Real estate transactions are conducted with cash and/or loans or withdrawals from a financial institution. This collides with the anti-money laundering/counter terrorism financing (AML/CTF) regulated sector of financial institutions that monitor the possibility of money laundering through real estate.
If you are a registered agent, you must implement anti-money laundering/counter terrorism financing (AML/CFT) measures. This occurs if you:
Represent a client who is involved in the trade of real estate
Accept a cash deposit from a buyer of real estate, that surpasses the amount specified by your relevant regulatory regime.
Real estate transactions involve significant cash transactions that conceal ownership and source of funds information. This permits shell corporations and criminal proceeds to be laundered through real estate, putting agents at risk of exploitation. Numerous types of transactions involving third parties, transactions above market value, and business relationships with clients based overseas or in a sanctioned nation are among some of the issues that the real estate sector faces.
By following requirements of KYC, and enhanced due diligence of “know your buyer” and “ultimate beneficial owner”, real estate agents can remain compliant. Scrutiny of high-cash transactions, investigation of deals that are attempted but not completed, and declaration of the source of funds, are other ways agents can avert being used as conduits for money laundering/terrorism financing (ML/TF).
Real estate agents can remain compliant by adhering to KYC and enhanced due diligence for "know your buyer" and "ultimate beneficial owner." Other ways agents can avoid being used as conduits for ML/TF include scrutiny of high-cash transactions, investigation of attempted but uncompleted transactions, and the disclosure of the source of funds.
Gaps in Compliance
The ability to purchase real estate with cash enables the integration of the proceeds of crime into the legitimate economy. Other factors, such as artificially increasing the value of real estate through renovations and the absence of transparency in transactions and ownership structures, make the real estate sector susceptible to ML/TF. By addressing these deficiencies, the real estate industry can prevent money laundering, identity fraud, scams, and abnormal property inflation.
It is expected for real estate agents and agencies to establish risk-based compliance program framework. They are further expected to:
Perform a risk-based assessment of exposure by client type, service channel, property listing, operating country, deal size, nature of transactions as well as client relationships.
Develop strategies and controls to reduce and mitigate risks
Establish an AML/CTF program that identifies clients, including ultimate beneficial owners and business relationships.
Enforce a risk-based procedure with continuous monitoring of business relationships and transactions.
Maintain your Compliance Program
As per the regulations of your regulatory body, it is necessary to establish and maintain your compliance program. Penalties for non-compliance may be monetary or criminal in nature.
Constant compliance entails:
Training and educating staff, property developers and other partners.
The performance of Customer due diligence (CDD when establishing a new business relationship with a client or when there is a material change in the client relationship.
Maintaining records for a minimum of five years.
Continuous account and CDD monitoring.
Reviewing your compliance program on a periodic basis.