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“Real Estate Is Critical To Money Laundering”, Says BSP

Richard Marley
November 15, 2021
3 minutes read
2029

The Governor of BSP bank emphasized the urgent need for brokers to guard real estate against money laundering and terrorist financing activities.

The Governor of Bangko Sentral ng Pilipinas (BSP), Benjamin Dioknon addressed the Real Estate Brokers Association of the Philippines 43rd Annual National Convention on 12 October 2021.

The rise of ML/TF activities and inconsistent law implementation have made the real estate industry prone to launderers, hence the Governor emphasized the importance of real estate brokers “in holding the integrity of the financial system” and how they should be vigilant of suspicious buyers.

He also noted the fact that criminals invest money earned by illegal means into real estate due to its reliable and stable pricing system. But then, “financial instability rises due to volatility in asset prices.”

BSP Governor Benjamin E. Diokno today at the Real Estate Brokers Association of the Philippines, Incorporated's 43rd Annual National Convention. pic.twitter.com/2ESPb8uEJ8
— Bangko Sentral (@BangkoSentral) November 12, 2021

He stated that “Condominiums and other real estate properties are found to be criminal assets generated from fraudulent, corrupted, and illegal drug trafficking activities.”

He made the statement after being aware of the filed petition from the AML Council regarding the “civil forfeiture of assets” which involves Cebu’s real estate property related to illegal drugs.

The AMLC move was a result of confiscating almost P30 million worth of real estate money that was “used as a means to hide the proceeds of crime or as an instrumentality of crime, including TF”.

Lastly, he stated that purchasing real estate properties incorporate illegal funds into the legal economy and when used for business activities proves to be a legitimate source. Hence, there is an urgent need for industry specialists to act accordingly for effective AML/CFT compliance.

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US Rated as The Most Secretive Financial Jurisdiction in the World
The US has been ranked the most secretive financial jurisdiction in the world due to deterioration prior to Financial Secrecy Indices (FSI), as per lax rules in US anti-money laundering (AML) and tax laws.

As per the Finacial Secrecy Index (FSI) 2022, the United States has been classified as the most secretive financial jurisdiction in the world. Due to the unaddressed loopholes and flexible rules in US tax and anti-money laundering (AML) laws, the US ranking is worsening prior to Financial Secrecy Indicies.

Ian Gary, Executive Director of the FACT Coalition stated “These findings point accusations towards US secrecy and should be a rallying cry for monetary clarity” While talking about the Biden Administration, he further said “The Biden Administration is continuously working for the making a number of anti-corruption reform for implying effective penalties. Now it is the responsibility of the Administration and the Congress to execute and fund them”.

Identified as the second most financial jurisdiction in the world in 2020 by FSI, Congress issued a Corporate Transparency Act (CTA). The CTA will put restrictions by requiring corporations and similar entities to register their authentic beneficial owners to a central directory maintained by the Financial Crimes Enforcement Network (FinCEN) at the Treasury Department.

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The 2022 International Anti-Corruption Conference to be held in Washington, D.C. later this year has been called in for the final implementation of the CTA Act, whose delays have been warned by the FACT Coalition.

Suggested Read: US DOJ Stresses Disclosure of Beneficial Ownership Information to Curb Illicit Finance

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The growth of the online payment industry and FinTech companies comes with a simultaneous increase in fraud and financial crime. According to a recent study, about 10% of the average spending in the online payments industry and FinTech is taken up by fraud prevention measures. This is because detecting and preventing payments fraud is significant to avoiding financial and reputational losses in any given firm.

In order to ensure that their operations are fraud-free and they are compliant with international regulations, financial firms incorporate KYC verification solutions. Finding the balance between effective fraud prevention and cost management is one of the biggest challenges for businesses.

Risks Faced by Financial Institutions

Financial operations comprise numerous stages and each of them is a potential target for fraudsters. For this reason, businesses are now offered robust identity verification solutions that can be easily integrated as part of their online platforms. With these verification solutions, mobile and web platforms of eCommerce service providers can detect fake identities and fraudulent transactions. That being said, emerging technologies and the latest fraud techniques have made payment fraud detection more and more difficult for firms operating in the payments industry.

Looking on the bright side, it’s not necessary that the solution to a complex and unpredictable problem must also be complicated. For instance, technology has also improved the system of verifying and screening identities against sanctions lists using numerous AI algorithms. This means that the detection and prevention of payments are not that problematic after all. Compared to the complex and time-consuming verification measures that were used previously, today’s solutions take mere seconds to verify identities using nothing more than a selfie from the customer. What’s important for businesses is to adopt a risk-based approach toward fraud prevention while taking into consideration the latest trends in fraudulent activity. Developing customer trends through transaction monitoring and background screening also requires a robust AML Screening solution.

KYC – Identity Verification

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The Know Your Customer (KYC) measure is incorporated for the purpose of detecting fraudulent entities at the onboarding stage to prevent money laundering. The onboarding stage is the best for KYC because it eliminates the fraudulent entity before their account is created. For legitimate customers, the process doesn’t delay or create any problems for the rest of the operations throughout the customer journey.

Transaction Monitoring

KYC verification in itself is not enough when the aim is to protect financial institutions from crimes like money laundering and terrorist financing. As customers with legitimate identities can also be part of a money laundering scheme, it is equally important to perform ongoing transaction monitoring to analyse trends. By implementing AI-driven measures to mitigate the risks of financial crime, the payments industry and FinTech firms can prevent becoming the source of money laundering.

A FinTech company can never know which online transaction involves money coming from illegitimate sources. For this purpose, they require robust AML screening measures to detect, flag, and report suspicious transactions. Furthermore, the increasing rate of online payments accounts for more and more transaction records with every passing second. To cope with this speed, businesses operating in the payments industry need to incorporate innovative solutions that can detect anomalies in real-time.
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Apart from transaction monitoring to analyse fraudulent transactions, FinTech companies also need measures to ensure that only their real customers have access to their online platforms. In the European Union, financial firms are required by law to incorporate sufficient customer authentication measures. Although these firms usually have set limits for the maximum amount that can be deposited into an account, it is also important to know who is accessing the customers’ accounts. With the help of additional authentication measures like 2 factor authentication, firms add a layer of security and are able to determine that their real customers are performing the particular transaction.

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What Shufti Pro Offers

Considering the fast-paced growth of the Fintech sector and the payments industry, businesses have to re-evaluate and implement customer due diligence protocols according to the updated regulations. If you are a business operating in the Fintech industry, it all comes down to the following questions:

Are you complying with the country’s KYC/AML laws that you are serving?

What customer due diligence protocols are you currently following?

Is your screening process providing a higher customer acquisition rate or your drop-off is increasing?

Is the process effective in all regions of the world?

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“Real Estate Is Critical To Money Laundering”, Says BSP

Risks Faced by Financial Institutions

KYC – Identity Verification

Transaction Monitoring

Additional Authentication Measures

How the Payments Industry can Be Fraud-Free

What Shufti Pro Offers

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

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