Money laundering is a problem in many businesses, including real estate. This tutorial will explain the AML issues for the real estate business and why it is critical to implement these standards.
You might be asking why real estate brokers are required to follow anti-money laundering guidelines. Isn’t it true that they’re not a bank?
One of the most prevalent ways for criminals to launder money and move illicit monies is through real estate transactions. As a result, real estate brokers are required to follow AML standards in order to prevent the passing of unlawfully obtained funds through them.
Because real estate transactions typically involve big sums of money, money launderers may be tempted to try to conceal a huge amount of unlawful monies at once. It’s also simple to hide the owner of the property being bought or sold, and the fact that property markets appreciate makes this even more tempting.
Here are some of the real estate-related AML risk areas:
Direct Cash Transactions
One of the most high-risk areas for real estate companies to be concerned about is the acquisition of a property using cash. To evade reporting thresholds, the criminals may make payments from multiple different bank accounts, and these red flags should be considered while doing business.
Money launderers may also spend a substantial amount of money renovating a home in order to boost its worth so that they can resell it and acquire a receipt for their illegal earnings.
Third-Party Purchases, Shell Companies, and Trusts
Money launderers may utilize companies, trusts, and other third parties to purchase real estate in order to remove themselves from the transaction. They can hide their true objectives by presenting the firm as the legal owner of the property, allowing the funds to be transferred to their bank account.
When a third party buys real estate, it might make things more complicated if assets need to be seized, adding to the danger of money laundering in real estate.
Although most real estate purchases include the use of a third-party appraiser to determine a home’s value, there are times when certain qualities are more valuable to one person than they are to another.
Criminals can take advantage of this by partnering with a real estate agent who overestimates – or underestimates – the worth of a property in order to settle the difference in cash. This opens the door for money laundering, thus real estate firms should be on the lookout for offers that are significantly lower than the evaluated worth.
Leases that have been forged
Another money laundering strategy involving real estate is leasing a property to a tenant who pays the “rent” with the unlawful monies handed to them. As a result, the money would appear to be legal rental income.
Perpetrators can go one step further and avoid involving the tenant by depositing money into a bank account on a regular basis to make it appear that someone is paying the rent.
Mortgages and anti-money laundering
Mortgages, unfortunately, are not immune to money laundering methods. Someone can take out a mortgage on a house to make the purchase appear genuine, only to pay it off later with illegal currency.
Real Estate Companies AML Requirements
Real estate businesses, as you can see, play a significant role in detecting and preventing money laundering. As a result, they are subject to anti-money laundering regulations and are regulated by HMRC. This means they must follow their instructions on how to prevent financial crimes and adhere to the standards they establish – failing to do so could result in severe fines and penalties.
Customer due diligence methods, the engagement of a money laundering reporting officer, and the reporting of questionable transactions are all part of these criteria.
Measures for Customer Due Diligence
One of the reasons that real estate transactions appeal to money launderers is that they can stay anonymous or disassociate themselves from the company making the acquisition, as we noted before.
To avoid this, real estate firms must have client due diligence procedures that allow them to verify the identities of all individuals who will have substantial power over the property transaction.
All purchasers, vendors, lessors, and lessees must be correctly identified when selling, buying, or leasing a property. Companies can do so by getting personal information such as their names, residences, and legal documents proving their identities.
After identifying these persons, the real estate company must do sanction screenings and PEP checks to establish the level of risk involved with doing business with them. If they are on one of these lists, the real estate transaction is automatically riskier, and the firm should have procedures in place to deal with this.
A Money Laundering Reporting Specialist should be hired
A money laundering reporting officer must be employed by every company in the real estate market. This individual is in charge of ensuring that the firm follows AML requirements and that its procedures are up to date with industry best practices.
This person can also provide training sessions for the rest of the staff to ensure that they are aware of which types of real estate transactions are most likely to be exploited for money laundering.
Suspicious Activity Should Be Reported
If you feel a real estate transaction is being exploited for money laundering or other illegal objectives, you must fill out a suspicious activity report and send it to the appropriate agency as a real estate agent.
The Real Estate Industry’s Consequences
AML laws will continue to be placed on the real estate industry as a result of the growth in money laundering that has happened in real estate transactions. Companies must work hard to ensure that they fulfill all applicable standards in order to avoid costly fines and penalties.
To prevent money laundering and terrorist funding, it’s critical to put in place the necessary policies and procedures, thus investing in the right tools and technology early on will set you up for future success.
Fundforth Accounting Services will help you analyze and prevent future complications about Anti-Money Laundering thru your transactions. We have a team of experienced professionals that will guide you to avoid unnecessary pitfalls.
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