbi will devalue significantly in the next couple of years,” Andrew Su, director of foreign exchange firm Compass Global Markets, told The Australian. “A lot of people believe it will depreciate about 30 per cent over the next few years.’’
Mr Su said Chinese citizens, many of whom became rich “very quickly” in China’s booming economy, wanted to get their money out of reach of corrupt government officials. “It was a little bit like the Wild West,’’ he said.
According to the Foreign Investment Review Board’s most recent annual report, the value of approvals for foreign investment in Australian real estate increased 75 per cent in the 2015 financial year to $61 billion, with Chinese accounting for around two-thirds of applications.
Last financial year, the Australian Taxation Office identified more than 270 breaches of foreign investment rules and issued 150 penalty notices totalling $695,980, the ABC reported. In the same period, Treasurer Scott Morrison approved the forced sale of 30 foreign-owned properties valued at $78 million.
“AUSTRAC is constantly vigilant to identifying increases in the number of suspicious transactions from various countries, including China,” AUSTRAC national intelligence manager Dr John Moss said in a statement.
“We’re confident that the agency’s approach with our Chinese counterparts through a recently signed Memorandum of Understanding, as well as close collaboration with Australian law enforcement and other partner agencies — such as the ATO, ACIC and FIRB — is providing an effective response to protect the Australian community from such financial crime.
“AUSTRAC plays an important role in educating the community about serious financial crime, such as money laundering and terrorism financing.”
It comes as real estate agents prepare for an influx of Chinese tourists visiting Australia for the Chinese New Year holiday, with a recent survey by property website Juwai.com finding nearly half were planning to go property hunting.
Housing affordability and the impact of Chinese investment on property prices are hot-button political issues, with NSW Premier Gladys Berejiklian describing the NSW housing crisis as “the biggest issue people have across the state”. Federal Treasurer Scott Morrison is also investigating the issue, looking to the UK’s affordable housing initiatives for inspiration.
But economists have downplayed the scale of the impact of foreign investment on prices. Last week, Sydney was ranked the world’s second most unaffordable housing market in Demographia’s annual index, but urban containment policies, not foreign investment, were singled out as the biggest culprit.
Amid a slowing economy, Chinese banks are getting creative, repackaging regular loans as “investment receivables,” which aren’t counted as loans on their balance sheets. But investment receivables can be risky. Here’s how they work. Video/Image: Menglin Huang/The Wall Street Journal