A real estate agent receives a $25,000 deposit from a buyer who appears nervous and provides inconsistent information about their employment. What should the agent do under AML/CFT requirements?
Correct Answer
B) Look into the red flags and consider a suspicious activity report
Nervousness and inconsistent employment details are red flags. A buyer the agency does not act for is not its AML/CFT customer, so the duty that applies is to weigh the red flags and, if they give reasonable grounds for suspicion, report to the Financial Intelligence Unit within three working days.
Why This Is the Correct Answer
Under reg 5B of the AML/CFT (Definitions) Regulations 2011 a real estate agent's customer is its client, so a buyer the agency does not act for is not owed customer due diligence. Suspicious activity reporting still applies: if the inconsistent information gives reasonable grounds for suspicion, the agency must report within three working days (s 40 of the AML/CFT Act 2009).
Why the Other Options Are Wrong
Option A: Accept the deposit, as long as the buyer shows proper photo identification
Photo identification shows who the buyer is, not where the money came from; the red flags still have to be weighed for a suspicious activity report.
Option C: Refuse the deposit and tell the buyer that the agency suspects money laundering
Telling the buyer of the suspicion risks tipping off, which the Act prohibits in relation to suspicious activity reports (s 46).
Option D: Accept the deposit but require the buyer to supply extra references
References do not address the red flags or answer whether a suspicious activity report is needed.
Deep Analysis of This Compliance Question
This question tests understanding of Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) obligations under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. Real estate agents are reporting entities and must identify and respond appropriately to suspicious transactions. The scenario presents classic red flags: nervous behavior, inconsistent employment information, and a large cash deposit. These indicators suggest potential money laundering activity. The agent cannot simply accept identification at face value when suspicious circumstances exist. Enhanced customer due diligence (EDD) is mandatory when standard due diligence is insufficient to manage money laundering risks. This connects to broader compliance obligations where agents must balance business operations with legal responsibilities to prevent financial crime and protect the integrity of New Zealand's financial system.
Background Knowledge for Compliance
Under the AML/CFT Act 2009, real estate agents must apply enhanced due diligence in the situations in section 22, including unusual transactions and wherever their own risk assessment calls for it. Enhanced due diligence adds checks on the source of funds or wealth. Suspicious activity must be reported within three working days of forming a suspicion, and the report must not be disclosed to the customer.
Memory Technique
Inconsistent stories, nervousness and money that does not fit the person are red flags: look closer with enhanced due diligence, and report if suspicion forms.
Use it when a scenario describes behaviour, rather than a dollar figure, as the warning sign.
Exam Tip for Compliance
Behavioural red flags call for enhanced due diligence and a report if suspicion forms, never for tipping off the client.
Real World Application in Compliance
A buyer paying a $25,000 deposit says he is a teacher, then a contractor, and becomes anxious when asked about the money. The agency asks for bank statements showing where the funds came from. The explanation does not hold together, so its compliance officer files a suspicious activity report without telling the buyer.
Common Mistakes to Avoid on Compliance Questions
- •Accepting standard identification when red flags exist
- •Focusing on payment method rather than suspicious behavior
- •Thinking additional references constitute proper enhanced due diligence
Related Topics & Key Terms
Key Terms:
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- → 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?
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