Efforts by the Australian government to combat money laundering could have a highly impact effect upon the huge revenues its reaping from foreign purchases of domestic property.

Regulators have recently come under fire for failing to adequately monitor foreign acquisitions of Australian real estate and ensure that they are in full compliance with domestic law. The property sector may already be host to far more nefarious forms of illicit activity, however, given Australia’s continued lax scrutiny of the use of real estate holdings for money-laundering purposes.

Intergovernmental anti-money laundering (AML) body the Financial Action Task Force (FATF) has just released a scathing assessment of Australia’s law enforcement and regulatory arrangements for addressing the problem of illicit, cross-border cash flows.

FATF was particularly critical of Australia’s “narrow focus” on AML risk in relation to the headline-grabbing areas of drugs, fraud, tax evasion and terrorist activity, at the expense of far greater sources of money-laundering hazard such as foreign property investment.

According to the report, Australia is at considerable risk of becoming a magnet destination for illicit proceeds from abroad that are channelled to the country by overseas nationals who “find Australia a suitable place to hold and invest funds, including in real estate.”

FATF lambasted the absence of regulatory measures for addressing the problem of overseas money laundering in Australia’s property sector. Its report notes that the government has failed to impose anti-money laundering controls – such as the obligation to report suspicious transactions – upon realtors and legal advisers, despite authorities having long identified real estate as being at high risk for money laundering activity.

The FATF report found that Australia had made only dilatory progress on AML measures overall, concluding that the country was compliant with just 24 out of 40 of its recommendations.

The Australian government may find itself in an odd quandary of conflicting interests, with the need to properly address money laundering and protect Australia’s reputation as a clean and stable jurisdiction pitted against the immense revenues that can be reaped by leaving the floodgates open to foreign investment – particularly from a resurgent Chinese economy.

Credit Suisse recently issued the forecast that $60 billion in new investment from China is set to flood Australia’s housing market over the next six years. This amount is more than twice the $28 billion spent by Chinese nationals on Australian residential property during the preceding six-year period, already raising hackles amongst those concerned by surging property prices and home affordability.

The Australian government stands to obtain huge proceeds from this surge in real estate investment hailing from the PRC, and any crackdown on money laundering has the potential to stifle a vastly lucrative source of revenues.

At the same time, it’s also heavily incumbent upon the Australian government to maintain regulatory standards or else risk the standing and health of the overall economy. A country’s reputation plays a critical role in international trade, and any diminution in Australia’s lustre as a stable and comparatively corruption-free jurisdiction has the potential to cost it billions of dollars in foreign investment.