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The real estate sector is becoming a prime target of money launderers. As regulatory bodies are imposing strict regulations on other industries, real estate is seen as having lax checks. Moreover, real estate is facing a tremendous growth boom which is making it the main attraction for money launderers. According to statistics, this industry is facilitating over $1.6 trillion worth of money laundering per annum.
Criminals perform one-time investments in properties and easily hide their illicit funds. Therefore, real estate needs to integrate efficient AML solutions to verify investors, buyers, and sellers. As not heavily scrutinized, real estate businesses need to bring in effective digital onboarding to fight money launderers. Read on to know how AML compliance programs help counter money laundering in real estate.
Inadequate AML Security Checks – Opening Doors for Money Launderers
Hiding illicit funds or converting them into clean money is easier for criminals by targeting real estate. Fraudsters simply invest in some property or buy and sell a house to make their money look legit. Money launderers also use shell companies to hide their real identities and steer clear of AML compliance checks. For easy escape, criminals often target families to perform property dealing so that they don’t have to undergo AML screening.
Therefore, buyers and sellers working in the real estate industry need to ensure that they are fixing a deal with legit entities. Furthermore, countries like the US do not mandate firms to provide valid UBOs information. This makes way for money launderers to emerge by using the front of shell companies. Hence, AML solutions are more of a necessity for real estate firms to ensure risk-free and compliant dealings.
AML Verification Regimes for Real Estate Sector
Apart from integrating efficient AML systems, real estate is also subject to anti-money laundering regulations. Considering the rise in money laundering, financial watchdogs are seen in action to impose sanctions on real estate businesses that fail to comply with AML regulations. As per the guidelines, buyers, sellers, and investment firms need to perform efficient anti money laundering screening against every customer. The real estate industry should validate identities as well as cross-verify the background of investors and dealers. For this, regulatory bodies are enforcing stringent regulations for real estate to counter the increases in money laundering.
European Union’s AML Regulations
EU has been in action to put forth standards to combat money laundering for ages. Criminals have been using different techniques to transfer illicit funds through various industries. On the contrary, the EU enforced stringent rules as countermeasures. In its Fourth AntiMoney Laundering Directive (4AMLD), the EU clearly included real estate agents under restrictions. As per the rules, firms should validate entities prior to their onboarding.
Furthermore, AML verification was made mandatory for both single dealers, and businesses after the EU’s 6AMLD came into force. Otherwise, the industry will have to face million worth of money due to non-compliance with anti-money laundering regulations.
Regulation in Canada
The legal watchdog of Canada – Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has been toughening its stance regarding money laundering in various industries operating within the region. Similarly, it is critically monitoring real estate firms to ensure they are not serving as the medium for money laundering.
In some cases, dealers were seen willingly facilitating criminals for converting their illicit funds by investing in properties. In order to overcome these instances from happening, FINTRAC made amendments to its AML compliance in 2021. As per the standards, the real estate industry needs to bring in efficient digital onboarding mechanisms that provide accuracy and security in this technologically advanced era.
It also obliges real estate firms and independent dealers to validate Ultimate Beneficial Ownership (UBOs) information and cross-verify them against Politically Exposed Persons (PEPs) and sanction lists. For this, the real estate sector needs to incorporate better AML solutions that readily mitigate the chances of criminal attempts.
FATF’s Recommendations
The Paris-destined global regulatory authority – Financial Action Task Force (FATF) has also been placing restrictions on the real estate industry. Keeping in view the rise in money laundering, FATF put forth the 40 Recommendations.
As per the 22nd measure, real estate is subject to adhere to AML compliance checks. It falls under the category of Designated Non-Financial Businesses and Professions (DNFBP). As per these standards, real estate must identify customers as well as perform efficient AML screening against them.
In Summation
In combatting money laundering, digital AML solutions are the optimum options for the real estate industry. They not only help identify customers, investors, firms, and dealers in real-time but also ensure compliance with AML security standards. Furthermore, AI-driven state-of-the-art services safeguard the overall operations of the real estate industry.
