Enhanced Money Laundering Risks In The Real Estate Sector
The Role of Real Estate Agents in Money Laundering (ML)
Dealing with Money Laundering Risks in real-estate business
In addition, it requires agents and brokers to be aware of how real estate transactions might be used in illegal financing schemes, along with what steps should be taken in order to detect and deter such activities.
Also read a deep dive into the AML compliance requirements for the real estate agents in UAE
Types of risk in real-estate business
- Identifying the potential money laundering activities
- Take required preventive steps in order to mitigate the risks involved with money laundering
- If required, communicate with the dedicated authorities to help deter and mitigate the potential use of real estate in money laundering schemes.
Every broker or a real estate agent should be aware of the primary characteristics of a real estate transaction that may indicate illegal financial activities. Being a real estate broker or an agent, you are well versed in the fundamental processes of your industry.
Hence, it becomes effortless for you to identify any unusual or suspicious activities. Regulators, The International Community, and Law Enforcement have identified a few money laundering activities or risk factors. These risk factors or red flags can be categorized into three groups: transaction risk, geographic location, and the nature or profile of the customer.
The geographic risk might come into the picture because the customers or the source of customer’s funds are geographically located in a jurisdiction that has a weak AML compliance regime, supports or gathers funds for the terrorist groups, or does belong to high-risk individuals under the influence of political powers, leaders, or parties.
2- Customer Risk
- The difference between the property and the buyer’s buying capacity
- Unusual involvement of third parties
- Titling a residential plot in the name of the third party like a friend, business associate, lawyer, or a relative
- High-ranking political foreign officials or the members of their family are parties to a real estate transaction
3- Transactional Risks
- Over or undervalued properties
- Use of hefty and unexplained amount of money
- Buying property with inconsistent or unexplained income or occupation
- Immediate resale of the purchased property
- Excessive speed of transactions without a valid explanation
- Unusual sources of funding
- Buying a property without having any interest in the core characteristics of a property
- Any other activity that might account for suspicion
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Actions Need To Be Taken In Order To Mitigate The Risk in Real-Estate Sector
1- Know Your Customer (KYC) And Customer Due Diligence
Knowing your customer is one of the most critical elements of the various roles of a real estate agent or a broker. It can help you in identifying and combating any sort of money laundering activities.
Assessing the risks associated with Money Laundering is one of the most traditional ways for real estate agents or brokers in order to lay a foundation of trust in their respective clients.
In situations where the red flags are identified, the real estate agent should seek help from Customer Due Diligence (CDD) protocols. The process of CDD includes the following aspects.
- Ask for additional information and documents supporting that information, like an Emirates ID, driver’s license, or a passport. It is essential for you to ask for the papers that clearly and legally establish the customer’s true identity.
- If there is the involvement of a legal entity, ask for additional information that clearly states the ownership and its rights. It is commonly referred to as beneficial ownership information.
- Ask for additional information that can help you understand the circumstances and the nature of the client’s business.
2- Report The Suspicious Activities
- When the price is either over or under-quoted for a particular property as per the market valuations.
- If the payments are made with the bank accounts from the high-risk associate geographies or politically exposed personnel (PEPs).
- Unusual transactions or the history of accounts/ account holders.
Real estate is the industry that is emerging as a high potential for criminals proficient in money laundering activities. Hence, it becomes extremely important for you to keep a constant eye on the entire process for any sort of suspicious activity. If you find any, report it immediately without wasting any further time.
AML UAE is a one-stop destination for all your AML compliance needs. From knowing your customers, customer due diligence to filing a suspicious report and adopting mitigative measures, we will effectively manage everything
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Frequently Asked Questions (FAQs)
Here are a few frequently asked questions about the enhanced money laundering risks in the real estate industry.
STR usually involves the confidential personal information of the clients. And might elevate potential significant legal consequences. Therefore, it is a wise decision to file the STRs confidentially.
In addition to that, when the STRs are being filed, the people associated are not informed or discussed the transactions they are being accounted for. Also, this activity is not addressed with any third parties like the media. Here are a few factors that help in maintaining the confidentiality of the STR process.
- The STR documents are reviewed for effectiveness and preciseness by management personnel, attorneys, and financial investors.
- AML/CFT Compliance Officer who initiates STR is awarded special privileges in order to keep and maintain confidentiality.
- The reporters of the STR are provided immunity for all the statements they have prepared in order to file the STR.
About the Author
CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.