Datanamix | AML Sanctions Screening
AML Guide for the Real Estate Industry
Money laundering is a concern in many industries, and real estate is no exception. This guide will help you understand the AML considerations for the real estate industry and why implementing these practices are so important.
AML Guide for the Real Estate Industry
You may be wondering why real estate agents have to comply with anti-money laundering regulations. They’re not a bank, right?
In fact, real estate transactions are one of the most common methods that criminals use to launder money and move around illicit funds.
Estate agents are required to comply with AML regulations to prevent illegally obtained funds from being passed through them.
Here's why the real estate industry is a prime AML target:
- Since real estate transactions tend to involve large sums of money, it is tempting for money launderers to attempt to conceal a significant amount of illegal funds at one time.
- It can also be simple for criminals to conceal the identity of the owner of the property being purchased or sold.
- The fact that property markets tend to appreciate makes this even more appealing.
Here are some of the AML risk areas relating to real estate:
Cash-only transactions
Since companies, trusts, and other third parties can purchase real estate, there is a risk that money launderers can use them to distance themselves from the transaction.
Manipulating valuations
Criminals could partner with a real estate agent who overestimates – or underestimates – the value of a property so that the difference can be settled in cash.
Falsified leases
Another money laundering scheme in real estate involves leasing a property to a tenant who pays the “rent” with the illicit funds that were provided to them. This would then make those funds look like legitimate rental income.
A criminal can take out a mortgage on a home to make the transaction appear legitimate, only to then pay off the loan with illicit cash sometime later.
AML requirements for real estate companies
As you can see, real estate companies play an important role in detecting and preventing money laundering. As a result, they are subject to AML requirements and are regulated by the HMRC. This means that they must follow their guidance on how to prevent financial crimes and comply with the rules that they set forth. Failure to do so can result in significant fines and penalties.
These requirements include:
- Employing customer due diligence measures
- Hiring a money laundering reporting officer
- Reporting suspicious transactions
Customer due diligence measures
As we mentioned above, real estate transactions are appealing to money launderers because they can remain anonymous or distance themselves from the entity making the purchase.
To prevent this, real estate firms are required to have customer due diligence measures in place that will allow them to confirm the identity of all individuals who will have significant control over the property transaction.
If somebody is selling, buying, or leasing a property, all buyers, vendors, lessors, and lessees need to be properly identified. Companies can do so by obtaining information like their names, addresses, and legal documents that prove their identities.
Once the real estate company has identified these individuals, they must perform sanction screenings and PEP checks to determine the risk level associated with doing business with them. If they appear on one of these lists, the real estate transaction has inherently greater risk – and the firm should have proper procedures in place for dealing with this.
Employ a money laundering reporting officer
All companies in the real estate industry are required to employ a money laundering reporting officer. This person is responsible for ensuring the firm complies with AML regulations and that their procedures are up to date with industry best practices.
Similarly, this person can lead training sessions for the rest of the employees to ensure that they are also aware of which type of real estate transactions are at a higher risk of being used for money laundering.
Report suspicious activity
As a real estate agent, if you believe that a real estate transaction is being used for money laundering or other illicit purposes, you must complete a suspicious activity report and send it to the applicable agency.
plications for the real estate industry
The increase in money laundering that has occurred the real estate transactions means that AML regulations will continue to be imposed on the real estate industry. Companies must work to ensure that they meet all of the standards that apply to them so that they can avoid costly fines and penalties.
It is essential to set up the appropriate processes and procedures in place to prevent money laundering and terrorist financing, so investing in the right tools and technology early on will set you up for success in the future.
