A client provides a bank cheque for $30,000 as a deposit and mentions recently selling cryptocurrency to fund the purchase. Under AML/CFT requirements, what is the appropriate next step?
Correct Answer
B) Verify the source of the funds and apply enhanced due diligence
When there are indicators of higher risk, such as cryptocurrency involvement, agents must verify the source of funds and conduct enhanced due diligence. The mention of cryptocurrency sales is a risk indicator that requires additional verification steps under AML/CFT obligations, but doesn't automatically require refusing the transaction or immediate reporting.
Why This Is the Correct Answer
Real estate agents are reporting entities under the AML/CFT Act 2009. A client's statement that funds come from cryptocurrency is a risk indicator, so the agency should understand and verify the source of funds and, where its risk assessment calls for it, apply enhanced due diligence (s 22(1)(d)). If the checks reveal grounds for suspicion, a suspicious activity report follows.
Why the Other Options Are Wrong
Option A: Refuse the deposit, because cryptocurrency proceeds cannot be used to buy property
New Zealand law does not ban property purchases funded by cryptocurrency sales; the risk is managed through due diligence.
Option C: Accept the bank cheque with no further checks, since a bank has already issued it
A bank cheque shows where the money was banked, not where it came from; the agency must still understand the source of funds.
Option D: Report the transaction to the Financial Intelligence Unit straight away
A suspicious activity report is due once there are reasonable grounds for suspicion; a mention of cryptocurrency alone is not that, so checks come first.
Deep Analysis of This Compliance Question
The AML/CFT regime is risk-based. Cryptocurrency is lawful but can obscure where money came from, so it raises the risk rather than settling it. The proportionate response is to find out: exchange records, the wallet history, and bank statements showing the conversion to New Zealand dollars. Refusing outright, or reporting before there is any real suspicion, are both over-reactions; accepting without checks is an under-reaction.
Background Knowledge for Compliance
Under the AML/CFT Act 2009, real estate agents must conduct customer due diligence, apply enhanced due diligence in the situations listed in section 22 (including where their own risk assessment calls for it), and report suspicious activity to the Commissioner of Police through the Financial Intelligence Unit within three working days of forming a suspicion (s 40). Since 2017 the Act has used the term 'suspicious activity report'.
Memory Technique
V-E-R-I-F-Y: Verify source, Enhance due diligence, Risk indicators present, Investigate further, File reports only when suspicious, Yes to legitimate transactions after proper checks. When cryptocurrency or other risk indicators appear, always VERIFY before accepting or rejecting.
When you see AML/CFT questions involving risk indicators like cryptocurrency, remember VERIFY. Don't immediately refuse or report - first enhance your due diligence to verify the source of funds and assess legitimacy.
Exam Tip for Compliance
A risk indicator calls for more checks; a formed suspicion calls for a report. Know which one the scenario describes.
Real World Application in Compliance
A real estate agent receives a $50,000 deposit from a client who mentions selling Bitcoin to fund their house purchase. The agent requests additional documentation including cryptocurrency exchange records, bank statements showing the conversion to NZD, and proof of the original Bitcoin acquisition. After reviewing these documents and confirming the legitimacy of the transaction, the agent accepts the deposit and proceeds with the sale, maintaining detailed records of the enhanced due diligence process for compliance purposes.
Common Mistakes to Avoid on Compliance Questions
- •Refusing cryptocurrency-funded purchases outright
- •Treating a bank cheque as proof of the source of funds
- •Reporting before any grounds for suspicion exist instead of doing the checks
Related Topics & Key Terms
Key Terms:
More Compliance Questions
A real estate advertisement states 'Best value in the area' without any supporting evidence. Under the Fair Trading Act, this statement is:
Under the Fair Trading Act 1986, which statement about advertising a property for sale is correct?
An agent holds $180,000 in trust across four transactions. One agreement is validly cancelled because the purchaser's finance condition was not met, and both parties' lawyers confirm the $60,000 deposit is to be refunded to the purchaser. What is the correct trust account procedure?
Under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, what is the minimum threshold for conducting customer due diligence when establishing a business relationship in real estate transactions?
An international client buying a $2.8 million commercial property provides a copy of their overseas passport but refuses any further identity checks or information, claiming diplomatic immunity. How should the agent proceed under AML/CFT requirements?
- → Which statement best describes the trust account requirements under the Real Estate Agents Act 2008?
- → An agency's trust account reconciliation reveals that interest earned on client deposits has been retained by the agency rather than distributed to clients. This practice is:
- → According to trust account regulations, how long must real estate agencies retain records of trust account transactions?
- → What is the primary purpose of the Consumer Guarantees Act 1993 in relation to real estate services?
- → Under the Consumer Guarantees Act 1993, if a real estate agent fails to exercise reasonable care and skill when marketing a property, what remedy might be available to the client?
- → A real estate agency's trust account shows a shortage of $5,000 during a routine audit. What is the most serious disciplinary order available under the Real Estate Agents Act 2008?
- → A real estate agent advertises a property as having a 'new roof' when they know it was repaired but not replaced. A buyer purchases based on this information and later discovers the truth. Which Acts could potentially apply to this situation?
- → Which statement best describes the primary purpose of trust accounts in real estate transactions?
- → A property advertisement states 'Guaranteed rental return of 8% per annum', although no one has contracted to pay that return. Under the Fair Trading Act 1986, this statement is:
- → How long must real estate agencies retain AML/CFT compliance records after a business relationship ends?
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