It is easy for criminals to target the real estate market due to the high cost of properties and secret ownership. In this business ownerships can be hidden easily. Criminals use the real estate market to hide the illegal source of money and show that money is legal. They do this by purchasing properties with cash, using fake companies or transferring properties in other people’s names. All of these tricks reduce the chances of being caught and make it harder for authorities to trace the real source of the money.
According to a report, more than $2.3 billion was laundered through real estate in the United States between 2015 to 2020. This heavy amount indicates the importance of following AML laws especially for real estate agents in the US. Checking the background of buyers and sellers, agents can stop ML and keep the market secure and honest.
Anti-money laundering (AML) checks for real estate agents
Working in real estate does not only mean to buy and selling properties. It requires honesty and responsibility. One important step to follow is anti-money laundering checks that agents should use to stop people from utilizing property deals to hide illegal money. These checks ensure that criminals could not use this market to clean up black money.
Real estate is a market that uses large amounts of money and makes expensive deals. It attracts criminals to make efforts and hide their illegal funds. This is the reason that agents should need to become extra careful while dealing with people. In every country, estate agents should follow strict laws set by the government. According to Ministry of Commerce and Investment, criminals use the place for money laundering where cash payments are common.
AML checks are a time taking procedure because agents have to verify the original identity of buyers and sellers and find out the real source of money. However, there are many newer, fastest and easiest ways that can save time and make the whole process smooth.
Businesses also need to know that don’t fulfilling the AML laws can result in severe penalties. For example, in 2022, HM Revenue and Customs in the UK fined 68 estate agents a total of £519,645 for breaching AML legislation. This was the first time an estate agent was sanctioned for not registering correctly with HMRC. This case highlights how crucial it is for real estate agents to follow AML procedures carefully.
What are common signs of suspicious activities in the real estate market?
In the real estate market some actions might be seen as strange and illegal. So, agents need to be extra careful. Below we discuss some signs to watch for:
Purchasing or selling houses at significantly higher or lower than usual prices.
- Purchasing numerous properties that are not typical of the buyer’s normal cash position
- Placing a personal property in a company belonging to the client
- Requesting alterations to a property, paying in cash, and intending to sell it for an increased price
- Making large cash deposits but not completing the purchase and requesting money back by check
- With someone else’s check and no obvious connection to use to pay a deposit
- Not wishing to view the property before purchase
- Buying lots of properties quickly without regard to where they are or what condition they are in
- Selling a property without regard to the price
- Registering or mortgaging a property in another person’s name to conceal ownership
- Purchasing property at an inflated price and quietly receiving some money back
- Selling a property immediately after purchasing it at a lower price
- Utilizing money from risky nations to settle property
- Requesting to transfer real estate money to risky nations
- Performing complex transactions such as purchasing, selling, or exchanging property numerous times
- Not using their actual name or using multiple names when purchasing
7 Best AML checks for real estate
In this section we briefly discuss the anti-money laundering checks for real estate:
1. Customer due diligence(CDD)
Estate agents should carefully check the backgrounds of both buyers and sellers. They need to confirm the original identity of these people and ensure that money is legal. This helps to keep everything safe and secure in dealing.
2. Enhanced due diligence(EDD)
When the level of risk for financial crimes is high, real estate agents must conduct extra checks referred to as Enhanced Due Diligence (EDD). EDD is essential when dealing with high-risk customers like Politically Exposed Persons (PEPs) or clients from nations that have strict rules or sanctions. It also matters if the clients hide the real owner of the property or don’t disclose precise information on where the funds originated from. Agents have to use EDD as well where clients deal with cryptocurrencies or virtual assets and do not issue a reason on the origin of them. These further verifications make an addition towards less risk in real property deals, considering the majority of property transactions operate with less monitoring in regular standards.
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3. SOF and SOW verification
Agents need to verify the source of funds(SOF) and source of wealt(SOW). It is important to know the source of the money. In this way agents can clarify that money is legal and client is not involved in any suspicious activity.
4. Transaction monitoring
To keep an eye on any suspicious activity, it is essential to monitor transactions. This entails identifying transactions that deviate from usual patterns or exhibit red flags associated with money laundering.
5. Record keeping
- Real estate agents have to maintain a record of every transaction and client details as part of their anti-money laundering (AML) obligations
- Regulatory and law enforcement agencies can view the records to inspect compliance and during audit use them
- Authorities investigate previous transactions to trace money movement and locate clients participating in criminal activity
- Estate agents are required to retain copies of all documents connected to the transaction, risk assessment, and customer identification for no less than five years after the transaction’s conclusion
- This mandate follows recommendation 22 of the Financial Action Task Force (FATF).
6. Training and awareness
Every employee and staff member in the real estate market should be well-informed and trained. They know the AML regulations properly. This training should include following all AML rules and knowing how to report to authorities if they get any suspicious activity.
7. Risk assessment
Carry out risk checks to find and understand possible money laundering risks linked to certain clients, transactions, or locations.
Overall, the real estate industry is a soft target when it comes to money laundering. Therefore, real estate agents need to conduct anti-money laundering (AML) checks. Through conformity with AML regulations, agents can avoid fines. It is prudent to handle AML checks with the assistance of modern technology like FOCAL. FOCAL not only keeps the agents in line with AML compliance but also fast tracks and simplifies the process.