When a buyer nominates someone else to take settlement, what are the CDD obligations? Does the original buyer's CDD transfer?

This is a common and complicated scenario in off-the-plan and broader real estate transactions.

Why the nominee is a new customer

A designated service is provided to a person in connection with the sale, purchase or transfer of real estate. When a contract is nominated to a different party, that party becomes the person taking the transfer. From the reporting entity's perspective they are a new participant in the transaction whose identity, beneficial ownership, PEP/sanctions status, source of funds and ML/TF risk profile have not been established. The CDD that was completed on the original purchaser (the nominator) establishes nothing about the nominee. It is retained as a record but does not satisfy the initial CDD on the new party.

This applies regardless of how the contract was drafted. An "and/or nominee" clause in the contract of sale does not pre-authorise the substitution from an AML/CTF perspective. It signals that nomination was contemplated, but each actual nominee must still be onboarded.

When the obligation triggers

The trigger is the point at which the reporting entity becomes aware of the nomination and is providing (or continuing to provide) a designated service in respect of the nominee. In practice:

Developer (direct sale) — the obligation triggers when the developer accepts or acknowledges the nomination notice. The developer is now selling to the nominee.
Real estate agent acting for the vendor — the obligation triggers when the agent becomes aware of and is dealing with the nominee in connection with the transaction.
Conveyancer or lawyer acting for the buyer — the obligation triggers when the practitioner is engaged or instructed to act for the nominee (which may be a different practitioner from the one acting for the nominator).

Timing for initial CDD on the nominee

AUSTRAC's published delayed CDD rule for real estate references "28 days after exchange of contracts, or before settlement, whichever is earliest." For a nominee, exchange occurred before they were on the scene, so this wording doesn't map cleanly. To meet your obligations you must make sure you:

Complete initial CDD on the nominee within 28 days of the nomination notice, or before settlement, whichever is earliest; and
Where settlement is imminent, CDD must be completed before settlement regardless.

The nomination itself could be a risk factor

The reason for the nomination must be understood and recorded. Nominations are commonly used for legitimate purposes — restructuring the buyer entity for asset protection or tax reasons, bringing in a spouse, transferring the contract into a self-managed super fund or a family trust. They also could be used for concealment, sub-sale profit-taking, and the introduction of new funds into a transaction without the scrutiny that would apply to a first-instance buyer.

The risk profile of a nomination depends heavily on its pattern. The following are higher-risk fact patterns and should be assessed as such:

Late nominations close to settlement — particularly where the nominator and nominee appear unrelated.
Multiple changes of nominee — chained or sequential substitutions in the same contract.
Nominee with no apparent connection to the nominator — no familial, corporate, or commercial relationship that explains the substitution.
Cash or non-transparent consideration paid to the nominator for the nomination rights — this is the classic sub-sale red flag.
Significant uplift between contract price and current market value captured by the nominator via nomination rather than a formal on-sale.
Foreign nominee, or nominee from a high-risk jurisdiction, particularly when the nominator was domestic (or vice versa).
Nominee structures that obscure beneficial ownership — multi-layered trusts, foreign companies, nominee companies without disclosed underlying owners.
Patterns observed across the developer's project — multiple lots nominated late in the cycle, particularly to similar end-buyer profiles, may indicate organised sub-sale activity.

Where any of these are present, enhanced due diligence (EDD) should be triggered. This includes deeper source-of-funds and source-of-wealth analysis, senior management approval to continue, and a careful assessment of whether a Suspicious Matter Report is warranted.

What happens to the nominator?

The nominator remains a customer for the period during which the reporting entity provided them a designated service. Records relating to their initial CDD must be retained for the standard 7-year period from when the service was provided or the relationship ended (whichever is later). The fact that they nominated out does not extinguish the original record-keeping obligation.

If the nominator received value in connection with the nomination (e.g. payment from the nominee for the contract rights), this may itself be relevant to ML/TF risk assessment of the original customer relationship and could in some cases warrant an SMR.

SMR considerations

A nomination by itself is not a suspicious matter. A nomination that fits one of the higher-risk patterns above, particularly in combination with reluctance to provide documentation, unclear consideration flows, or inconsistencies between stated purpose and observed behaviour, may meet the threshold for forming a suspicion. The standard reporting timeframes apply (24 hours for terrorism financing, 3 business days otherwise). Tipping-off rules apply — the nomination is not to be discussed with the customer in a way that signals SMR consideration.

When a buyer nominates someone else to take settlement, what are the CDD obligations? Does the original buyer's CDD transfer?

No, CDD does not transfer; the nominee is a new customer and triggers fresh initial CDD obligations for the reporting entity providing the designated service.

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