The need for improved compliance across the Real Estate sector is greater than ever due to its internationally recognised susceptibility. The starting point is to understand the gaps that financial criminals exploit.

Real Estate has long been a target for money laundering.

It provides a tangible asset with generally stable pricing and the added potential to achieve capital appreciation over time, making it extremely attractive to financial criminals.

Yet the sector has a poor track record in implementing anti-money laundering (AML) and combatting the financing of terrorism (CFT) protocols. In the UK, estate agents have been fined a total of £563,000 for AML failures since 2017, more than any sector other than financial services; with estate agents accounting for 21% of all fines handed out over that period.

This was before Russia’s invasion of Ukraine, which has thrown the sector further under the spotlight.

Sanctioned Russian oligarchs have seen their luxury homes being seized, and even though these are at the high end of the property spectrum, it has also been made clear that less expensive property is equally at risk of money laundering.

Real Estate offers a wide range of opportunities for criminals to launder their illicit proceeds

Using cash to buy a property may appear unsophisticated, but is nonetheless highly effective, as launderers often evade regulatory reporting thresholds for cash purchases by making payments from multiple bank accounts.

Criminals also purchase property using shell companies, trusts, or through a clean third party, distancing themselves from fraudulent transactions. Other methods include investing in renovations to secure higher returns for laundered cash and leasing property to unsuspecting tenants.

Large sums of money can be laundered in a single transaction. The property can be lived in or rented out in order to gain income and ownership provided the illusion of legitimacy.

These are just some ways in which money launderers exploit the Real Estate sector. 

Such are the range of opportunities that the Financial Action Task Force (FATF) launched a landmark study covering money laundering pain points, and proposed controls to help tackle targeted attacks on the Real Estate sector.

However, the problems have persisted.

The Panama Papers highlighted how failures and lawbreaking in the property, legal, and financial services sectors have enabled criminals to launder cash through Real Estate transactions.

Internationally recognised as a high-risk sector, Real Estate businesses face strict regulations

In the UK, the Proceeds of Crime Act 2002 set the tone for the country’s AML and CFT legislation and regulation. Defining the primary money laundering offences, it requires anyone, including estate agents, who encounter suspicious activity to report it. Failing to do so is a criminal offence with a maximum penalty of five years’ imprisonment.

Furthermore, the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 outlined AML responsibilities for specific business sectors considered most at risk of criminal activity. Traditional estate agents, property auctioneers, land agents, and some construction companies, are all covered by the legislation.

Minimum compliance standards including know your customer (KYC), know your business (KYC) and ultimate beneficial ownership (UBO) are set out in the 5th Anti Money Laundering Directive, and must be adhered to by Real Estate businesses based within the EU. Biden’s administration in the US identified AML failures in real estate too, and recently released a new AML regime for the sector with a particular focus on cash transactions.

All organisations are required to comply with sanctions and export controls imposed by the UK Government or other jurisdictions on specific individuals or corporate entities.

Spotting AML vulnerabilities is the first step toward combatting money laundering

AML real estate report

The need for greater compliance across the Real Estate sector is greater than ever due to its internationally recognised susceptibility. The starting point is to understand the gaps that financial criminals exploit.

To help you to identify those gaps, we have put together an in-depth report on the AML Vulnerabilities in Real Estate.

In this spotlight report, we cover:

  • Where real estate businesses face financial crime risk
  • The proscribed AML responsibilities for real estate companies
  • How to ensure compliance globally
  • How automation can help KYC

 

Download your free copy of this valuable compliance analysis. here.

After identifying AML pain points, the latest automated processes are essential to monitor ongoing activity 

Know your customer is a basic requirement for the Real Estate sector, yet many businesses are still relying on costly and time-consuming manual screening.

The answer lies in the implementation of the latest automated AML & KYC screening solutions

Automating AML processes provides peace of mind that activities such as screening and monitoring are taking place quickly and accurately, reducing the risk of a compliance failure.

RiskScreen’s automated AML & KYC screening solutions are being adopted by an increasing number of Real Estate companies to help them to meet the challenges posed by money launderers.

For a no-obligation demonstration of how our solutions could benefit your organisation, contact us today.

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