Understanding the property sector's vulnerability to money laundering and terrorist financing

The property sector is particularly vulnerable to money laundering (ML) and terrorist financing (TF) as investment in it provides a stable, high-value and secure asset. 

According to the Financial Intelligence Centre (FIC), to add to the risk of criminal exploitation, property transactions by their nature allow for the integration of illicit funds into the legal economy, while allowing for criminals to derive an income from their investment and allows for camouflaging of the origin of the illicit proceeds through property sales or rental income.

“It is therefore important for property practitioners to be vigilant against potential criminal abuse and report suspicious and unusual transactions and behaviour to the Financial Intelligence Centre (FIC).

"This is in line with their Financial Intelligence Centre Act (FIC Act) obligations, which are geared towards combating ML and TF.” 

The Financial Intelligence Unit stated that property practitioners must first register with the FIC and obtain their organisational identification (ORG ID) number before fulfilling their FIC Act obligations. It added that if they are a property practitioner and have not yet registered with the FIC, they must do so urgently on the FIC website.

The FIC has issued Public Compliance Communication 56 (PCC 56), which provides specific guidance for property practitioners.

On suspicious and unusual transaction reporting obligation, FIC said property practitioners, as accountable institutions, must file regulatory reports on suspicious and unusual transactions and activities (STRs and SARs).

Information contained in STRs and SARs is then analysed by the FIC for the production of financial intelligence reports. These are, in turn, shared with competent authorities for use in investigations, prosecutions, and asset forfeiture, the centre said. 

These reports must be filed without delay, but no later than 15 days from a person becoming aware of the suspicious and unusual transaction or activity. These reports must be filed regardless of the amount of money involved.

Referring to the property risk assessment for examples of indicators of potential ML, TF and PF, which could raise a suspicion.

For high-value properties, FIC said property practitioners must be particularly vigilant when conducting business that deals in high-value property, as this is recognised internationally as being attractive to criminals.

It added that there is no obligation for a property practitioner to prove that the funds involved in the transaction are linked to a crime; the report can be based on mere suspicion.

There are targeted financial sanctions (TFS) that involve restricting access to funds and financial services in countries, goods and services, or persons and entities designated by the UN Security Council (UNSC).

These sanctions aim to prevent the financing of terrorism and the proliferation of weapons of mass destruction. 

A property practitioner must scrutinise their client information to determine whether the client, beneficial owner, person acting on behalf of the client, person on whose behalf the client is acting or party to a transaction is a designated person or entity on the targeted financial sanctions (TFS) list.

Client information must be scrutinised regardless of the risk assigned to the business relationship or single transaction. PCC 44A is a useful resource to view guidance on TFS.

The FIC hosts the TFS list on its website that property practitioners can search against, for free. The TFS list reflects the current identity particulars of persons and entities contained in notices published by the Director of the FIC, in terms of section 26A of the FIC Act.

In terms of section 26B, the unit said no one may provide financial or other services to persons or entities designated on a TFS list.

Estate agents are prohibited from establishing a business relationship or conducting a single transaction with designated persons or entities. This may include not releasing any property to the designated person or entity.

This is referred to as an “asset freeze”. Property practitioners must have processes in place to ensure that ‘freezing’ occurs immediately where it is in the possession or control of a designated person’s property.

Section 28A of the FIC Act requires accountable institutions must:

• File a TPR report with the FIC if the business knows that it possesses, or controls, property linked to terrorism or designated persons and entities (see FIC Guidance Note 6A).
• Do not continue with the transaction when a TPR has been submitted to the FIC.
• Be reported without delay and no later than five days from becoming aware.

A local property trade association recently told this publication that the real estate industry is already identified as an “accountable institution” under Schedule 1 of the FIC Act, thereby meaning that the industry is subject to stricter requirements than other industries due to its vulnerability to money laundering.

“High-value goods traders have been under Schedule 1 since December 2022, and the Real Estate Industry was classified as Schedule 1 since December 2010." 

Independent Media Property