Organised crime syndicates are believed to be using Australia's surging housing market to launder money, prompting a push for stricter oversight of property purchases.
The laundering practice was highlighted in the 2014-2015 annual report by the New South Wales state government's Crime Commission, which warned that high property prices had "provided greater opportunities for organised crime syndicates to launder millions of dollars".
The commission said some foreign buyers of property may "unwittingly" end up being used by drug gangs to launder money. "The transfer of legitimate offshore funds to Australia presents a very low-risk opportunity for organised crime to launder drug proceeds within Australia," said the report, tabled in Parliament last November.
The warning comes as the federal government considers tougher rules, including the possibility of extending strict anti-laundering and counter-financing measures that now cover entities such as banks and casinos to real estate agents as well as lawyers, accountants and precious stone dealers.
A review of the current measures started in December 2013 and is now "in its final stage", according to the government's website. Actions required by the measures can include strict customer identification and record-keeping practices, customer due diligence and reporting of suspicious activities.
Much of the recent concern over money laundering has focused on the growing numbers of home buyers from China.
About 70 per cent of Chinese property buyers reportedly pay in cash - a practice which helps them to circumvent laws restricting citizens to moving only up to US$50,000 (S$72,000) out of the country per year.
The Financial Action Task Force, a Paris-based international anti- laundering agency, also drew attention to the issue last year, saying that "large amounts are suspected to be laundered out of China into the Australian real estate market".
The NSW Crime Commission report provided an intriguing insight into how criminals are moving laundered funds in and out of Australia.
In a practice known as "cuckoo smurfing" - which involves using innocent third parties to move dirty funds - criminals and gangs in Australia wanting to buy drugs from abroad give the money to "remittance agents".
These agents separately take money from an innocent offshore property buyer and then transfer those funds to the offshore drug supplier. The money in Australia is then used to buy the property, while its offshore buyer has no idea that his money was not actually transferred into the country.
Describing an investigation involving an offshore "individual of significant wealth", the commission said the innocent investor - who was not named - decided to use a remittance agent rather than a bank because he was offered a much better exchange rate and saved tens of thousands of dollars.
"The owner of the funds was implicated unwittingly in money laundering through the transfer of funds for a legitimate property transaction in Australia," the commission said in its annual report, adding: "It is likely that this is not an isolated incident."
Some states, such as New South Wales and Western Australia, have updated their guidelines for real estate agents in recent years to ensure the agents check the identities of sellers or their representatives, including asking for valid passports as well as other documents such as bank statements.
But the association of real estate agents said the sector should not be subject to onerous reporting rules.
"Putting the onus on us to beresponsible for checking identification and the source of funds is barking up the wrong tree because foremost we are responsible to the seller to sell a home when instructed," Mr John Cunningham, president of the Real Estate Institute of New South Wales, told Fairfax Media last week.