Why Real Estate need AML/CFT ?
Real estate deals are made in cash and/or through a financial institution as loans or withdrawals. This intersects the regulated AML/CTF sector of financial institutions that monitor the potential of money laundering through real estate. As a registered agent, you need to put anti-money laundering/counter terrorism financing (AML/CFT) measures in place if you:
- represent a client who is selling or buying real estate, or
- accept a deposit in cash from someone who’s buying real estate, beyond the amount stipulated by your regulatory regime.
Real estate deals involve huge cash transactions that conceal information of ownership and source of funds. This allows shell companies and proceeds of crime to be laundered through real estate, exposing agents to risks of being exploited. Various types of transactions involving third parties, deals above market value or business relationship with clients based overseas or in a sanctioned country; are some issues real estate sector deals with.
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).
The ability to buy real estate using cash, allows illicit funds to be integrated into the legitimate economy. Other factors like artificially enhancing real estate value with renovations, and lack of transparency in transactions and ownership structures, makes real estate sector vulnerable to ML/TF. By addressing these gaps, the real estate sector can avert money laundering, identity frauds, scams, and abnormal inflation of the property.
Real estate agents are expected to lay the groundwork for a risk-based compliance:
- Conduct a risk-based assessment for exposure by type of client, property listing, service channel, country in which it operates, size of deals, unusual nature transactions and client relationships.
- Create risk reduction measures and controls to lessen risk.
- Develop an AML/CTF programme: client identification, including Ultimate Beneficial Owners and business relationships.
- Implement the risk-based approach with ongoing monitoring of transactions and business relationships
Once you have set up your compliance programme, you need to put the systems in place to ensure the programme is being followed.
Ongoing compliance involves:
- Training staff, and creating awareness among property developers and other partners.
- Conducting customer due diligence (CDD) when establishing a new business relationship or when there is a material change in the relationship with the client.
- Keeping records for at least five years.
- Ongoing CDD and account monitoring.
- Reviewing your compliance programme at regular intervals.
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