A deep dive into the AML compliance requirements for the real estate sector in the UAE

AML compliance requirements for the real estate sector in the UAE

The real estate sector is one of the main non-financial sectors that are highly vulnerable to money laundering activities. This is because large sums of money are involved in real estate transactions with limited regulatory scrutiny. So, money laundering activities and terrorist financing transactions are quite common in the real estate sector.
It becomes essential for the regulators to make the sector more regulated and controlled. It is also important to identify the possible suspicious transactions and conduct regular monitoring of real estate transactions. UAE has made special provisions for AML requirements in the real estate sector.
In the blog, we list down the situations that real estate businesses must be aware of to identify money laundering. We also cover the UAE regulations that govern AML/CFT provisions in the country. Lastly, we include the AML requirements that real estate agents and brokers must fulfill.

Suspicious transactions in the real estate sector that raise a concern for money laundering

Following are the possible situations that raise suspicion regarding involvement of money laundering or any financial crime in the real estate sector:
  • Payment of the entire amount of the value of property in cash
  • People use complex loan structures or credit finance as a source of finance for buying property to launder money. In the repayment of these loans, the illicit money is forced into the legitimate financial system.
  • Undervaluation or overvaluation of property or sequence of property sale transactions to get a higher value is a way of laundering money.
  • Making frequent, unnecessary renovations and improvements in property are a sign of investment of illicit money.
  • Customers (buyers or sellers of property) use unknown third parties with a clean criminal record to hide their identity as the owner of the property.
  • Hiding the ownership of a property by the use of trust and company structures, shell companies, or front companies
  • Multiple purchases or sales of property
  • A legal owner of any property having an unusual nature of use or possession of assets, a mortgage with an unidentified lender, a strange rise in the financial funding, or an erratic relationship between income and living standards can be a suspicion of money laundering activity in real estate.
  • Purchase of property by Political Exposed Persons (PEPs) or individuals with Sanctions by posing as high-ranking foreign officials or members of their families.
  • Using the purchased property to carry out illicit or criminal activities such as drug production is a money-laundering example. Criminals use these revenues to buy more properties and thus hide the origin of illicit money.
  • A property buying or selling transaction that does not make any commercial or professional sense because of a lack of interest exhibited by any party.
  • Money launderers may buy a property in a third party’s name and show themselves as a tenant. Then they use illicit money to pay rent to the third party.
  • Money launderers use the help of different professionals to launder money with no possibility of detection. They use the services of accountants, trust and company service providers, lawyers, or any others to make their criminal activity look legitimate.
  • Buying real estate in a foreign country using illicit funds to hide assets from own country’s lawmakers.
In regards to these possibilities, the UAE government introduced AML/CFT regulations. Let us look at the key regulations and directives that control the real estate sector’s compliance with AML/CFT.

AML regulation for real estate sector in UAE

Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations is the primary law for AML in UAE. The Cabinet Decision No. 10 of 2019 concerning the Implementing Regulation of this Decree-Law makes real estate agents and brokers subject to the AML law. This means that the AML law applies to real estate agents and brokers in the UAE.
These regulations are necessary since the real estate sector has a lower level of awareness of possible suspicious ML/FT transactions. Also, the real estate sector is big with not many rules to invest or do business in it. This makes the sector highly exposed to ML/FT activities that disturb the economy and income distribution of the country.
The Cabinet Decision provides a list of Designated Non-Financial Businesses and Professions (DNFBPs) that includes real estate brokers and agents. These define the various CDD obligations of the real estate industry and ways to identify risk factors. Let us look at the AML/CFT compliance requirements for the real estate sector in the UAE.

AML/CFT compliance requirements for real estate brokers and agents in UAE

Real estate agents and brokers must comply with the following requirements under the AML regulations of UAE:

Understand possible ML/FT risk exposure

You must have a detailed understanding of how your real estate business can be exposed to ML and FT risks. For this:
  • You must adopt a risk-based approach to identify risks in your business transactions. These risks may be of different types based on business nature, type of service, the operational environment, and other factors. Accordingly, you must adopt risk mitigation measures.
  • You must be aware of the source of ML/FT risks and the phase in which the money laundering risk is high.
  • You must know the latest ML/FT trends and understand the various customer risks, channel risks, and geographic risks to the real estate industry. You must be able to identify each type and strategize for their elimination.
  • You must be aware of the type, size, complexity, transparency, geographic origins, or any unusual nature of financial arrangements or instruments related to the buying and selling of property.
  • Brokers and agents must have full information on a customer’s residence status, type of real estate transaction, and speed and frequency of transactions to gauge the risk.
  • You must keep all this information related to risk profiling documented and saved. The information must include methods of risk identification used, models used, and overall risk score.

Implement Customer Due Diligence measures

Real estate brokers and agents must apply the necessary customer due diligence (CDD) measures based on the category and profiling of the ML/FT risk. If there is any change in the risk category, they must update the due diligence measures as well. You must apply these measures during or before the transaction happens or the business relationship starts.
These due diligence measures include the following:
  • You must have in place a defined process for screening customers and prospects against Sanctions Lists. You must conduct background checks on your customers and prospects to identify any association with financial crimes.
  • You must be vigilant of the identity of the beneficial owner of your client. You must obtain all relevant proofs for establishing their identity and the source of funding.
  • You must check for the compatibility of the customer’s profile with the relevant real estate transaction to see if it suits their financial stature and professional circumstances.
  • You must track the legal arrangement or structure used in the transaction, as it may result in hiding the identity of the owner or source of funds.
  • You must also keep an eye on any association with Political Exposed Persons (PEPs), specifically in the case of foreign buyers or sellers.
  • You must check for any previous business transaction or relationship between buyer and seller.

Ongoing monitoring of transactions

Whenever you identify high-risk customers, you must conduct a regular check of their transactions. You must monitor the frequency and type of real estate transactions they have been involved in. You must check the status of the financial instrument during the lifecycle of the transaction or you must check the land registry details.

Put in place internal policies, controls, and procedures

The real estate brokers and agents must implement necessary measures to manage and mitigate the ML/FT risks. One of the key measures is the implementation of strong and effective internal policies, controls, and procedures. You must assess these policies for effectiveness and update them accordingly as and when the need arises.
These policies must relate to customer due diligence and suspicious transaction reporting. It must also include requirements for governance and record-keeping. Overall, such procedures must ensure management and mitigation of risks.

Report suspicious transactions to Financial Intelligence Unit (FIU)

You must report any kind of suspicious transactions to the Financial Intelligence Unit as and when you suspect it. You must add all the relevant information for the suspected transaction and keep it updated. You must be extra vigilant to identify any suspicion in any transaction or customer.
Some of the indicators for suspicious transactions include:
  • Unnecessary complex transactions whose purpose or beneficial owner is not known
  • Transactions that are inconsistent with the customer’s risk profiling
  • Large transactions (relatively large to a customer’s income or turnover)
  • Unexplained changes in the ownership of entities or unnecessary involvement of a third party
  • Transactions involving high-risk countries or third parties with no relationship with customers
  • Unclear or dubious sourcing of funds for a transaction
  • Refusal of customers to provide relevant information or proofs required for due diligence measures

Real Estate Activity Report Submission

Ministry of Economy has recently issued a Circular (No. 05/2022 dated 24th June 2022), requiring the real estate brokers to report the specified transactions pertaining to real estate in the new report named as – Real Estate Activity Report (‘REAR’). The reporting entities have to submit REAR with the FIU UAE.

Devise and implement a sound governance structure

You must formulate a governance structure to ensure your business complies with AML/CFT requirements. For this, you must appoint a fit and capable compliance officer. He/she must be capable of handling Ml/FT reporting, AML/CFT program management, and training and development of the team.
You must keep your employee up-to-date on AML/CFT laws, policies, and norms. You must design a training manual and impart it to relevant team members. You must also assess the effectiveness of these training programs to ensure the right knowledge development.
A well-functioning governance structure is tested by an independent audit frequently. This auditing procedure will check the risk profile of products and services, customers, and target markets. If it is not possible for you to keep an internal audit team, then you can hire a third-party auditing team.

Anti-money laundering regulations for real estate transactions

The real estate sector brings a huge difference to UAE’s economy. So, it is immensely critical to keep money laundering and terrorism financing in check in this sector. You must implement all the above-mentioned measures to comply with national and global AML regulations.
The compliance with the anti-money laundering regulations for real estate transactions will enable you to save yourself and your business from any fraudulent transaction or business relationship. This, in turn, helps you to minimize your exposure to money laundering and terrorism financing risks. These measures also help you to be in congruence with international AML/CFT regulations and best practices.
To plan and implement any of these measures, you can also take the support of AML consultants in the UAE. A professional, AML consultant will be better equipped to help real estate brokers and agents with the right, relevant measures against money laundering. The consultant will ensure that industry-specific steps are taken in the fight against money laundering and terrorism financing.

About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.