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Impact of Regulatory Scrutiny & AML Compliance in Real Estate

  • James Efron
  • September 18, 2019
  • 5 minutes read
  • 2726
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Anti Money Laundering (AML): Criminals around the globe are targeting real estate to launder the ill-gotten gains. The political corrupts are taking large bribes and embezzle funds from their countries and send it across the world to hide that bad money. Money is stolen from the country to which they are mean to serve. Luxurious real estate is the point of attention for money launderers through which they scramble ways and find tricks to scoop up the illegal money. This money should be cleaned before it gets enjoyed by the corrupts. 

Real Estate, a fast-growing industry is under threat of money laundering.

Many nations are united and consider it a dire need to tackle money laundering problems that are growing rapidly through real estate. With the spotlight on real estate professionals, they are strongly in the need to comply with the local regulators to deter the risks of money laundering. The real estate sector should implement measures to authenticate the customers and make sure that the are selling the property to the legitimate ones otherwise it could be problematic for them when it comes to regulatory fines. Below are some of the states that are facing issues of ill-gotten money and the absence of their records. Also, how are they combating this issue by introducing legislation?

United Kingdom: According to Transparency International, £4.4 billion of the UK’s property is bought with suspicious money. In 2018, (AML) legislation was introduced according to which foreign owners were supposed to identify themselves. The purpose of this bill was to find out who is the owner of particular money. Although this bill has not been passed yet. By 2021, the registry will be made public. The property owners who fail to comply with this registry will be imprisoned for two years and fined. 

Germany: In 2017, about 30 billion of illicit funds were funneled in German real estate. These funds have no record of ownership and how the money was generated. Germany has also introduced a transparency registry, according to which all shell structures must report the property owners with the respective property. Failing to comply with it could cost them 1 million.

Singapore: To squash illicit money transfers, Singapore Parliament has passed regulations against money laundering and terrorist financing activities. In 2017, the investors in Singapore spend $37.2 billion in overseas real estate. Not only this, but their foreign real estate investment is also increasing with the current record of about $2.3 billion. Real estate owners are required to perform Customer Due Diligence (CDD) and Enhanced due Diligence (EDD) processes to check the ownership details and verify the identities who are actually buying and selling properties. The ones who fail to comply with this will be subjected to a fine of $100,000.

Canada: Real estate of Canada needs to report Finacial Transactions and Reports Analysis Centre of Canada (FINTRAC) to report the transactions that are greater than $10,000. Not only this, they are supposed to keep a track of buyers to have a record over the legitimate customers and the malicious ones.

AML Obligations for Real Estate

Just like banks and financial institutions, real estate is equally obliged to undergo practices to combat money laundering activities. Real estate brokers, firms, real estate management companies, and insurance companies need to perform CDD to ensure that no bad actors are becoming part of their company. Also to avoid hefty regulatory penalties, casinos must carry out intensive methods to avoid suspicious money flow. 

KYC: Know Your Customer, the ever-essential mechanism to undergo customer screening with the help of supporting identity evidence. The buyers should be identified and verified using the biometric authentication process, facial verification, document verification, AML, and id verification. This can help to ensure that authentic identity is onboard with your company. 

AML Screening: Anti-money laundering and Politically Exposed Persons (PEP) background checks should be implemented within the system to screen the customers against sanction lists and exposed personalities that are not allowed officially to buy or sell any property. These checks are extremely important to keep the company away from regulatory fines and value harm. Continuous and regular AML compliance must be assured and comprehensive records should be made simultaneously.

Updated AML Records: Accuity database should be updated with the latest information regarding exposed persons and criminals around the globe. This provides firms with confident AML screening which is updated and accurate. This will reduce the risks of avoiding identities that are should be in the sanction list are not entered yet.

The momentum of AML screening is building worldwide in the real estate sector. They have recognized the need of customer monitoring and verification to comply with AML legislation. The active response should be given by the customers and sector owners in adoption of these regulations and the individuals should co-operate respectively for the healthy law enforcement in the nation. Ineffective compliance can be severe in terms of local regulatory requirements.