Like most property buyers, you may have been saving up all your life to finally buy your first one-bedroom apartment. And now that you are about to fulfill your dream, your real estate agent is asking several questions: how you managed to put that sum together, what is your job, whether you inherited any money, whether you have multiple jobs, etc! You may be wondering why they are asking all the questions you would expect your bank to be asking. The simple answer to this question is that estate agents are subject to the same Anti-Money Laundering and Funding of Terrorism (AML / FT) regulation that a bank is subject to.
Real estate agents facilitate transactions involving the transfer of high-value items (in this case properties) between parties and the resulting movement of money. These high-value transactions are susceptible to money laundering because the movement of a large amount of money could be used to turn funds that were earned illicitly into clean funds. How is this possible?
Let’s consider the following scenario:
Mr. X has made a large sum of money by acting as a middle-man in a large transaction involving the trafficking of illegal substances. Now Mr. X is sitting on €500,000 which he would like to spend, hopefully without attracting the attention of the tax authorities. Mr. X really wants to buy the latest Maserati. If he tries to do this with the income he actually declares from the sales he makes through his portable hot dog stand, he may raise the attention of the Tax Compliance Unit who would ask how could he afford a luxury car. As always, Mr. X has a devious plan to launder some money, and he does it in the following manner:
Obviously the above requires some tact and manipulation, however, when it comes to the extent that criminals are willing to go to launder the proceeds of their illegal activities, it is definitely not far-fetched.
This case explains one of the many reasons why authorities require real estate agents and other businesses selling valuable goods to perform Customer Due Diligence (CDD) / Know Your Customer (KYC) checks on their clients.
Now you should be able to understand why when purchasing a one-car garage for your commercial catering company, the estate agent will ask you to provide all the documents to prove that your company really exists and to confirm who the actual owners are, as well as the identifying documentation of all owners and directors.
In addition, due to the risk of facing devious people like Mr. X, the real estate agent has to invest in systems to be able to perform additional checks – such as those to ensure that clients are not politically exposed (PEPs) or sanctioned individuals (PEP and Sanction checks). In this manner, if Mr. X had already been sanctioned or was mentioned in any adverse media due to his dark past, the real estate agent would be alerted and as a result, the transaction would not be completed, and the funds would have not been laundered.
The objective of performing such checks is to try to make it as hard as possible for criminals to launder the funds they would have earned through illegal activities and in turn decrease the volume of crime committed.
Dhalia has implemented a number of processes and checks and invested in various systems such as StartKYC. This way we can make sure that our clients are not attempting to launder illegally earned funds. When we ask you certain questions or request documentation, you are helping in the fight against money laundering and funding of terrorism.