Money laundering through property trading has become a major concern for both regulatory bodies and brokers alike. Criminals indulge in high-value investments, international purchases, profit generation through swift buying/selling tactics, and the flow of money through third-party dealers. Furthermore, fraudsters hid around $2.3 billion in proceeds of crimes through the property sector in the last five years up to 2021.
Property trading continues to be an easy target and profitable area for fraudsters. This not only makes secure dealing challenging but also exposes brokers to AML compliance risks. Therefore, property trading companies require robust risk assessment controls to prevent fines, sanctions, and censure.
This article covers how AML verification solutions help brokers prevent property fraud and meet regulatory obligations.
A Preface of Threats that Surround the Real-Estate Trading Sector
Fraudsters are always keen-eyed to identify industry loopholes that help them hide their malicious earnings. Similarly, they exploit property dealerships to convert their dirty money through profits. Criminals see this niche as an easy target due to lax AML compliance protocols. Property trading companies then unwillingly become a part of money laundering because they lack efficient risk-scoring mechanisms.
Considering the increase in money laundering through property dealerships, regulatory bodies are coming up with more stringent fraud prevention obligations. Furthermore, they have also listed the major warning signs that point towards a breach of AML security standards.
Read further to learn about the red flags of money laundering through property trading.
- Cash-only buyers
- Involvement of unknown third-party payment providers or dealers for funds transfer
- Unusual sale prices, no bargaining, and direct transactions between sellers/buyers but under bank accounts with different ownerships
- Transactions with multiple account holders, nominee firms, or brokers
- Unexpected, sudden, or unpredicted ownership shifts
AML Systems – Identifying Major Causes of Compliance Breaches
Lack of sufficient risk assessment and due diligence procedures are some of the most flagged reasons for anti-money laundering protocols’ breaches. Further reasons involve inadequate customer income authentication during onboarding, background checks for sources of funds, insufficient buyer identity verification, and lax implementation of AML policies.
AML compliance failure drives various consequences for property trading companies ranging from reputational downfall and financial fallout to hefty penalties. According to the Negotiator, real estate companies pay the most fines amounting to 45.4% of the gross total. Therefore, property dealerships must have adequate AML screening controls to deter money laundering if the legal watchdogs come knocking.
AML Security Steps Real Estate Companies Should Take
2017’s Regulations for Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) have defined the roles of real-estate firms alongside other personnel dealing with property trading. These include:
- Adequate and complete identity verification of buyers and sellers
- Identification of beneficial owners, sources of funds, and actual bank account holders
- Authentication of purpose for business relationships
Real estate companies must comply with AML monitoring standards to prevent regulatory fines, legal repercussions, reputational damage, and ending up on sanctions. For this they should take the following steps:
Sources of Funds Validation
Knowledge regarding clients’ investment backgrounds and sources of funds adds to the strengthening of AML compliance programs. Therefore, real estate agents should validate financial documents such as transaction details, credit/debit card invoices, utility bills, and tax returns. With AML solutions, they can access global monetary databases to accurately validate payments in real time.
When processing transactions of clients during a property trade, agents should ensure that customers are who they claim to be. Real estate companies with AI-powered AML systems can authenticate buyers or sellers by analysing their distinct biological/behavioural features and liveness detection.
Risk Profiling and Customer Due Diligence (CDD)
Risk scoring is another crucial step that greatly helps in CDD. This process involves the assessment of money laundering threats associated with a customer. With anti-money laundering services, real estate companies can also access global sanctions, financial databases, criminal records, adverse media, and other watchlists.
Audit trials help property dealership companies to screen customers on a periodic basis and ensure they do not pose a risk of money laundering at any stage of trade. Performing these inquiries further helps in ongoing AML monitoring and suspicious activity reporting.
Suspicious Activity Reports (SARs)
Real estate companies often face legal backlash because they do not submit SARs timely. Until they realise suspicion, criminals are long gone. Hence, integrating AML solutions can help them identify fraudulent purchases in real time. They also submit SARs automatically to regulatory watchdogs.
Real estate companies require robust AML compliance solutions to detect suspicious transactions, fraudulent investments, and other traces of money laundering. With risk profiling, they can counter fraud risks in the first place. Furthermore, AI-powered anti-money laundering checks streamline secure real-time digital onboarding. Property dealership firms can ultimately offer secure trading with compliant services.