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FATF RBA-Real-Estate-Sector

This guidance from the Financial Action Task Force provides recommendations for applying a risk-based approach to anti-money laundering and countering the financing of terrorism measures in the real estate sector. It outlines general money laundering and terrorism financing risks in real estate, gives guidance to real estate professionals on conducting risk assessments, documenting risks, and implementing risk mitigation controls. It also provides supervisors with tools for risk-based supervision of real estate entities. The guidance emphasizes the importance of training real estate professionals to effectively implement customer due diligence and beneficial ownership identification requirements.

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FATF RBA-Real-Estate-Sector

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GUIDANCE FOR A RISK-BASED APPROACH

REAL ESTATE SECTOR

JULY 2022
The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes
policies to protect the global financial system against money laundering, terrorist financing and the financing of
proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money
laundering (AML) and counter-terrorist financing (CFT) standard.

For more information about the FATF, please visit www.fatf-gafi.org

This document and/or any map included herein are without prejudice to the status of or sovereignty over any
territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

Citing reference:

FATF (2022), Guidance for a Risk-Based Approach to the Real Estate Sector, FATF, Paris,
www.fatf-gafi.org/publications/documents/Guidance-RBA-Real-Estate-Sector.html

© 2022 FATF/OECD. All rights reserved.

No reproduction or translation of this publication may be made without prior written permission.
Applications for such permission, for all or part of this publication, should be made to
the FATF Secretariat, 2 rue André Pascal 75775 Paris Cedex 16, France
(fax: +33 1 44 30 61 37 or e-mail: contact@fatf-gafi.org)

Photocredits coverphoto ©Getty Images

Table of contents
Acronyms .......................................................................................................................................................... 2
Executive Summary........................................................................................................................................ 3
PART ONE: INTRODUCTION AND KEY CONCEPTS ................................................................................... 4
Background and Context ............................................................................................................................................ 4
Purpose, Target Audience and Content of the Guidance ................................................................................. 5
Terminology ................................................................................................................................................................... 6
Application of the FATF Recommendations in the context of the real estate sector ............................. 7
PART TWO: FATF’s RISK-BASED APPROACH TO AML/CFT....................................................................... 9
The RBA in context ....................................................................................................................................................... 9
General ML/TF risks facing the real estate sector........................................................................................... 16
Assessing ML/TF risk ................................................................................................................................................ 18
Managing and Mitigating of ML/TF risk ............................................................................................................. 21
Challenges ..................................................................................................................................................................... 24
PART THREE: GUIDANCE FOR PRIVATE SECTOR PLAYERS ..................................................................... 32
Risk Assessment.......................................................................................................................................................... 32
Risk Categories ............................................................................................................................................................ 33
Documentation of Risk Assessments ................................................................................................................... 37
Risk Mitigation............................................................................................................................................................. 38
Regulatory obligations .............................................................................................................................................. 41
Training and awareness ........................................................................................................................................... 45
PART FOUR: GUIDANCE FOR SUPERVISORS ......................................................................................... 48
The Risk-Based Approach to Supervision .......................................................................................................... 48
Supervisory Tools and Supervision of the Risk-Based Approach .............................................................. 55
PART FIVE: CONCLUSIONS .......................................................................................................................... 68
Annex A. Additional case studies of criminal behaviour through real estate........................................ 69
Directorate of Enforcement Actions (India) ...................................................................................................... 69
FINTRAC (Canada) ..................................................................................................................................................... 69
Annex B. Glossary of Terminology ....................................................................................................... 71
2 | GUIDANCE FOR A RISK-BASED APPROACH TO THE REAL ESTATE SECTOR

Acronyms
AML/CFT Anti-money Laundering/ Countering the Financing of Terrorism
CDD Customer Due Diligence
DNFBP Designated Non-Financial Businesses and Professions
EDD Enhanced Due Diligence
FIU Financial Intelligence Unit
FSRB FATF Style Regional Body
INR. Interpretive Note to Recommendation
ML Money laundering
MLRO Money Laundering Reporting Officer
MLCO Money Laundering Compliance Officer
NRA National Risk Assessment
PEP Politically Exposed Person
R. Recommendation
RBA Risk-based Approach
SDD Simplified Due Diligence
SRB Self-regulatory Body
STR Suspicious Transaction Report
TF Terrorist Financing

Executive Summary
In June 2021, the FATF agreed that the FATF Risk-Based Guidance to the Real
Estate sector (henceforth, the sector) should be updated as a matter of priority to
reflect the evolution of money laundering and terrorist financing (ML/TF) and to
ensure that the sector remains well-placed to counter such activity.
This Guidance was primarily developed to outline the principles and benefits of
adopting a risk-based approach to tackling ML/TF. It is designed to be read
alongside the FATF Recommendations (2012) and provides real estate
professionals involved in real estate transactions, with the requisite tools and
examples to support the implementation of FATF standards enabling the
implementation of a risk-based approach to anti-money laundering and countering
the financing of terrorism (AML/CFT). Such an approach is considered to be the
foundation of a country’s AML/CFT framework, which must reflect the
characteristics of legal, regulatory and financial frameworks.
The success of a risk-based approach (RBA) is dependent on a comprehensive
understanding, assessment and management of ML/TF risks, and on taking
appropriate measures to mitigate these risks effectively. This Guidance is split into
three main sections including an overview of the FATF’s RBA, including the general
risks and challenges that real estate professionals might be exposed to and how
these can be effectively mitigated and managed.
The following section sets out the primary risk categories that the sector might be
exposed to and makes recommendations on the types of mitigation policies that
should be devised, implemented, and reviewed, including ensuring customer due
diligence (CDD) and identifying beneficial ownership measures are undertaken.
This Guidance emphasises the need for training and awareness that real estate
professionals should have to effectively implement AML/CFT requirements.
The final section provides guidance for supervisors and self-regulatory bodies
(SRBs) and highlights the need for adequate powers to enable such bodies to
perform their functions effectively. This includes powers to monitor activity and
impose appropriate sanctions where necessary. Further recommendations are
provided to enable effective supervision, including on the allocation of resources
based on the degree of ML/TF risk and assessment of the effectiveness and
suitability of controls implemented by real estate professionals.

PART ONE:
INTRODUCTION AND KEY CONCEPTS

Box 1.1. Relevant FATF Recommendations and Guidance

This Guidance should be read in conjunction with the following, which
are available on the FATF website:
a The FATF Recommendations, especially Recommendations 1, 10,
11, 12, 15 17, 19, 20 to 25, 28, and their Interpretive Notes (INR),
as well the FATF Glossary.
b Other relevant FATF Guidance documents such as:
● FATF Guidance on Transparency and Beneficial Ownership
(October 2014)
● Terrorist Financing Risk Assessment Guidance (July 2019)
● FATF Guidance on Digital ID (March 2020)
● FATF Guidance on Risk-Based Supervision (March 2021)
● FATF Recommendations 18 and 23: Explanatory Materials
(November 2021)
c Other relevant FATF reports such as:
● The Joint FATF and Egmont Group Report on Concealment of
Beneficial Ownership (July 2018)

Background and Context

1. The implementation of RBA is critical to the effective implementation of FATF

Standards. In 2008, FATF published its RBA Guidance for Real Estate Agents as
part of the ongoing efforts to strengthen the implementation of the Standards
with Designated Non-Financial Businesses and Professions (DNFBPs).
2. These guidelines have been incorporated into many national jurisdictions
legislative and supervisory practices. In some instances, national authorities
have further developed guidelines setting forward more detailed requirements
and context specific advice.
3. In June 2021, the FATF agreed that the 2008 document should be updated as a
matter of priority to reflect the recognition of the evolving nature of the sector
as well as changes that occurred to FATF Recommendations and industry best-

practices as well as to account for the evolution of the RBA. Additionally, the
FATF notes that money laundering through real estate continues to be well
documented across FATF and FSRB members.
4. This updated Guidance provides private sector practitioners, supervisors,
regulators, and policy-makers with additional strategies and tools to inform and
contribute towards a more effective AML/CFT system. 1
5. This Guidance supports national regulations and guidelines issued by FATF and
FSRB members that may set forward more detailed requirements for the sector
than what is described here. This Guidance is non-binding and does not overrule
the purview of national authorities, including on their local assessment and
categorisation of real estate professionals based on the prevailing ML/TF risk
situation and other contextual factors.2

Purpose, Target Audience and Content of the Guidance

6. The purpose of this Guidance is to:

• Support the implementation of FATF standards for the real estate sector,
including residential, commercial, rural, industrial, agricultural, mixed use
and any other forms of real-estate.
• Indicate good practices in the design and implementation of an effective
RBA.
• Update the previous FATF guidance in line with new and emerging threats,
sector developments and the ever-evolving international context.
7. This Guidance applies to all types of real estate (residential, commercial,
agricultural, industrial, rural and others) and is aimed at professionals working
in and involved with the selling and buying of real estate, generally known in this
guidance as real estate professionals, to include real estate agents as well as those
professionals that may carry out or prepare for transactions for clients involving
the buying and selling of real estate, such as lawyers, notaries, real estate
developers, title insurers, other independent legal professionals and accountants
– all professions covered under countries’ FATF obligations under R.22. 3
8. This Guidance provides context and further information on how to implement
the RBA for the sector, assisting supervisors and practitioners alike in their
development of best practices, as well as discussing key items for practitioners
to consider for their internal control systems and reporting. In particular, it
provides a detailed description of how sector supervisors and practitioners

1 This Guidance was reviewed by public and private sector experts as summarised in
Annex C.
2 National authorities take the Guidance into account when carrying out their
supervisory functions.
3 FATF Recommendation 22 - The customer due diligence and record-keeping
requirements set out in Recommendations 10, 11, 12, 15, and 17, apply to designated
non-financial businesses and professions (DNFBPs) in the following situations: “…b)
Real estate agents – when they are involved in transactions for their client concerning
the buying and selling of real estate. . . . d) Lawyers, notaries, other independent legal
professionals and accountants – when they prepare for or carry out transactions for
their client concerning the following activities: buying and selling of real estate….”

should implement the FATF Standards in an adequate, risk-based and effective

manner.
9. This Guidance furthermore offers examples of relevant ML/TF risk indicators
associated with the real estate sector to inform supervisors and practitioners as
they seek to carry out an RBA.
10. This Guidance also offers case-studies and real examples of private sector and
supervisory practices aimed at illustrating and improving the assessment and
understanding of sector specific risks rather than instituting best-practices.

Terminology

11. Similar terms are often used to refer to the different intermediaries that can be
found in real estate markets worldwide. This Guidance focuses on real estate
agents and other professionals that may carry out or assist transactions for
clients when they buy or sell real estate to the extent required by FATF R.22.
12. A real estate agent should be broadly understood as a professional that operates
within the real estate sector and is involved in transactions for a client
concerning the buying and selling of real estate. As applicable to other obliged
entities, not all functions carried out by real estate agents are subject to FATF
standards.
13. For the purpose of clarity, the term real estate professionals henceforth used in
this Guidance refers to a number of functions, which may or may not be
performed by those known as real estate agents, as contemplated by FATF R.22
(b). These functions, as listed below, should allow supervisors and practitioners
to develop a common understanding of when the risk-based approach should be
applied, regardless of specific terminology applied in each country. The use of
the term real estate professionals 4 therefore broadly includes real estate agents,
other DNFBP’s, other real estate practitioners, and/or professionals practicing
or involved in the activities described below. In particular, and when linked to
the buying and selling of real estate:
• Traditional exclusive (and non-exclusive) seller representation.
• Traditional exclusive (and non-exclusive) buyer representation.
• Representation of both buyer and seller in the same transaction.
• National and transnational referrals.
• Representation at auctions (and auctioneers).
• Financial settlement.
• Real estate brokerage.
14. This Guidance applies to other professionals – notaries, lawyers, lenders,
property value assessors – when these professionals engage in interactions or

4 The term professionals should be interpreted broadly as regards the performance of the
specific activities covered in this Guidance, i.e. when referring to those involved in the
buying and selling of real estate. In this context, practitioners should be understood as
equivalent to professionals whenever performing the defined activities.

functions related to the buying and selling of real estate. 5 These professionals are
broadly referred to as real estate professionals, to encompass real estate agents,
and other DNFPBs.
15. This Guidance may also be applicable to real estate developers, who in some
instances, may carry out similar activities to those described above – including
the sale of property – but who may not be specifically described as real estate
agents.
16. Countries may also find it helpful to apply this guidance to banks and other
lending institutions that may facilitate real estate transactions, such as mortgage
lending, as well as other entities that provide financing for real estate such as
independent mortgage lenders, if they are exposed to similar ML/TF risks as
those facing real estate professionals.
17. In some markets real estate agents may assume additional functions relative to
the transaction, such as conducting a mortgage loan assessment,
valuation/appraisal and conveyance of property or others. In accordance with
the FATF R.1, depending on countries’ ML/TF risk understanding and
assessment, if it is determined that there are types of institutions, activities,
business and professions within the real estate sector that are at risk of ML/TF
abuse, countries should consider extending the AML/CFT requirements to them,
if they are not included in the FATF standards. Countries should be guided by
their understanding of where risks related to real estate resides, and not
definitional terms.

Application of the FATF Recommendations in the context of the real estate sector

18. Recommendations 18 to 21. As concerns the implementation of internal

controls and foreign branches and subsidiaries, the adoption of enhanced due
diligence measures as regards higher-risk countries and, the reporting of
suspicious transactions, the FATF requires real estate professionals involved in
the buying and selling of real estate to adopt these measures in the same manner
as required of other obliged entities. This requirement is aimed at mitigating the
gaps arising from an incomplete implementation of due diligence requirements
and the inability of obliged entities to adequately apply the RBA to AML/CFT
efforts, as well as to communicate effectively with competent authorities and
supervisors.
19. Recommendation 22. The FATF Recommendations define that customer due
diligence and record keeping measures, as well as measures on politically
exposed persons, new technologies and reliance on third parties apply to all
DNFBP’s. This recommendation sets out the obligation for real estate agents, as
well as lawyers, notaries, and other independent legal professionals and
accountants in the context of buying and selling of real estate. The FATF
acknowledges that countries may have different definitions and understanding
of the concept of “real estate agent”, therefore the FATF requirement should be
interpreted in relation to the activity at stake, rather than specific titles or

5 The requirement refers to these professionals only when carrying out functions related
to the buying and selling of real estate. For example, a value assessor will only be
covered by the requirement if and when, in addition to the appraisal process, they are
involved in transactions for their clients concerning the buying and selling of real
estate.

professions. Among other obligations, real estate professionals should always

comply with their due diligence obligations with respect to both the buyers and
sellers of the property under transaction.
20. Recommendation 23. This FATF Recommendation specifies conditions subject
to which a select group of professions (lawyers, notaries, and other independent
legal professionals and accountants, dealers in precious metals and stones and
trusts and company service providers) should implement the obligations set out
under Recommendations 18 to 21. Recommendations 18 to 21 apply to all
DNFBP’s, including real estate agents. Countries should consider the qualifiers
presented in R.23 without prejudice to the application of Recommendations 18
to 21 on all DNFBPs, including real estate agents, who should report suspicious
transactions, when involved in the buying and selling of real estate.

PART TWO:
FATF’s RISK-BASED APPROACH TO AML/CFT

The RBA in context

21. An RBA to AML/CFT means that countries, competent authorities, financial

institutions and DNFPBs are expected to identify, assess and manage the ML/TF
risks to which they are exposed, and take AML/CFT measures commensurate to
those risks in order to mitigate risks effectively. The FATF Recommendations
consider the RBA to be an ‘essential foundation’ of a country’s AML/CFT
framework. This is an over-arching requirement applicable to all relevant FATF
Recommendations.
22. FATF R.1, which is directed towards assessing risks and applying a risk-based
approach, sets out the scope of application of the RBA as follows:
a Who should be subject to a country’s AML/CFT regime? In addition to
the sectors and activities already included in the scope of the FATF
Recommendations6, countries should extend their regime to additional
institutions, sectors or activities if they pose a higher risk of ML/TF. In
strictly limited and justified circumstances countries could also consider
exempting certain institutions, sectors or activities from some AML/CFT
obligations where specified conditions are met, to include when there is a
proven low risk of ML/TF. 7
b How should those subject to the AML/CFT regime be supervised for
compliance with this regime? AML/CFT supervisors should ensure that
real estate professionals are implementing their obligations under R.1, R.22
and other relevant recommendations. AML/CFT supervisors should
specifically assess the risks of the real estate sector to inform mitigation
and acknowledge the degree of discretion allowed under the RBA.
c How should those subject to the AML/CFT regime be required to
comply? Where there are higher risks, enhanced measures should be taken
to manage and mitigate those risks. The range, degree, frequency or
intensity of preventive measures and controls conducted should be
stronger in higher risk scenarios. When involved in transactions for a client

6 See Glossary, definitions of “Designated non-financial businesses and professions” and

“Financial institutions”.
7 See INR.1.

that includes the buying and selling of real estate, 8 real estate professionals
are required to apply each of the CDD measures below: 9
i. identification and verification of the client 10 and beneficial owner's
identity;
ii. understanding the purpose and nature of the business relationship;
iii. and, when relevant, on-going monitoring of the relationship;
iv. identification and verification of the source(s) of wealth and funds
of the customer;
Generally speaking, however, where the ML/TF risk is assessed as lower, the
degree, frequency and/or intensity of the controls conducted will be less stringent.
Where risk is assessed at a normal level, the standard AML/CFT controls should
apply.
d Consideration of the engagement in client relationships: FATF does not
require the real estate sector to entirely avoid ML/TF risks. Real estate
professionals that have been identified as vulnerable to risk may still
operate in the sector or with a particular type of customer, provided
sufficient mitigating measures are in place. Notably, even if the services
they provide to their clients are considered vulnerable to the risks of
ML/TF based on risk assessments, it does not mean that all real estate
professionals and all their clients or services pose a higher risk if sufficient
risk mitigation measures have been put in place.
23. Access to accurate, timely and objective information on ML and TF risks is a
prerequisite for an effective RBA. INR.1 (criteria 1.3 and 1.4) requires countries
to have mechanisms to provide appropriate information on the results of the risk
assessments to all relevant competent authorities, SRBs, financial institutions
and DNFBPs. Where information is not readily available - for example where
competent authorities have inadequate data to assess risks, or are unable to
share important information on ML/TF risks and threats, or where access to
information is restricted - it will be difficult for real estate professionals to
correctly identify ML/TF risk.
24. R.34 requires competent authorities, supervisors and SRBs to establish
guidelines and provide feedback to financial institutions and DNFBPs – as
defined in the FATF glossary - to help these entities apply national measures to
combat money laundering and terrorist financing. Such guidelines and feedback
allow institutions and businesses to identify the ML/TF risks and to adjust their
risk mitigation programmes accordingly.
Allocating responsibility under an RBA
25. An effective risk-based regime builds on and reflects a country’s legal and
regulatory approach, the nature, diversity and maturity of its financial and
DNFBP sectors and their risk profile. Real estate professionals should identify
and assess their own ML/TF risks by considering the findings of available risk

8 This means that real estate professionals should comply with the requirements set out
in Recommendation 10 with respect to both the buyers and the sellers of the property.
9 See R.10.
10 For the purposes of this Guidance, “client” refers to both buyers and sellers of real estate
property.

assessments, becoming familiar with their governments assessment of risk in

line with R.1 as well as the national legal and regulatory frameworks, including
any areas of significant risk and associated mitigation measures.
26. Real estate professionals are required to take appropriate steps to have policies,
controls and procedures that enable them to manage and mitigate effectively the
risks that have been identified. 11 Where ML/TF risks are higher, real estate
professionals should have additional mitigation measures in place, and should
apply enhanced due diligence, while taking into account that national law or
regulation might not prescribe exactly how these higher risks are to be mitigated
(e.g. varying the degree of enhanced ongoing monitoring).
27. Countries may also consider evidence from competent authorities on the level of
compliance in the sector and the sector’s approach to dealing with ML/TF risks.
Countries with emerging real estate sectors or related functions or countries that
have legal, regulatory, and supervisory frameworks that are still developing may
determine that real estate professionals are not fully equipped to effectively
identify and manage ML/TF risks. In such cases, additional attention and
supervisory focus on AML/CFT requirements on real estate professionals, other
DNFBP’s, and banks involved in the industry may be appropriate until the sector
is mature and better able to mitigate ML/TF risks.
Developing a common understanding of the RBA
28. The effectiveness of an RBA depends on a common understanding by competent
authorities, supervisors and real estate professionals of what the RBA entails,
how it should be applied, what the risks are, and how ML/TF risks should be
addressed. In addition to a legal and regulatory framework that spells out the
degree of discretion provided to real estate professionals, the RBA requires real
estate professionals to address identified risks. Competent authorities should
provide information and guidance on regulatory developments – including
specific regulations – and assessed risks to real estate professionals to help meet
their legal and regulatory AML/CFT obligations. Facilitating ongoing and
effective communication between competent authorities and the sector is
essential.
29. A successful RBA will also need to take into account the overlap of coverage
under AML/CFT frameworks for the non-real estate professionals that operate
in the real estate sector such as bankers, lawyers, and accountants. Competent
authorities, supervisors, and the relevant professionals covered under an
AML/CFT regime should maintain an understanding of their individual
obligations and ML/TF risks while remaining cognizant of the general regulatory
regime for the sector. Similarly, the underlying risk of illicit activity may be
mitigated by coverage of various different intermediaries or at different points
in the transaction process.

11 R.1 and INR.1

Identifying ML/TF risk in the real estate sector

30. Data gathered for this project 12 suggests that a significant portion of the
countries assessed during the FATF 4th round of mutual evaluations identify the
real estate sector as having a high ML/TF risk.

Figure 2.1. Ranking of ML/TF risk in the real estate sector

Source: Sample of 32 FATF/FSRBs countries, FATF

31. 37% of countries surveyed have found the sector associated risk to be high
versus 9% which consider it low or medium-low. The degree to which ML/TF
risk is considered high by the jurisdictions is helpful to inform specific guidance
and the extent to which the RBA is implemented.

Figure 2.2. Understanding of ML/TF Risk

Source: Sample of 32 FATF/FSRBs countries, FATF 2021

32. In addition, countries’ real estate sectors have been found to have a poor level of
understanding of the relevant ML/TF risks. As of 2021, 78% of 4th round assessed
MERs suggested there is a poor or very poor rating in this area. The low levels of
ML/TF risk awareness in the sector appear to be mostly linked to the nature, size
and functions present in the sector (small local enterprises with low resources),

12 This data was obtained through the review of 32 FATF and FSRB MERs carried out in
the 4th Round of evaluations.

which challenge its ability to have a shared understanding of risks, as well as

criminal trends and potential shared threats.
33. The data collected on how countries understand ML/TF risk in the real estate
sector suggests the implementation of FATF Standards continues to require
improvement and demonstrates a lower level of understanding of ML/TF risks
when compared to other DNFBP sectors and financial institutions.
34. The suggested low level of understanding of ML/TF risks becomes particularly
relevant when assessed in relation to the sector’s identified high risks.
35. The real estate sector’s understanding of risk should be addressed in order to
allow for the adoption of adequate mitigation strategies that are fit to respond to
the sector-specific threats.

Figure 2.3. Real Estate sector weighting in countries’ economies

Source: Sample of 32 FATF/FSRBs countries, FATF 2021

36. The combined assessment of the FATF findings suggest the need to refine best
practices and improve overall compliance with FATF Standards. Stronger
implementation of the RBA should allow countries and practitioners alike to
respond to the identified risks and threats in a manner which is compatible with
their countries’ own context, ability and need.
37. Identifying ML/TF risks in the real estate sector and clearly communicating those
findings so they can become part of an overall strategy is foundational to
countries’ and regulated sectors’ overall AML/CFT effectiveness. As described in
the FATF methodology, countries with effective AML/CFT regulatory
frameworks feature systems in which “money laundering and terrorist financing
risk are understood and, where appropriate, actions coordinated domestically to
combat money laundering and the financing of terrorism and proliferation”.13
38. As previously indicated in various FATF documents and guidance, 14 ML/TF risk
is inherently unique to each country, and can vary with regards to the different
types of property (e.g. commercial, residential or other). However, there are

13 FATF Methodology, Immediate Outcome 1 on Risk, Policy, and Coordination. Available

at: www.fatf-
gafi.org/media/fatf/documents/methodology/FATF%20Methodology%2022%20Feb
%202013.pdf
14 See Box 1.1 for a detailed list.

shared vulnerabilities across jurisdictions faced by the real estate sector due to
criminals’ preference for the purchase of real estate with illicit proceeds given
the value of property as an asset. Evaluating these purchases helps identify
trends of ML/TF activity.
Sector specific ML/TF risks
39. As indicated in the section above, a persistent challenge to ensure the
effectiveness of FATF Standards for the real estate sector across FATF and FSRB
members is the lower level of standards implementation, as well as a lower
understanding of risk within the sector itself. In many countries, real estate
professionals are not required to file suspicious transaction reports despite
taking on large amounts of funds – including cash – from disparate sources
originating from high-risk jurisdictions or business relationships. Supervisors
and other competent authorities may not have the capacity to monitor individual
or aggregate transactions involving the real estate professionals. 15 This
arrangement can make it difficult to identify specific ML/TF risks in the real
estate sector. Box 2.1 gathers a few case-studies of identified criminal behaviour
through real estate (additional examples available in Annex A).

Box 2.2. Criminal behaviour through real estate

• Mr. X was convicted in April 2019 of fraud and money laundering
and sentenced to 8 years in prison. Mr. X and his associate Mr. Y who
had been previously convicted of fraud visited a solicitor to buy a
property for £ 350 000. The name on the solicitors’ file was then
changed to Mr. Y’s partner. Between the 18th December and
12th February 2019 X and Y’s solicitor received a series of
unsolicited electronic payments into their client account totalling
£250,025. The funds had originated in their entirety from the bank
account of a limited company (Company A) for which Y's partner
was, at the time of the transactions, again a director and the sole
authorised signatory. In accordance with Money Laundering
Regulations the solicitor contacted Y's partner seeking proof of the
provenance of the funds on several occasions, but no evidence was
provided. Mr. Y changed the name of the property to be bought
several times and eventually notified the solicitor he needed the
money back. The solicitor submitted a consent SAR asking for
permission to pay the money back to the client, the permission was
refused, and the money was ultimately forfeited via the Proceeds of
Crime Act (POCA). Had the solicitor refunded the upfront payment
received on their client accounts they would have enabled money
laundering.
• Entity E was operating as an online peer-to-peer lending finance

15 Transparency International, “Three Ways To Stop Money Laundering Through Real

Estate”, 6 September 2019. Available at: www.transparency.org/en/news/three-ways-
to-stop-money-laundering-through-real-estate

company in Country C until the authorities uncovered that it was

conducting a large-scale Ponzi scheme. Among others, proceeds
from Entity E’s Ponzi scheme were intended to be used to purchase
a private residential property in Singapore worth more than S$23
million. An estate agent referred a foreign customer who was
interested in purchasing a property in Singapore to a Singapore
lawyer for conveyancing. The lawyer subsequently discovered that
the foreign customer had been arrested in their home country in
relation to Entity’s E Ponzi scheme and was under investigation for
fraud. The lawyer and real estate agent had suspected that the
monies provided by the customer for the purchase of the property
were illicit proceeds but did not file a Suspicious Transaction Report
required under the Corruption, Drug Trafficking and Other Serious
Crimes (Confiscation of Benefits) Act. Eventually the property and
other relevant proceeds were seized, amounting to S$27 million.
These proceeds have been successfully returned to Country C.
• Ms. X is a national from a country outside of the EU. She is not a
resident in France for tax purposes. She wanted to buy a three-
million-euro property in the South of France. In the course of
negotiation, she said that the funds would be paid from her
husband’s bank account which is located in a country known as a tax
shelter. Formalities were completed by a natural person born in a
country – known to present ML/TF risks - according to the French
financial intelligence unit (TRACFIN). This person had a power of
attorney to sign the deed of sale. After an investigation on open data
bases, TRACFIN found out that Ms. X was the wife of a politically
exposed person who was known for embezzlement in his country.
This information was corroborated by the FIU of the country Ms X
was from. In addition, this couple had been the subject of freezing of
assets.
• In February 2021, a real estate attorney in Kentucky pleaded guilty
to money laundering charges for purchasing real estate with the
intention of using the purchases to disguise the proceeds of illegal
sports betting. The attorney conspired with another individual
engaged in illegal betting to disguise the illicit proceeds through
investments in commercial real estate. As part of the scheme, the
attorney used funds which he knew were derived from illegal
betting to purchase companies that held real estate properties.
When purchasing these properties, the attorney deliberately
concealed the involvement and ownership of the individual
involved in illegal gambling.16
• A gang of criminals, made up mostly of foreigners of the same
nationality, created a company with a commercial line of "purchase
and sale of new and used ATMs" for which it reached an agreement
with a prestigious credit institution to operate said ATMs in tourist

16 IRS, “Bowling Green attorney pleads guilty to laundering over $700 000 of illegal
proceeds,” (Feb. 27, 2020), www.irs.gov/compliance/criminal-investigation/bowling-
green-attorney-pleads-guilty-to-laundering-over-700 000-of-illegalproceeds.

areas of the country. The ATMs had chips installed that copied the
data of the credit and debit cards, with which they used to extract
cash. The company of “new and used ATMs” generated millions in
income, for which it became one of the largest “skimming” operators
in the world. The money obtained from the fraud was integrated
into the financial system through the investment of millions in real
estate through another company involved in the real estate
business, of which the leader of the Gang appeared as its legal
representative. Of note, the leader of the gang created various
corporate connections with various natural and legal persons
(members of the gang) in order to create the money laundering
scheme. Some members of the gang acquired various properties
with the illicit proceeds, bought luxury cars and watches and some
of them participated in gambling.
Source: UK, France, USA, Singapore and Mexico

General ML/TF risks facing the real estate sector

40. Criminals gravitate towards sectors that apply or are believed to apply less-
comprehensive regulation and mitigation measures or where supervision is
found to be lacking. The purchase of real estate allows for the movement of large
amounts of funds all at once in a single transaction as opposed to multiple
transactions of smaller values. In many countries, relevant AML/CFT
requirements are minimal. Unlike banking, insurance, money-service-
businesses, and other industries, buyers and sellers of real estate do not tend to
maintain a relationship over a period of time with a regulated entity, which can
make it difficult for supervisors and real estate professionals to examine series
of transactions and identify suspicious activity. The nature of transactions also
reduces the level of understanding of customer profiles and the incentive for
investing and adequately implementing customer due diligence requirements.
41. In many countries, means to determine adequate, accurate, and up-to-date
information on the beneficial owner[s] behind real estate transactions are few
and in some there is a lack of requirement to collect this information – to include
beneficial ownership information - or the source of funds used for the real estate
transactions. Many countries also lack adequate and accessible mechanisms
where information on beneficial owners of real estate can be easily found for
investigative or analytical purposes. The lack of transparency into beneficial
ownership information allows criminals to abuse nominees as well as legal
persons and arrangements – such as shell companies and trusts - obfuscating
their involvement in ML/FT activities.
42. In some countries, real estate also offers secondary benefits for criminals and
corrupt Politically Exposed Persons (PEPs), such as helping with attempts to
secure residency and/or citizenship, conveying social respectability, providing
an immediately available good of material benefit that may appreciate in value.
Real estate is often a stable investment and an appreciating asset that can
generate returns. Both commercial and residential property can offer an

attractive tool for criminals. Criminal networks and drug traffickers have
purchased real estate for their use as supply houses, or as a location to grow,
manufacture, or distribute illicit narcotics. While in some cases criminals are not
able to make tangible use of financial assets, such is not the case with real estate,
adding to its appeal as a criminal profit tool.
43. Successful AML/CFT supervision of the real estate sector must contend with the
obfuscation of true ownership provided by legal entities or arrangements, while
recognizing that individuals often have legitimate reasons to use these vehicles
to purchase real estate, such as to ensure privacy or for tax planning purposes.
44. Across various jurisdictions, some PEPs have sought to launder ill-gotten funds
into the real estate sector in both the residential and commercial sectors. PEPs
that misuse their positions for personal enrichment present a high ML risk to the
real estate sector and the larger financial sector more broadly given the PEP
connections to governmental entities and possible access to government funds.
45. Commercial real estate may be especially vulnerable to money laundering due to
the increased prevalence of legal entities and vehicles used by corporate buyers
and sellers that seek out these properties for investment and revenue.
Additionally, the high-value of these properties may also require multiple types
of financing, which may complicate efforts to identify the source of funds.
46. In some instances, criminals may seek to falsify information – such as asset
holdings, falsified or stolen identities, and income information – to obtain a loan
from a bank or other lender. In these instances criminals may have no intention
of using the funds to acquire a property and may seek to use the real estate loan
to disguise the origin of funds for another use. Illicit proceeds may be used to pay
off loans, allowing criminals to place ill-gotten gains into the financial system. In
some instances, criminals may rely on complicit bankers and lending
professionals to help obtain a mortgage and ultimately help them avoid
detection. They may also seek out straw buyers or nominees to obtain the
mortgage.
47. However, for non-financed purchases, the risk posed by complicit professionals
is even more significant, given the ability of the transacting parties to avoid going
through highly-regulated financial institutions to obtain financing to close a deal.
This allows for real estate professionals to knowingly or unknowingly facilitate
real estate purchases for criminals without adhering to CDD obligations required
by covered financial institutions. This risk may be exacerbated in countries with
minimal beneficial ownership requirements.
48. Criminals may seek to launder funds by paying for property at a higher or lower
value than true property value, indicating that the property may not be intended
for a legitimate use and that the transaction is designed to hide illicit activity or
gains. Moreover, infusion of large amounts of laundered money to purchase real
estate with little regard to cost can significantly increase housing costs in some
circumstances, creating hardship for genuine buyers seeking affordable housing.
49. In many cases, cross border purchases of real estate may also carry more
elevated risks for practitioners and supervisors, especially when the buyer is
based in a high-risk jurisdiction. This may include instances where the purpose
of the transaction is questionable, i.e. not for residence, or when the value
associated with the transaction is abnormal for the buyer or the market.

Importance of identifying ML/TF risks for a successful RBA

50. Countries must ensure that all competent authorities and DNFPBs involved in
the real estate sector are aware of the unique risks to the sector as identified in
the national risk assessment exercises. Depending on the structure of competent
authorities and the overall real estate sector, each country’s risks, along with the
risks assessments and mitigation strategies will be unique.
51. The real estate sector is not constrained to residential real estate. All professions
involved in both residential and commercial real estate transactions, as well as
any other type that carries AML/CFT risk, including lawyers, bankers, lenders,
investment advisors, settlement companies, insurers, and others should be
considered when seeking to identify risks associated with the sector and be
aware of the national risk assessment and strategy, and play a part in risk
mitigation strategies.
52. In sum, the real estate sector is prone to abuse and can assist criminals in their
illicit activities or the laundering of criminal profits. A previous FATF report 17
identified and summarised several activities that may be indicative, although not
conclusive, of money laundering via the real estate sector. This Guidance adds to
these typologies to include:
• Use of complex loans or credit finance
• Use of non-financial professionals
• Use of corporate vehicles or complex structures
• Unexplained use of virtual assets
• Manipulation of the appraisal or valuation of a property
• Use of monetary instruments
• Unexplained cash payments
• Use of client accounts
• Construction and renovation of real estate
● Use and purchase of commercial properties inconsistent with business
purpose.

Assessing ML/TF risk

53. The process of assessing risks should be done holistically and include input and
participation of all relevant stakeholders. A National Risk Assessment (NRA)
need not be a single formal process or document, but it is rather a mechanism
that allows competent authorities, supervisors and DNFPBs, including real estate
professionals, to be in a position to design and implement measures to mitigate
the identified risks based on accurate and up to date information.

17 FATF, Money Laundering & Terrorist Financing through the Real Estate Sector, June
2007, para.12. Available at : www.fatf-
gafi.org/media/fatf/documents/reports/ML%20and%20TF%20through%20the%20
Real%20Estate%20Sector.pdf

54. Policy-makers in partnership with law enforcement bodies, FIUs, designated

competent authorities, supervisors, financial institutions, and real estate sector
representatives are best placed to bring their knowledge and expertise to bear
in developing a RBA that is appropriate for their particular country context. Their
assessments will not be static and will change over time, depending on how
circumstances develop, how the threats evolve, and how well mitigation works.
As such, the sharing of information and expertise among different agencies and
entities and with the real estate sector is important.
55. The process of assessing risks may be informed by different mechanisms which,
depending on the context, facilitate the better understanding of the identified
risks and contribute towards stronger risk assessments. For example:
• Whether through formal and informal events, public and private sector
organizations may benefit from information sharing and discussions about
general and specific ML/TF risks facing the sector. This type of
collaboration allows competent authorities to be aware of the risks
identified by the private sector – who often operate the various systems
and processes at risk for money laundering and terrorist financing – whilst
also allowing for information sharing on country priorities which may
enhance the private sector’s ability to mitigate risk following the RBA.
• Reviewing money laundering and other criminal activity that is no longer
under active investigation – e.g. the use of sanitised case studies - allows for
both the competent authorities and the private sector to identify various
money laundering and terrorist financing typologies which may allow for
more effective assessments and mitigation of the related risks.
• When relevant and applicable, collection of additional data on specific
sector ML/TF risks and related issues from credible sources 18 or expert
insights may inform and advance risk assessment and mitigation strategies.
• Competent authorities may also consider using non-public tools available
to them to assess risks that will ultimately inform efforts to address money
laundering and terrorist financing. For example, if a specific type of
transaction is deemed potentially risky in a specific jurisdiction – such as
all-cash purchases of real estate over a certain threshold – the competent
authorities may direct entities involved with these transactions to record
information on the purchase to facilitate efforts to collect data and to
improve authorities’ understanding of the issue. To the extent possible, STR
information is also a critical tool for public authorities to use as they are in
a unique position to analyse this confidential data.
56. Guidelines should be developed specifying which issues in real estate
transactions present a high risk. For example, lawyers, notaries and other self-
employed members of legal advisory professions are under INR. 23 not required
to report suspicious transactions if the information was obtained in
circumstances in which it is properly subject to professional secrecy or legal

18 “Credible sources” refers to information that is produced by reputable and universally

recognised international organisations and other bodies that make such information
publicly and widely available. In addition to the FATF and FATF-style regional bodies,
such sources may include, but are not limited to, supra-national or international bodies
such as the International Monetary Fund, the World Bank and the Egmont Group of
Financial Intelligence Units.

professional privilege. This privilege should be taken into account when

assessing national risks, as legal professionals are often involved in real estate
deals. Importantly, lawyers and others should note that these privileges should
not apply to fraudulent transactions or criminal activity. If the national risk
analysis reveals that certain real estate transactions in which legal professionals
are involved have a high risk and that legal privilege in these cases prevents
reporting to the FIU, targeted measures should be taken by policy-makers to
address these deficiencies, as appropriate.
57. Guidance on this issue should help supervisory authorities collect more
information about cases pertaining to professional privilege but also assist
private sector stakeholders to assess and understand their risks and make an
appropriate contribution to counteracting high risks in real estate transactions.
In addition to gaining a broad range of information on certain real estate
transactions, the associated transparency also contributes towards risk
mitigation efforts. Box 2.2 offers an example of enhanced response measures that
may be taken when specific risks are identified.

Box 2.3.Suspicious real estate transaction reporting by legal

professionals
In its NRA, Germany rated the real estate sector as having an
increased risk of money laundering. The identified issues resulted in
an increased risk in the entire national real estate sector. In this
respect, professional secrecy was identified as a key factor.
As a result, a reporting obligation was introduced for legal advisory
professionals in order to ensure that professional privilege does not
preclude the submission of an STR. Legal advisers are required to
report the following standardized facts to the FIU in the context of real
estate transactions:
• Real estate acquisition with reference to third countries with
high risk (EU) or to countries with strategic deficiencies
(FATF).
• If the participant or beneficial owner is listed in connection
with an economic sanction measure decided by the Council of
the European Union in the field of common foreign and
security policy.
• Knowingly incorrect or incomplete information on the identity
of a participant or beneficial owner.
• Payment of the full or partial purchase price using cash or
crypto.
• Significant discrepancy between the purchase price and the
actual market value.
Source: Germany

58. Ultimately the purpose of a national risk assessment is to increase the levels of
awareness and knowledge, of both public and private sectors, regarding ML/TF
risks in a way which allows countries as well as private sector to design
appropriate strategies to address the risks. It should inform how resources are
applied in line with the national strategy to combat ML/TF.

Managing and Mitigating of ML/TF risk

59. Countries should take enhanced measures to manage and mitigate situations
when the ML/TF risk is higher. In lower risk situations, less stringent measures
may be applied, whenever justified by national or other risk assessments.19
● Countries may decide not to apply some of the FATF Recommendations
requiring real estate professionals to take certain actions, provided (i)
there is a proven low risk of money laundering and terrorist financing (and
this occurs in strictly limited and justified circumstances and it relates to a
particular category of real estate agent or type of transaction) or (ii) a
financial activity is carried out by a natural or legal person on an
occasional 20 or very limited basis such that there is a low risk of ML/TF,
such that the exemptions of INR 1.6 are met.
● Countries looking to apply simplified measures should conduct an
assessment to ascertain if there is a lower risk connected to the category of
customers and clients or products, and define the extent and the intensity
of the required AML/CFT measures to mitigate the risk, provided that the
specific conditions required for one of the exemptions of INR.1.6 are met.
Specific FATF Recommendations set out in more detail how this general
principle applies in particular circumstances. 21 Risks may change over time
and should be monitored to ensure the low-risk rating remains valid.
60. Supervisory authorities for real estate professionals should be independent and
have the appropriate tools to avoid conflict of interests in case such supervision
is carried out by SRBs. They should employ skilled and trusted personnel, have
requisite knowledge and technical tools commensurate with their
responsibilities. Similarly, service providers responsible for customer due
diligence, suspicious report filing, or transaction monitoring must ensure they
have the expertise and resources necessary to accomplish these functions. For
instance, real estate professionals that are required to routinely conduct a high
volume of enquiries when on-boarding clients, may consider engaging skilled
and trusted specialized personnel who are appropriately recruited and vetted
(as regards to their skills, knowledge, integrity and/or criminal records where
needed). Such real estate professionals are also likely to consider using the
various technological options (including artificial intelligence) and software
programs that are now available to assist in this regard. See Box 2.3.
61. The use of new or innovative technological tools to facilitate AML/CFT
implementation should be encouraged as part of a proactive posture with

19 Subject to the national legal framework providing for Simplified Due Diligence
20 An occasional transaction in this context can be interpreted as the expected, and most
common, use of real estate services. For example, for the purchase of property for
personal (i.e. residential) purposes without there being any elements of complexity
associated to the individual buyer, transaction or property.
21 For example, R.10 and INR.10 on Customer Due Diligence.

regards to identifying and mitigating ML/TF risk. The implementation of the RBA
does not need to imply additional effort or burden, rather it should be a reflection
of the identified and assessed ML/TF risks and the adequate deployment of
mitigation resources.
62. Real estate professionals should develop internal policies, procedures and
controls, and appropriate screening and investigations to ensure high standards
when hiring professionals that may need to perform AML/CFT duties.
63. Real estate professionals should also develop or have in place an ongoing
training programmes for professionals. Such training programmes can also be
facilitated or provided by professional associations representing agents and the
real estate sector. Real estate professionals should be trained commensurate
with the complexity of their responsibilities.

Box 2.4. Managing and mitigating risks with AML/CFT electronic tools
in the EU – Case studies from Slovakia and Belgium

Belgium
Introduced in the Belgian market in 2017, the so-called “AML tool” is
the result of the private-public collaboration between a private
Belgian tech developer, the Belgian Professional Institute for Real
Estate Agents, the Financial Intelligence Processing Unit and the
Federal Public Service Economy. The tool guides and advises real
estate agents and other parties involved in the process in fulfilling
their AML/CFT obligations by offering the following key digital
features:
• Digital screening of clients / contract parties with a clear
acceptance policy
• Automatic assessment of the alertness level and risk profile
• Different transaction levels
• Escalation procedures to the Property Services Regulatory
Authority
• Possibility for automated annual reports
• Digital archive
• Support and recognition by the Belgian regulator
• Support of different professions including regular staff and
AML officers.
This tool has proven to be an efficient tool to assess and mitigate
ML/TF risks linked to potential transactions, allowing the agents to
decide whether to accept or refuse a contract based on calculated
advice regarding customer acceptance provided by the tool.

When a contract is accepted, a risk profile is also calculated and the

office employee can decide if they want to accept the risk profile
calculated by the tool based on the level of vigilance or to report it to
the AML officer, who will then be able to decide at their turn whether
it is appropriate to accept the contracts or to report it now to the local
authorities for assessment.
Transactions follow a very similar approach. When profiles for both
the buyer and the seller parties are inserted in the tool system, a
series of questions must be answered to allow the tool to calculate
again a risk profile.
In addition, annual reports are pre-filled automatically and can also
be submitted via the tool, which also maintains a digital archive.
In May 2017, FPS Economy officially recognized the AML tool for the
Belgian market. This means that if the tool is used as designed, the
user is deemed to be AML/CFT compliant.

Slovakia
In 2020, an AML “workflow” tool for real estate agents was introduced
in Slovakia to simplify and digitalise the work stream of agents. The
tool allows different electronic features such as:
• the electronic identification of the client (e-ID);
• the risk assessment and basic screening and automatic
identification of the level of risk. This first basic screening
indicates in an automated way if the client or BO of the client
is a PEP or person of the sanction lists;
• automated indication of next steps, e.g. if a declaration of
financial sources or any other additional steps and controls
are required, always providing an indication of the level of
risk;
• an archive feature for past transactions that includes an
indication of the type of case, risk level and date of completion;
• the access to API modules for larger companies.
The tool is highly appreciated in Slovakia as it brings effectiveness and
also ensures the agents’ better understating of the due diligence
process, ensuring high compliance scores. Through its use real estate
agents can much better assess transactions and hence, manage and
mitigate ML related risks. To date, however, the tool remains quite
expensive for a large segment of the industry, in particular for smaller
businesses.
To encourage wider use of this and similar tools, the National
Association of Real Estate Offices of Slovakia, expressed the wish for
such a tool to be financially supported by the public sector nationally
or at a supra-national level, so as to improve the financial accessibility
of such tools and enable more and more real estate agents to use them

and hence increase the effectiveness and compliance of AML rules’

enforcement.
Source: European Association of Real Estate Profession (CIB Vlaanderen and NARKS,
the National Association of Real Estate Offices in Slovakia)

Challenges

64. Real estate sector ML/TF vulnerabilities continue to exist despite the
implementation of an AML/CFT framework compatible with FATF Standards.
See Box 2.4.

Box 2.5.Identified challenges in AML/CFT compliance by the real estate

sector
The Financial Supervisory Authority of Norway has uncovered the
following shortcomings in estate agencies’ compliance with the anti-
money laundering legislation:
Estate agencies acquire their risk assessment/control system from an
external supplier and fail to properly acquaint themselves either with
the risk assessment or working and control procedures required.
A lack of connection/link between the risk assessment and the
routines that have been established.
The anti-money laundering system is not adequate to confirm that the
agency is not being exploited for money laundering purposes,
including:
• The agency’s money laundering risk has not been assessed or
analysed, or the risk assessment is very deficient, or not
adapted to the actual business.
• The business routines are deficient. Deficiencies related to
basic customer measures such as obtaining information about
the purpose of the transaction and beneficial owners, as well
as clarifying PEP status, are still uncovered.
• There are deficiencies in the basic investigations to clarify
whether there are suspicious circumstances related to who
pays the purchase price into the broker's client account, as
well as who receives the payments.
• Routines for checking their own compliance (control routines)
are few and lacking. Agencies often do not have routines for
detecting lack of risk assessment, lack of control of indications
of suspicious transactions, nor to detect failure to report
suspicious conditions.
• The detailed investigations that need to be initiated where
suspicious circumstances are present are not suited to confirm

or disprove the suspicion, but in many cases merely aim to

confirm the circumstances giving rise to the suspicion.
• The use of software systems is no guarantee that genuine
assessments of customers and transactions are made before
such assessments are actually recorded in the system.
Moreover, random checks also show that not all control
measures referred to in a businesses’ procedures, are in fact
performed.
• Training of the anti-money laundering officer and the relevant
professionals in combating money laundering is either not
provided, or it is limited to filling in the estate agent software
system’s checklists and how to conduct customer due
diligence. As a result, professionals are unaware of money
laundering typologies and are unable to uncover indications of
suspicious transactions.
• Low knowledge of relevant TF indicators and risk profiles is
assumed. Significant shortcomings have also been identified in
the companies' screening towards the sanction lists.
Source: Norway

65. The use of technology by criminals may complicate real estate professional’s
efforts to identify, assess, and mitigate ML/TF risk. When appropriate, real estate
professionals may consider adopting new technological practices to aid their
AML/CFT efforts. Notably, technology is not a standalone answer to all ML/TF
risks facing real estate professionals, and it should be utilized in conjunction with
other tools and methods.
International Systems
66. Over 200 jurisdictions around the world have committed to the FATF
Recommendations through the global network of FSRBs and FATF memberships.
However, even where appropriate AML/CFT systems are in place, countries
remain vulnerable to the risk of money laundering and corruption. Differences
in legislation and implementation between countries may also create additional
vulnerabilities and gaps, for example, as some countries fail to extend due
diligence requirements to the sector or have other deficiencies and sources of
risk in their frameworks.
67. Those who are subject to AML/CFT obligations also vary between countries.
Some real estate professionals not having any requirements because AML/CFT
measures apply to other professionals, such as lawyers and accountants, while
other countries may place the obligation on the real estate professionals to
identify both buyer and seller.
68. Countries should ensure that criminals do not take advantage of the existing legal
or regulatory inconsistencies across jurisdictions. Similarly, real estate
professionals must be familiar with the AML/CFT requirements of the countries
where clients are located or where their source of wealth or funds originates, in
order to prevent legislative loopholes interfering with AML/CFT effectiveness.

Nature of real estate industry

69. Sales of property typically take place as occasional transactions rather than
business relationships that result in the routine transfer of funds. Most buyers
seek only one or two properties in their lifetime, and consequently do not
commonly enter into an ongoing relationship with their agent. This makes
ongoing monitoring a less relevant means of identifying suspicious transactions.
70. More focus should be placed on understanding the purpose of the occasional
transaction and the source of funds. This should improve the covered entity’s
understanding of the specific transaction as well as their ability to detect red
flags in the transaction and ultimately help inform supervisors’ and SRBs’
actions.
Supervisory and Regulatory
71. The difficulties of supervision – particularly the low level of AML/CFT obligations
being implemented by different sectors across jurisdictions and frequently
minimal or non-existent STR reporting - translate into low reporting by the real
estate sector, in some countries, which in turn challenges supervisors’ ability to
understand risks and provide relevant feedback on the implementation of the
RBA. There is also an obvious negative impact on enforcement.
72. The real estate sector’s fragmented yet large nature makes it difficult for it to
maintain consistent compliance with minimal AML/CFT obligations. Specifically,
the presence of many firms that provide differing services result in a widely
different interpretation of the AML/CFT obligations at an operational level.

Box 2.6. Supervisory challenges

Work-related crimes in Norway

Work-related crimes are actions that break Norwegian laws concerning
salary and employment, benefits and taxes and duties. The crimes are often
organised and exploit employees, distort competition and undermine the
social structure.
Real estate agencies regularly have clients connected to high-risk
industries where work-related crimes are common. Although real estate
agents routinely check that enterprises are registered in various public
registers, this is not sufficient to uncover all indicators of work-related
crimes.
Where the real estate agencies are involved in the sale of real estate under
construction, they can obtain a self-declaration from the
customer/subcontractor that confirms that tariff and legal provisions are
complied with. However, the Financial Supervisory Authority considers it
less likely that the developers in such a self-declaration will provide honest
answers indicating or contributing towards the identification of suspicious
activity.
Where work-related crime has been committed on the buyer's side, the
Financial Supervisory Authority assumes that a risk-based approach to
buyers from high-risk industries (such as the construction industry,

restaurant/nightlife, car care, etc.) means that real estate agencies must
implement measures to clarify the origin of the funds. However, the
Financial Supervisory Authority assumes that investigations will not
detect underlying work-related crime because of associated challenges.
The Financial Supervisory Authority assumes that the detection of work-
related crime in practice presupposes an interdisciplinary collaboration
between a number of public bodies, i.e. labour inspection authorities, the
police and the tax administration, and that in the absence of concrete and
verifiable documentation, it will not be possible for real estate agencies to
detect crimes as would be desirable.
Source: Norway

Suspicious Transaction Reports

73. Disparities among legal structures and regulations mean that real estate
professionals are not required to submit suspicious transaction reports in
certain jurisdictions while others require submissions 22 when reasonable
grounds exist to suspect a transaction is related to a ML/TF offence.
74. Due to low reporting by the sector in certain jurisdictions, it can be difficult for
supervisors or competent authorities to identify ML/TF activity, which may
impede their ability to directly provide feedback to the sector on the common
type of suspicious activities occurring within the sector or to provide feedback
on the quality of the STR reports, to include sharing information on STRs role in
ML/TF investigations or prosecutions. This may also impact risk assessments.
CDD and access to beneficial ownership information
75. The level of implementation of CDD and beneficial ownership measures by the
real estate sector compares poorly in relation to other DNFBPs assessed in the
context of the FATF 4th round of mutual evaluations.

22 As required by FATF R.23.

Figure 2.4. Implementation of CDD, Record Keeping and Beneficial Ownership

information by real estate sector in comparison to other sectors

Source: Sample of 32 FATF/FSRBs countries, FATF 2021

76. CDD and beneficial ownership challenges within the real estate sector typically
relates to the nature of the business and the different obstacles that may arise
related to the verification of beneficial ownership.
77. These challenges are often associated with the specific functions performed by
real estate professionals and its potential incompatibility with the process
associated with collecting CDD information. The type of transaction, time
constraints and ad hoc nature of transactions are other mounting factors.
78. Additionally, due to the number of intermediaries involved in a real estate
transaction, the sector may rely on third parties to conduct due diligence. In some
cases, intermediaries involved in real estate transactions may not have AML/CFT
obligations (mortgage brokers, etc.). Ultimately this may restrict the sector’s
ability to view all elements of the transactions.
79. The use of cash in some markets to purchase real estate sometimes further
complicates these disjointed efforts if the use of cash precludes specific CDD
requirements associated with client onboarding, such as when a prospective
homebuyer applies for a mortgage.
80. Real estate professionals also face challenges obtaining CDD information from
the clients that may not be willing to trust professionals with personal
information in the same way they would trust banks and independent legal
professionals. This may be due to cultural reasons or lack of awareness of real
estate professionals’ role in AML/CFT regimes.
81. Professionals acting only on behalf of one party (e.g.: the buyer) may also face
challenges in obtaining information from the other party (the seller) due to
customary practices that may not result in much interaction between all
counterparties or hesitance to ask for information for fear that one party or the
other will lose interest in proceeding.
82. When buyers and sellers rely on attorneys to represent them in a real estate
transaction, real estate professionals may find it difficult access beneficial

ownership and other information due to attorney-client privilege permitted

under the national frameworks.
83. Additionally, the use of nominees and complex structures for purchases will
further complicate CDD requirements, especially if the use of cash is involved.
These arrangements may prevent the sector from possessing beneficial
ownership information and in some cases act as a hurdle for law enforcement
and supervisors seeking to access to this information in a timely manner.
84. In highly desirable locations where there are many foreign buyers, it can be
difficult for real estate professionals to obtain the requisite information on the
buyer of a property in the same way that it is for buyers who are located within
the jurisdiction of the property. This may be due to considerations related to
privacy and data protection, lack of familiarity with the buyer’s legal system or
social norms, hesitance from buyers, or other.
85. Commercial real estate presents challenges that compound the previously
described items due to the associated complexity of its transactions. Unlike
residential real estate transactions, in which there are two parties – a buyer and
a seller – commercial real estate transactions often involve multiple parties
involved in various parts of the transaction due to the more complex financing
arrangements required to close these deals. They are also more likely to involve
legal entities as well as natural persons when compared to the residential real
estate market. This presents an opportunity for their misuse and allows for
obfuscation of the buyer and seller - and may often rely on other DNFBPs, such
as lawyers and notaries - adding an additional layer of difficulty for effective CDD
and beneficial ownership information.
Anonymous Companies
86. Disparities with rules surrounding legal structures across countries means
property can often be acquired abroad by shell companies or trusts based in
secrecy jurisdictions, exacerbating the risk of money laundering.
87. Real estate professionals must consider the risks when the customer is an
anonymous offshore company or a company where nominee shareholders are
permitted. Very often these companies are incorporated in a country where
there is no requirement to register with or disclose the ownership or control
structure of the company, rendering it much more difficult to determine the
identity and legitimacy of the real owner of the company or the source of funds.
88. Regardless of the applicable regulations, real estate professionals should follow
the RBA, as part of their due diligence, and require the identification of the
beneficial owners in all relevant transactions.
Politically Exposed Persons
89. The term politically exposed person is commonly used in the financial industry
to refer to both domestic and foreign individuals who are or have been entrusted
with a prominent public function, as well as to their immediate family members
and close associates. By virtue of their public position or relationships, some
PEPs may have access to public funds which they may gain unauthorized or
illegal personal control over, constituting the proceeds of corruption or other
illicit activity, or may be able to use their political influence for profit illegally.
PEPs thus may present a risk higher than other customers. This threat is further

exacerbated by the fact that PEPs have been documented in many jurisdictions
as utilizing real estate as a way to park illicit proceeds related to corruption,
bribery, ML/TF, and other illicit financial activities. Real estate professionals
should remain cognizant of the heightened risk of PEPs when assisting clients to
buy and sell property.
Virtual Assets
90. Real estate professionals may have difficulties in meeting their customer due
diligence obligations if a buyer or seller is using virtual assets (VAs). In some
instances, it can be difficult for real estate professionals to identify the source of
funds. VAs can enable non-face-to-face business relationships and can be used to
quickly move funds globally, sometimes without a financial intermediary and to
facilitate a range of financial activities—from money or value transfer services to
securities, commodities or derivatives-related activity, among others. Real estate
purchases made using VAs should also be considered subject to AML/CFT
requirements, exactly as they would be if fiat currency were used. However, if
real estate professionals are not able to carry out risk mitigation, such as
customer identification and verification, or verification of the source of funds,
due to the nature of VAs, they should carefully assess the risks of such transaction
and ensure they have alternate procedures in place to adequately mitigate these
risks.
Luxury Real Estate
91. While real estate professionals may face ML/TF risks in all types of real estate
transactions, they may face heightened risks in transactions involving luxury real
estate. These types of transactions often involve property of higher value, which
may allow for criminals to place larger amounts of funds in these properties than
normally possible in lower value properties or may simply afford criminals the
lifestyle they want. As such, these properties may be more attractive for ML/TF
activity. This risk is further exacerbated when considering that it may be more
common for purchasers of these properties to use legal entities and
intermediaries designed to obfuscate and/or protect the privacy of the buyer.
Consequently, real estate professionals may not deal directly with the buyers and
sellers, which may complicate efforts to verify the client and beneficial owner’s
identity, as well as source of funds used for the transaction. Real estate
professionals should consider these factors when assessing risks associated with
luxury real estate.
Terrorist Financing
92. Transactions that are intended to finance terrorism are often particularly
difficult to identify. Real estate professionals should consult national risk
indicator lists on financing of terror. Due to the many different indicators that
can provide a basis for suspicion of terrorist financing, it is crucial that any
grounds for suspicion is substantiated through investigations. For example, the
fact that a person intends to transfer profit from a property sale to a high-risk
country may not suffice to suspect terrorist financing. However, if due diligence
suggests that the client has links to a terrorist organization, there are strong
grounds for suspicion. Real estate professionals should be aware of TF indicators
as part of their AML/CFT implementation efforts.

Gatekeepers
93. Real estate agents may be reliant on a wide range of professionals, including
gatekeepers23, who are governed by different regulations and anti-money-
laundering obligations.
94. Where there are a number of gatekeepers involved in a real estate transaction,
real estate professionals may be relying on the gatekeepers to conduct the
required due diligence. However, those gatekeepers may not have sufficiently
robust AML/CFT obligations, which may complicate efforts to verify beneficial
ownership and source of funds information. Real estate professionals may be
unable to verify information themselves and only be able access incomplete data
on the transactions’.
95. Reliance on gatekeepers may represent an additional challenge to the
implementation of AML/CFT requirements and the adequate understanding of
ML/TF risks by real estate professionals.

23 Specialized legal and financial professionals, such as attorneys, investment advisors,

and accountants, with distinct skills that can be misused to facilitate money laundering
schemes.

PART THREE:
GUIDANCE FOR PRIVATE SECTOR PLAYERS

96. This specific guidance to the private sector is primarily intended for real estate
professionals when involved in transactions for their clients concerning the
buying and selling of real estate.
97. This guidance should be considered within each specific context. For example,
small businesses or real estate professionals who perform these functions
without assistance from dedicated specialists should ensure that they comply
with countries’ legal and regulatory requirements while taking steps to
implement these best practices in a manner that is feasible for them based on the
size of their business.

Risk Assessment

98. Real estate professionals must understand how the business could be exposed to
ML/TF risks and ensure that systems are designed and implemented to deal with
these risks.
99. A risk assessment will aid in identifying the ML/TF risks the business is
potentially exposed to during the course of its activities. A documented risk
assessment should include current and emerging ML/TF trends while
considering how such issues may impact the business. The risk assessment
should be kept up to date and take into consideration the following areas as well
as others which are deemed relevant:
● Geographical risks, such as the areas of operation and those countries
identified by FATF or other regional and national authorities as high-risk.
● Customer risks including particular attention to any additional parties in a
transaction and any underlying beneficial owners.
● Transaction risks including the methods of financing and delivery channels.
100. Real estate businesses should rely on their assessment of the inherent risks to
the business in relation to customers and the services being provided and should
take into account the full range of circumstances associated with a client or buyer
based on the real estate agent’s concerns and suspicions or general behaviour of
customers - especially those indicative of higher risks.
101. The risk assessment should follow an approach that considers the size of the real
estate professionals’ business, the financial value of the transactions involving
the real estate firm, how the firm became involved in the real estate transaction,
as well as the nature of the transaction itself, to include whether it is an overseas
purchase or involves commercial or residential real estate.

102. Other DNFPBs and banks involved in the real estate sector should adopt a RBA
that considers their exposure to AML/CFT risks in the sector that considers the
issues detailed above, but in a manner that is consistent with their larger effort
to take a RBA for their functions as a whole.

Risk Categories 24

103. When a real estate business is identifying the potential risks to the business, the
primary risk categories may include:
Geographical factors
● When identifying risks associated with geographic areas and other
countries, including the origin of legal persons as well as natural ones, a real
estate professionals and other relevant obliged entities should determine
whether a high risk is present by considering the following geographical
factors:
● The effectiveness of the country’s AML/CFT regime and whether it has been
identified as having deficiencies.
● The level and nature of both threats and vulnerabilities relevant to real
estate in the given geography.
● The level of legal transparency and compliance with existing legal
frameworks for countries that have been identified as lacking appropriate
AML/CFT laws and regulations.
● Whether a country is subject to sanctions, embargoes or similar measures
issued by international organisations such as the United Nations.
● Where the property is located.
● Where the buyer and seller are located and the nature and purpose of the
business relationship within the country.
● Whether the funds have been generated from abroad and the business
relationship has been conducted without face-to-face meetings
Client risk 25
104. Real estate professionals along with banks must consider the degree of risk
associated with its customers including higher risk situations:
● Whether the buyer or seller is from a high-risk country identified by
credible sources as, for example, being complicit in corruption, organised
crime or serious fraud or providing funding or support for terrorist
activities that have designated terrorist organisations operating within
them.
● Whether the client is listed on any list of targeted financial sanctions, or
subject to sanctions, embargoes or similar measures issued by
international organisations such as the United Nations.

24 The factors to consider listed in this section are not exhaustive, and others are likely to
be relevant in specific cases.
25 In some jurisdictions or professions, the term “client” is used, which has the same
meaning as “customer” for the purposes of this document.

● Whether the buyer is participating in a citizenship by investment program

related to real estate purchases.
● Whether the client has connections to the industry or industries associated
with ML/TF risks.
● Unexplained or otherwise unusual source of funds that cannot be verified
● How the business relationship begins and is subsequently conducted, to
include inconsistencies in customer behaviour, avoidance of face-to-face
contact in unusual situations.26
● The use of intermediaries or legal persons used to protect a person’s
identity or hide involvement.
● The use of foreign companies for purchase of real estate.
● Undue pressure or abnormal haste from the customer for the transaction
to be concluded expeditiously.
● The profile of the client does not fit with the transaction with regard to the
property value.
● A group of buyers with similar profiles buying new builds or off plan
property (organised mortgage fraud).
● Whether the client refused, or appeared reluctant, to provide required
client due diligence information or documentation or provided false or
inaccurate information (i.e. incomplete addresses, use of business
addresses, etc.).
● A sudden change to the pattern of behaviour of the client or the
introduction of unknown third parties during the transactional process or
involvement from other parties such as lawyers, notaries or financial
institutions, when such involvement is not routine.
● The use of complex legal structures that may obscure beneficial ownership,
to include customers that are companies, partnerships, or trusts, or a
combination of each; particularly when the legal and corporate structure of
the client entity and its ownership and control of the structure appears
unusual for the purposes of the transaction.
● The reputation and profile of the client and whether there has been any
adverse media reports or other adverse information from a reliable source
about the owner or beneficial owner.
● If the owner, beneficial owner or any persons publicly known to be closely
associated have been convicted or suspected of being complicit in any
ML/TF activities.
● The business has previously been suspicious of the client or beneficial
owner and filed a suspicious transaction report or has gathered
information in the course of the business relationship questioning the
integrity and motives of the customer or beneficial owner.

26 For example, consider the means used to establish the relationship. Non face-to-face
transactions could pose higher risks if absent the right mitigating tools.

● The client or beneficial owner has political connections and is considered a

PEP or the customer or beneficial owner has other links to a PEP or persons
who hold a prominent political or public position.
● Additionally, lawyers may consider evaluating clients using their services
for real estate transactions where the involvement of a lawyer is not
customary and may be seeking actual or perceived anonymity to purchase
and sell real estate for nefarious purposes.
● Given their visibility into real estate transactions and familiarity with
financial details related to these transactions, notaries may also be in a
position to consider whether the use of an attorney presents a ML/TF risk.

Box 3.7. Specific challenges associated with complex ownership structures

The fragmentation of the real estate market and change in ownership of
real property have been identified as significant challenges to the real
estate sector’s ability to mitigate ML/TF risks.
Historically, real estate properties have been owned by a natural or legal
person that purchased property to serve as a residence or for specific
commercial purposes. These days, it is common, for companies,
investment funds and entities created specifically for the purpose of
developing and managing real estate to purchase property. These
companies and investment vehicles may carry funds provided by third
parties to effectuate these investments intended for business purposes.
Often time, these investments are held in various corporate legal entities
that are solely created to facilitate specific transactions.
The growing prevalence of these private investors and the accompanying
corporate and legal entities used to facilitate their investment activities
often makes it difficult for real estate agents to form an accurate picture of
the parties seeking to buy or sell real estate. Additionally, for these entities
themselves, ensuring that AML/CFT obligations are being met may be
difficult if these entities rely on third parties to manage the various
corporate and legal structures – a common practice for the corporate real
estate sector -- due to the lack of visibility into the various holdings
nominally under control by these entities.
Source: Spain

Transaction risks
105. As financing practices differ between countries, particularly where there are
those who have a culture to deal with cash transactions on a regular basis and
also those involved in obtaining, processing or closing of loan, mortgage or
financial instruments, real estate businesses and other DNFPBs should ensure
their risk assessment is tailored to their own business practices and consider
when the following factors related to financing, which may suggest a transaction
is high risk:

● The use of third parties, overseas accounts, or persons or entities in

countries identified as high-risk jurisdictions to send or receive funds on
behalf of the buyer or seller.
● A proposal from buyer, seller or any party to settle by way of virtual assets,
if it is thought to make some part of the transaction less transparent.
● Use of complex loans or other unusual means of financing (i.e. diversified
and unexplained payment sources and types).
● Use of promissory notes, bills of exchange, titles of credit, exchange titles,
securities or any other negotiable instrument outside the financial system
that can be paid by the debtor in cash.
● Unexplained or abrupt changes in financing arrangements.
● Use of cash in a quick sale, cash exchanges directly between seller and
buyer, to include a cash deposit or a large one-off cash transaction.
● Part or full settlement in cash or foreign currency, lacking valid reason (e.g.
personal or professional links to the currency) or a buyer will not disclose
source of funds for an unusually big cash or foreign currency transaction.
● Transaction costs or invoices of the seller or buyer are paid by a third party
that has no connection to the transaction or through unusual channels (e.g.
unrelated financial institution)
● Multiple properties being sold/purchased, re-sold or exchanged at the
same time or successive transactions of the same property in a short period
of time with unexplained changes in value.
● A previously sold property is re-marketed following renovation without an
obvious source of funding.
● Transactions which make no obvious economic sense, particularly where
there is an obvious loss.
● Transactions which evidence complex ownership structures or where the
beneficial owner is obfuscated.
● Investments or property management companies involved in a transaction
not engaged in identifiable business activity.
● A sudden or unexplained change in ownership, in particular, when within a
short period prior to closing the transaction.
● Requests to expedite transactions, possibly over or under value.
● The customer requests the proceeds of a sale or rental be sent to a high-risk
jurisdiction or a third party apparently unconnected to the transaction.
● Clients ask a real estate business to hold a large sum in their client account,
and request a refund to a different banking account than that associated
with the original transaction.
● Transactions concerning the indirect transfer of properties, or transfer of
properties between persons or entities in which no money changes hands,
and the creation of equitable interest in properties.
106. Banks may be well-positioned to respond to these types of ML/TF risks due to
their access to client information and payment information related to the

purchase of real estate when purchases are made using their services.
Specifically, they may be able to report suspicious activity that real estate
professionals and others may not see as well as close problematic accounts, and
may be able to do aggregated analysis based on possession of other client
information. Banks may also be in a position to address misuse of mortgages due
to their status as lending institutions which puts them in a unique position to
filter any activity indicative of ML/TF.
107. While mortgage lenders, that are separate from banks, may not have the same
visibility into account and payment information that banks do, these lenders do
have insight into key beneficial ownership and financial details provided by
those seeking mortgages. This arrangement makes mortgage lenders a key
player in the AML/CFT efforts for the sector as real estate professionals
providing similar services will not be in a position to access this information and
evaluate it for any ML/TF risk. Additionally, mortgage lenders’ ability to approve
mortgages puts them in an effective position to immediately address any ML/TF
risk by choosing not to approve certain mortgages that may be indicative of
ML/TF activity.
108. More broadly, in countries where the real estate sector presents high risks,
private sector players should have specific guidelines at their disposal as to
which issues in real estate transactions are to be assessed as having a high risk.
These guidelines are intended to ensure that real estate professionals
appropriately assess transaction risks, that high-risk issues are reported to the
FIU or other competent authorities and that legal advisors are able to report
when not properly excluded by professional privilege, noting the limitations of
professional privilege in relation to criminal or fraudulent activity. See above
Box 2.2 for an example of how countries may respond in case high-risks are
identified.

Documentation of Risk Assessments

109. Real estate professionals must have a good understanding of the ML/TF risks
that may be present in their business activities and clients. They should
document these risks and rate their level in the form of a thorough risk
assessment process. Documenting and assessing sector ML/TF risks is important
to the development and implementation of mitigation measures.
110. Real estate professionals may fail to satisfy their AML/CFT obligations by relying
only on a checklist approach to conduct their risk assessment, especially when
there are other clear indicators of potential illicit activity. A multi-pronged
approach is advised. Completing risk assessments in a time efficient yet
comprehensive manner is important for being able to identify and assess
potential gaps or weaknesses in the compliance program.
111. Each of these risks could be assessed using a scalable approach such as low risk,
medium risk and/or high risk. A short explanation of the reasons for each
attribution should be documented and an overall assessment of risk determined.
An action plan (if required) should then be outlined to accompany the
assessment, and dated for follow-up purposes.
112. Real estate professionals should also evaluate the risk for each specific client and
service, and these assessments should be done business-wide as part of the
larger risk assessment process. It is important to remember that assessing and

mitigating the risk of ML/TF is not a static exercise. The risks identified may
change or evolve over time as new products, services, affiliations, or
developments and technologies enter the business or its environment. ML/TF-
related risks should be regularly reassessed by the professionals, and the
documentation of that assessment kept up to date. For example, if real estate
professionals offer a new product, service, or technology, or open a new location of
business, they should evaluate and document the associated risks of this change to the
business.
113. The documented risk assessment should be made accessible to all professionals
within the business.

Risk Mitigation

114. The following ML/TF mitigation policies should be devised, implemented and
often reviewed:
Customer Due Diligence
115. Real estate professionals must be able to form a reasonable belief that they know
the true identity of each customer and the ultimate beneficial owner of the
property, before the transaction takes place. CDD measures must be conducted
to allow the professionals to form these beliefs by facilitating the identification
and verification of the identity of customers and beneficial owners as well as
information that details the ongoing purpose and intended nature of the business
relationships and the source of funds.
116. Lawyers and notaries, when involved in real estate transactions, may also opt to
apply specific checks on the settlement destinations of transactions (i.e.
performing limited diligence on the seller of the property, when acting for the
buyer and the seller and the buyer appear to be related parties).
117. Banks should also conduct CDD when onboarding clients, approving mortgages,
and sending and receiving funds, and may perform their own diligence per their
regulatory obligation which may complement measures taken by DNFPBs and
real estate agents. Mortgage lenders whilst separate from banks may also
conduct these functions.
118. To determine the level of CDD required, a real estate professional must be able
to identify and assess the ML/TF risk in relation to the customer and the
transaction.
119. Evidence of identity can take a number of forms and the risk assessment should
set out the documents and information which the real estate professional will
accept and the related circumstances that allow for the use of these documents
and information in order to confirm the identity and verification of a customer.
Identification documents should be in a secure form as recognised by the
respective country. An assessment on the level of risk posed by the customer will
take into account the extent of verification needed, requiring greater checks for
those in higher risk situations.
120. The risk assessment should consider differences in CDD measures due to
variations in risk levels between different types of customers, such as buyers
and, sellers, and nature of transactions, such as whether financing or cash is used.

121. CDD involves more than client verification processes and a real estate business
should gather and assess all relevant information to ensure that the business:
● Can verify the identity of every customer and those purporting to act on
their behalf.
● Has taken all sufficient measures to determine the identity of the beneficial
owner.
● Fully understands the client’s circumstances and business, such as the
expected nature of transactions, including their ad hoc nature.
● Understands the source of funds.
122. In order to implement an effective AML/CFT framework to the real estate sector
it is important to emphasise that both the buyers and sellers are subject to risk-
based CDD measures.
Simplified Due Diligence
123. A real estate professional’s business may implement Simplified Due Diligence
(SDD) measures when warranted if it has been reasonably established that the
customer and transaction represent a lower degree of ML/TF risk. The rational
for applying SDD measures should be clearly documented in the policies and
procedures of the business.
124. SDD measures should be applied whenever possible and recommended by the
national risk assessment exercises and the institutions’ understanding of risk.
These may include, but are not restricted to, situations where other involved
parties are able to confirm the identity of the client, the amounts at stake are low,
the property, location, and transaction system is simple and recognised as low
risk.
125. SDD measures can include:
● Verifying the identity of the client and beneficial owner after the business
relationship has been established but before the transaction is completed,
where applicable.
● Changing the extent of information required for identification, verification
or monitoring purposes.
● Changing the quality or source of information obtained for identification,
verification or monitoring purposes by accepting information obtained
from the customer rather than an independent source.
● Reducing the degree and the frequency of CDD updates and monitoring of
the business relationship.
● Relying on due diligence procedures carried out by lawyers or other
obliged entities representing clients whenever their suitability is confirmed
and allowed by local regulatory frameworks.
126. When SDD measures have been applied, all real estate professionals must ensure
they have obtained sufficient information to enable them to be reasonably
satisfied that the ML/TF risk associated with the relationship is low risk.
127. Implementing SDD measures does not exempt any real estate business from
reporting any suspicious transactions.

Enhanced Due Diligence

128. If the circumstances dictate that customers, a third party, or a business
transaction presents a higher risk of ML/TF to the business, a real estate
professional must apply proportionate levels of Enhanced Due Diligence (EDD).
The rational for applying EDD measures should be clearly documented in the
policies and procedures of the business.
129. EDD measures must be applied in higher risk situations to manage and mitigate
the appropriate risks and are applied in addition to CDD measures. These include
measures called for when a country is subject to sanctions, embargoes or similar
measures issued by international organisations such as the United Nations.
130. A real estate business should consider applying EDD measures when any of the
above listed geographical, client and transactional risks are present, but in
particular when:
● Clients have links to high-risk jurisdictions.
● The client is a PEP or a family member or close associate with a PEP.
● Complex ownership structures are deliberately used to obfuscate beneficial
ownership.
● The real estate professional has not received adequate information from
the customer and has to:
o Take reasonable steps to establish the customer’s source of wealth or
source of funds.
o Request additional information regarding the customer including
further CDD information where concerns have arisen about the veracity
or adequacy of information previously obtained.
● Clients are involved in cash sensitive businesses or are requesting to settle
a transaction by way of cash and/or VAs without transparency of the source
of payment.
131. In response to the risk identified, real estate professionals should exercise more
scrutiny regarding the source of funds and the purpose of the transaction. For
ML/TF, the source of funds is a significant factor in the overall risk and is often
only mitigated by obtaining sufficient information/documentation to verify the
source of funds. This is even more important when considering that most real
estate transactions are one-off, unique transactions and cannot be subject to
ongoing monitoring.
Beneficial ownership
132. To mitigate the risks of real estate transactions without adequate, accurate and
up-to-date beneficial ownership information, entities should:
● Carry out all necessary measures to understand the ownership and control
structure of any legal entity.
● Assess the degree of verification required regarding the beneficial owners
depending on the associated ML/TF risks.

● Document the additional procedures to be applied and the measures taken

to identify the beneficial owner, as well as the difficulties encountered in
establishing identity.
● Carry out a thorough search of relevant and available beneficial ownership
information, where available to the public, financial institutions, or
DNFBPs.
● Have a clear and concise policy and relevant training for the basis of a real
estate professional or any relevant employee within the business (not
limited to the money laundering reporting officer) to lodge a suspicious
transaction report when the identity of the beneficial owner has not been
satisfied due to a lack of CDD information.

Regulatory obligations

133. Real estate professionals and their businesses must adopt appropriate internal
controls with regard to the size and nature of the business.
Internal controls
134. There is no standard solution to the design of internal control systems, and this
should be considered when real estate professionals are devising an AML/CFT
framework.
135. Internal controls will also depend on the business structure, size and internal
organisation without prejudice to the effectiveness of the system.
136. Policies, procedures and control systems must be designed and implemented
with a view to ensuring the ML/TF risks are promptly identified and mitigated in
line with the RBA. Internal control systems must be evaluated to determine how
effectively they are dealing with the overall risks.
137. Risk-based processes must be established within the internal controls of the
businesses to be effective. To be successful, internal policies and procedures are
largely dependent on the internal control systems.
138. The internal controls for a real estate professional’s business should:
● Have an adequate and effective AML/CFT compliance function with a
process in place for a regular review of the policies at appropriate levels.
The nomination and the documentation of the nomination of a qualified
compliance officer in charge of the policies is fundamental.
● Implement risk-based CDD policies and procedures.
● Ensure there are adequate controls for higher risk customers, transactions
and products, including the launch of new products or services, such as
transaction thresholds or management approvals.
● Focus more resources on the operations of the business that are perceived
to be a higher risk to ML/TF.
● Regularly review a risk assessment, taking into account geographical,
transaction and client associated risks.
● Contain a detailed documented suite of policies that accurately reflect the
operational practices of the business and demonstrate compliance with all

legal and regulatory requirements that may also be supplemented and

supported by guidance from supervisors or other competent authorities.
● Have policies that are easily accessible and fully implemented and adhered
to by all staff which are regularly reviewed, approved and updated.
● Enable the timely identification of reportable transactions and ensure
accurate filing of required reports.
● Ensure continuity of internal controls regardless of any changes in
management or employee composition or structure.
● Focus on meeting all regulatory record-keeping and reporting
requirements while providing for timely updates that respond to changes
in regulations.
● Incorporate AML/CFT compliance into job descriptions and performance
evaluations of relevant personnel and provide for robust training of those
personnel to ensure sufficient expertise.
139. When applicable, lawyers, notaries, and other DNFPBs, along with banks, may
follow these general practices as part of their larger efforts to implement the RBA
in their professions.
Governance
140. Governance is a main factor to AML/CFT compliance for real estate professionals.
When devising an appropriate framework, accountability and responsibility for
management of the risk must be established at the outset.
141. A business with deficient or non-existent risk management, governance, policies,
controls and procedures is exposed to considerable risks to include compliance,
operational, and reputational risks.
142. Effective ML/TF risk management should be rooted in the corporate governance
structure, systems and controls and be proportionate to the size and nature of
the business and its ML/TF risk exposure.
143. The business should ensure there is clearly defined and documented guidance
for those with AML/CTF responsibilities and documented guidance should make
clear the roles and responsibilities of Boards, Senior Management, the
Compliance function, including the Money Laundering Reporting Officer (MLRO),
where applicable.

Roles and responsibilities

144. Real estate professionals and relevant professionals of the business should
ensure relevant knowledge of:
● AML/CFT legislation.
● Their responsibilities under the policies and procedures of the business for
the prevention of money laundering and terrorist financing, including CDD
and PEP specificities.
● Relevant industry guidance.
● The ML/TF risks faced by the business.
● The procedures for managing the risks faced by the business.

● The operational procedures to follow in the absence of the expert personnel

responsible for AML/CFT efforts.
● Reporting policies and procedures in the case of conflict of interests or
instances where persons in AML/CFT functions are found complicit in ML
activities
145. Board members, senior management, compliance officers – if such roles exist -
and real estate professionals must be able to demonstrate an effective
governance and supervision of the AML/CFT compliance framework of the
business. If board members and senior management are not present at the
company, those responsible for AML/CFT measures are responsible for
implementing the requirements.
146. Whilst resource and structural constraints are acknowledged for smaller firms,
these should, nevertheless take a RBA and take steps to figure out their risk
exposure and what they can mitigate within the constraints of their business. In
some instances, real estate professionals’ AML/CFT obligations interactions with
their business obligations may impact what clients they take on.

Board members and Senior Management

147. Where the size and nature of the real estate business warrants having a Board of
directors, the directors should:
• Review the approach used for undertaking the Business Risk Assessment
and review the Business Risk Assessment on an annual basis or sooner
should new risks arise.
• Review the risk appetite of real estate business, to include what processes
are in place to address risks that cannot be mitigated, as well as what types
and amount of risks the real estate business is willing to accept and what it
can mitigate.
• Make certain the AML/CFT measures are appropriate to address the ML/TF
risks faced by the business.
• Board meetings regularly feature AML/CFT issues as an agenda item.
• Regularly review and approve the AML/CFT policies and procedures.
• Where applicable, ensure the Compliance Officer has a mechanism for
direct contact with the Board to escalate AML/CFT issues for discussion or
immediate attention.
• Ensure the compliance officer deliver regular reports to the Board.
• Make sure the business is adequately resourced and trained in terms of
staff and systems to adequately reflect the level of ML/TF risk faced by the
business.
• As part of the record keeping policy, record appropriate evidence of
discussions at Board meetings concerning AML/CFT issues affecting the
business.
148. Where the appointment of Senior Management (roles to be defined by the
entities) responsible for AML/CFT is appropriate in regard to the size and nature
of the business and its ML/TF risk exposure. Senior Management will be

primarily responsible for the implementation, management and monitoring of

the company’s compliance with the AML/CFT measures.
149. It is essential that persons in this role lead by examples and maintain the relevant
knowledge and skills regarding the exposure and management of the ML/TF
risks, and the implementation of AML/CFT policies, controls, and procedures to
protect the business.
150. Where the Board of a real estate business is delegating its duties for the
implementation and management of AML/CFT measures to Senior Management,
they will then be fully responsible for the implementation and management of
AML/CFT procedures.
151. Senior Management must:
● Regularly communicate with the Board to ensure they are aware of the
ML/TF risks to the business and demonstrate genuine commitment to
AML/CFT.
● Approve and review the Business Risk Assessment.
● Implement the policies, controls and procedures and carry out regular
reviews ensuring their effectiveness.
● Appoint compliance officers when needed and ensure they have all the
necessary information, personnel support and technical resources to
perform their tasks.
● Be available to all staff on AML/CFT matters.
152. Senior Management should understand the importance of AML/CFT and
promote a culture of compliance.
153. Where it has been established a real estate business may be exposed to a
significant degree of inherent ML/TF risk both Senior Management and Board
members should devote additional focus to AML/CFT risk management.

Compliance officers
154. A Compliance officer, or the other persons responsible for AML/CFT compliance,
should:
• Have relevant knowledge, experience and understanding regarding the
identification, assessment and management of the ML/TF risks the
business is exposed to.
• Be in a different and independent function unrelated to the sale or purchase
of real estate assets to avoid potential conflicts of interest or financial
incentives at odds with ML/TF risk mitigation, whenever possible.
• Possess sufficient and appropriate knowledge of the relevant jurisdiction’s
legal and regulatory AML/CFT framework to facilitate the implementation
of AML/CFT policies, controls and procedures.
• Have a high degree of autonomy, authority and influence as well as direct
access to adequate resources within the business to carry out their duties
effectively.
• Be able to certify AML/CFT material.

• Have the knowledge and experience to oversee the identification and

assessment of suspicious transactions and to submit reports and work with
the relevant authorities where necessary in relation to such transactions.
• Monitor regulatory and legislative changes as well as current and emerging
ML/TF trends and issues in the industry and understand how such issues
may impact the business.
• Is empowered to challenge the Senior Management and Board on AML/CFT
matters when necessary.
• Have a direct reporting line up the hierarchical structure while ensuring
that all communications, should occur on a regular basis and in a timely
manner, and function as so:
o Comment on the effectiveness of the AML/CFT systems and controls of
the business.
o Are proportionate to the size and nature of the business.
o Recommend any improvements for the management of the ML/TF
risks.
o Contain sufficient detail ensuring Senior Management and the Board
can make informed and detailed decisions.

Compliance culture
155. Having an appreciation for the importance of addressing ML/TF risk and, the
necessary expertise and experience to do so is of critical significance for ensuring
a culture of compliance for an organization to ultimately tackle ML/TF
effectively.
156. Real estate professionals must recognise the importance a positive culture has in
the fight against ML/TF and adopt an approach to compliance that considers
regulations and legislation only as a starting point on the road to AML/CFT
effectiveness.
157. Developing a robust and positive compliance culture is the responsibility of the
business leaders. Board directors and senior management must approve and
promote adequate internal controls, as well as create a positive culture of
compliance to grow and ensures that all relevant professionals adhere to
AML/CFT policies and procedures as part of core functions.

Training and awareness

158. A business operating in the real estate sector is responsible for ensuring that:
• Real estate professionals have undergone sufficient personal vetting. Prior
to assuming a position and during employment, staff are screened to assess
their skills, knowledge and expertise as well as identify any relevant
training needs.
• Relevant AML/CFT training programmes are developed and implemented.

• All staff are appropriately trained at regular intervals and have a good
understanding of money laundering and terrorist financing risks and
practices.
• Written records are maintained for staff training and awareness.
159. The nature and extent of training should be tailored to the scale and complexity
of the business and appropriate to the level of ML/TF risk faced by the business
and must be undertaken by real estate professionals and all relevant persons of
the business.
160. In deciding what training measures are appropriate a real estate professional
must consider:
• The nature of its business, its size, and the nature and extent of the ML and
TF risks that face the business
• Any guidance issued by its supervisor, or any other appropriate body
approved by the relevant competent authorities.
161. It is critically important that real estate professionals, as well all relevant
professionals of the business are regularly trained to understand and apply their
legal and regulatory obligations, to recognise transactions that may prove to be
suspicious, and deal effectively with ML/TF risks, including escalating concerns
as necessary. Professionals should also remain up to date on ML/TF trends and
typologies, including those issued by their supervisor or competent authorities.
162. A real estate agent or the person who acts as the MLRO or MLCO for the business
should consider whether it is appropriate to obtain a relevant professional
AML/CFT related qualification or undertake additional training to carry out their
duties competently.
163. A business should ensure that professionals are aware of their training
obligations and have suitable knowledge to identify and report on ML/TF
suspicious activities.
164. Procedural manuals, whether in paper or digital format, are useful in raising
awareness and can supplement more dedicated forms of training. However, their
main purpose is to provide an ongoing reference and should not be considered
as written training material.
165. The nominated training expert (to be designated by the businesses) should
understand the business model and ensure that the training is applicable to all
staff and their daily functions.
166. Training must be ongoing and should be taken at appropriate intervals by all
relevant professionals. A larger business should consider introducing a
continuous training programme.
167. Records must be maintained to monitor attendance, timeliness, nature and
appropriateness of the training sessions.
168. To complement internal and external training opportunities professionals may
participate in industry events that seek to provide guidance and awareness for
the sector as a whole on ML/TF issues. Entities may consider participating in
such events to share best practices and ML/TF typologies as well as seek
feedback from competent authorities in public-private partnership events.

169. Financial institutions involved in real estate transactions may consider sharing
related financial intelligence with supervisors and other competent authorities
to inform their approach to AML/CFT issues facing the sector and provide
additional guidance to real estate professionals who may not have access to that
kind of transactional information.

PART FOUR:
GUIDANCE FOR SUPERVISORS

The Risk-Based Approach to Supervision

170. R.28 requires that real estate agents, and other DNFBP’s, be subject to adequate
AML/CFT regulation and supervision. A risk-based approach to AML/CFT means
that measures taken to reduce ML/TF are proportionate to the risks. Supervisors
and SRBs should have a clear understanding of the ML/TF risks present in their
own jurisdiction, as well improve supervisory effectiveness by allocating
resources to areas of higher ML/TF risk, in line with the applicable legal
framework and the RBA.
171. The FATF standards do not propose a specific approach to supervision and
countries may implement supervisory practices as relevant and applicable to
their jurisdictions, regulatory and institutional frameworks. Accordingly, this
Guidance avoids an overly prescriptive approach and is meant to help countries
implement the FATF standards, not to change or replace those standards.
172. A country’s AML/CFT framework must take into account all professions involved
in the real estate industry – such as lawyers, notaries, accountants, investment
advisors, mortgage lenders, bankers, and other financial intermediaries. The RBA
to AML/CFT aims to develop prevention and mitigation measures commensurate
with the ML/TF risks identified across the entirety of the real estate sector.
Supervisors and SRBs’ role in Supervision and Monitoring
173. According to FATF R.28, countries must ensure that DNFBPs are subject to
effective oversight through the supervision performed by a competent authority,
including non-public bodies, or by an SRB, when applicable and provided that the
SRB is able to enforce AML/CTF obligations and effectively regulate its members.
174. An SRB is a body representing a profession (e.g., lawyers, notaries or real estate
agents), that make up its members, and that has a role (either exclusive or in
conjunction with other regulatory entities) in regulating the persons that are
qualified to enter and to practise in the profession. An SRB also performs
supervisory or monitoring functions (e.g., to enforce rules to ensure that high
ethical and moral standards are maintained by those practising the profession).
Rec 28 allows a role for SRBs, but only to the extent that they are able to enforce
compliance and when the country has a rationale for choosing an SRB to perform
supervisory duties as opposed to or in conjunction with a designated competent
authority. Mitigating the risks of real estate is an area in which the private sector
has an important role, but governments must also remain involved to avoid the
appearance that real estate is an unregulated area or one in which compliance is
voluntary, which would be inconsistent with the FATF standards.

175. Supervisors and SRBs should have adequate powers to perform their functions,
which should include powers to monitor and to impose effective, proportionate
and dissuasive sanctions, as well as possess the ability to maintain adequate
financial, human and technical resources. They should determine the frequency
and intensity of their supervisory or monitoring actions and required reporting
on real estate professionals, on the basis of their understanding of the ML/TF
risks while taking into consideration the sector characteristics, in particular its
diversity and number.
176. Countries should ensure that supervisors and SRBs are equipped to identify and
dissuasively sanction non-compliance by their regulated entities or members.
Countries should also ensure that SRBs are well-informed about the importance
of AML/CFT supervision, as well as the need to engage in enforcement actions as
needed, and that regulation and supervision of real estate is legally binding.
177. Countries should also address the risks stemming from the conflicting priorities
of a SRB that represents their members but that is also responsible for their
AML/CFT supervision. If a SRB contains members of the supervised population,
or represents the sector, it must ensure the absence of conflict of interests such
as the monitoring/supervision of a member’s own practice/business. SRBs
whose core mission is to represent the interests of the members must be
adequately supervised and monitored by a competent authority.
178. Supervisors and SRBs should clearly allocate responsibility for managing
AML/CFT related activity, where they are also responsible for other regulatory
areas.

Box 4.8. Examples of supervisory best practices

The RBA in Hong Kong, China

The Estate Agents Authority ("EAA") has adopted a risk-based approach in
supervising the estate agency trade practitioners regarding compliance
with AML/CFT requirements. Under the EAA's supervision, the estate
agencies' policies, procedures and control systems will be examined from
time to time. Feedback will be provided to practitioners by various means,
e.g. onsite-meetings, trade liaison meetings and advisory letters, etc.
Furthermore, the EAA has been encouraging practitioners to
promote/create an AML/CFT compliance culture through educational
programs. The information collected from the trade meetings and findings
obtained from the supervision will, in return, help to update the risk
profiles of estate agency companies. Since April 2020, 60 agencies have
been adjusted to lower risk groups as a result of enhancing AML/CFT
compliance work and measures, such as review of companies' policies and
procedures to ensure AML/CFT compliance and establishment of written
policies or guidelines for dealing with AML/CFT matters.

AML/CFT Supervisory Practices of Registered Estate Agents in Malaysia

Fit and Proper Requirements – Self Regulatory Bodies (SRBs)
Registered Estate Agents (REAs) in Malaysia are regulated by the Board of
Valuers, Appraisers, Estate Agents and Property Managers (BOVEAP). The
Board is governed by the provision of Valuers, Appraisers, Estate Agents
and Property Managers Act 1981. To practice, REA are subject to
appropriate market entry controls, which include fulfilling the ‘fit and
proper’ and practical experiences requirements as well as relevant
technical and competency tests.
REA Supervision, Risk Assessment and Awareness
Under the Anti-Money Laundering, Anti-Terrorism Financing and
Proceeds of Unlawful Activities Act 2001 (AMLA), Bank Negara Malaysia
(BNM) is the competent authority for the AML/CFT supervision of the
Designated Non-Financial Businesses and Professions (DNFBPs) & Other
Financial Institutions in Malaysia, including REAs. BNM adopts a risk-
based supervision for REAs, in which the differentiation is guided by the
outcome of the National ML/TF Risk Assessment (NRA) and the
application of Risk-Based Supervisory Framework for DNFBPs and Other
Financial Institutions (D’SuRF).
Under the NRA, the REA sector is assessed as part of the sectoral risk
assessment for DNFBPs sectors, supported by both quantitative and
qualitative inputs from various sources. The assessment evaluates the net
ML/TF risks of the sector taking into consideration the sectoral inherent
features and characteristics and overall effectiveness of the control
measures in mitigating the risks. The assessment also covers interlinkages
of the REA sector with other sectors and susceptibility of REA being abused
by criminals.
Supervision on the REA sector focuses on on-site and, off-site monitoring
and awareness initiatives. On-site examination is targeted on reporting
institutions (RIs) that are selected based on robust selection process under
the D’SURF, which is in line with risk profile of the RIs. The on-site
examination is in-depth, with assessments covering the RI’s inherent risk
and quality of risk management based on criteria under the D’SurF. In
applying the risk-based approach, the intensity of the supervisory action
is determined based on the overall ML/TF risks of the RIs, where more
stringent supervisory monitoring is imposed on RIs with heightened risks,
including requirements to submit an action plan and progress report on
rectification measures to address supervisory issues as well as an
independent audit report to validate adequacy and effectiveness of
rectification measures undertaken.
For off-site monitoring, BNM deploys mandatory Data and Compliance
Report (DCR) as an off-site monitoring tool that requires submission of RIs’
information and self-assessment of their compliance level in order for
BNM to understand the overall risk profile of the sector as well as identify
any emerging risks and mitigating measures required.

BNM undertakes a multi-pronged approach in its awareness programmes,

including in collaboration with REAs licensing authority and industry
associations. The awareness initiatives include conduct of technical
trainings through physical and virtual sessions as well as during national
conferences in collaboration with the industry associations, dissemination
of AML/CFT materials via issuance of FAQs (Frequently Asked Questions),
guidance, newsletters and awareness videos to ensure the RIs are kept
abreast with the latest domestic and global AML/CFT developments.
Source: Hong Kong, China and Malaysia

Understanding ML/TF risk: The role of countries

179. Countries should ensure that real estate professionals apply an RBA that reflects
the nature, diversity and maturity of the sector and its risk profile as well the
ML/TF risks associated with individual real estate professionals.
180. Access to information about ML/TF risks is essential for an effective RBA.
Countries are required to take appropriate steps to identify and assess ML/TF
risks on an ongoing basis in order to: (a) inform potential changes to the
country’s AML/CFT regime, including changes to laws, regulations and other
measures; (b) assist in the allocation and prioritisation of AML/CFT resources by
competent authorities; and (c) make information available for AML/CFT risk
assessments conducted by real estate professionals and the country’s national
risk assessment.
181. Countries should keep the risk assessments up-to-date and should have
procedures in place to provide appropriate information on the results to
competent authorities, SRBs and real estate professionals. In situations where
some real estate professionals have limited capacity to identify ML/TF risks,
countries should work with the sector to understand their risks as exemplified
in Box 4.2. To the greatest extent possible, countries should make public detailed
information on civil enforcement actions or criminal cases to inform all
stakeholders about ML/TF risks.

Box 4.9. The importance of communication and cooperation to an effective

RBA

France
French inspection units have been asked to target certain types of real
estate activities, which are more likely to be exposed to money laundering
and terrorist financing risk, on the basis of their location and the clientele
they deal with. For that purpose, they have to send a preliminary
questionnaire to a certain amount of estate property agencies, which have
to fill it with information on their activity (including turnover, average
amount of transactions and type of clientele) and their awareness of
AML/CFT obligations, such as transmission of suspicion declarations to
the FIU.
This information combined with the knowledge of past records on obliged
entities (such as penalties pronounced against them or information taken
from other investigations in the consumer protection field) will help the
investigation units assess the risk of real estate agents’ exposure to ML/TF.
The implementation of this technique has enabled investigation units to
detect a greater number of non-compliant entities.
DGCCRF, the French supervisory authority, has also participated in more
awareness events with the FIU in order to mobilize professional
organizations and obliged entities in AML/CFT. More suspicion
transactions were reported in 2018 and 2019 by professionals after these
events, even though the level of reporting remains limited in comparison
with the number of transactions, completed by real estate agents.
Source: France

182. Supervisors and SRBs should, as applicable, draw on a variety of sources to

identify and assess ML/TF risks. These may include, but will not be limited to,
the jurisdiction’s national risk assessments, supranational risk assessments,
domestic or international typologies, supervisory expertise, private sector views
and law enforcement and FIU feedback, including STRs. The necessary
information can also be obtained through information-sharing and collaboration
practices among AML/CFT supervisors, when there is more than one regulator
for different sectors (e.g., legal professionals, accountants and real estate agents).
183. These sources can also be helpful in determining the extent to which real estate
professionals are able to effectively manage ML/TF risks. Information-sharing
and collaboration should take place among AML/CFT supervisors across all
sectors (e.g. legal professionals, accountants, real estate agents etc.).
184. FIUs are notably in a unique position to inform supervisor’s efforts due to their
independence and role analysing and disseminating financial intelligence to
facilitate development of regulations and enforcement actions related to ML/TF
risks. Supervisors should rely on and empower FIUs to leverage their access to
confidential financial information and familiarity with law enforcement
investigations to improve supervisors’ understanding of risk and vulnerabilities
in the real estate sector as well as red flag indicators that real estate professionals

and banks can use. Supervisor’s should rely on FIU’s to provide both routine and
non-frequent products towards the real estate industry as part of the FIU’s
mandate regarding sharing of information under R.29 Adopting this type of
approach towards an FIU will lead to a better-informed supervisory organization
that can make more decisive actions with regards to identifying and mitigating
ML/TF risk, monitoring and supervision, enforcement actions, sectoral risk
assessments, and supervisors’ ongoing review of the RBA.
185. Supervisors and SRBs should issue guidance to real estate professionals on
issues of concern. Guidance should be updated as necessary to remain accurate
and current (i.e., reflect current realities in evolving risks including new
technologies and emerging trends).
186. Competent authorities may also consider undertaking a targeted sectoral risk
assessment to enhance their understanding of the specific environment in which
real estate professionals operate in the country and the nature of services they
provide. This could include an assessment of other interconnected sectors that
are also involved in real estate transactions such as institutions arranging or
offering financing, legal professionals, etc.
187. In addition, supervisors and SRBs should:
• Understand the level of inherent risk including the nature and complexity
of services provided by the real estate professionals. Supervisors and SRBs
should also consider the type of services the real estate professionals are
providing as well as their size and business model, corporate governance
structure, the compliance culture within the organisation, financial and
accounting information, delivery channels, client profiles, geographic
location and countries of operation.
• Consider the controls real estate professionals have in place and the
resources available for mitigating ML/TF risk (e.g., the quality of the risk
management policy, the functioning of the internal oversight functions and
the quality of oversight of any outsourcing and subcontracting
arrangements). Supervisors and SRBs should require real estate
professionals to have group wide AML/CFT programmes. Policies and
procedures should be consistently applied and supervised across the
group. 27
• Seek to ensure real estate professionals are fully aware of, and compliant
with, measures to identify and verify a client (both persons and entities),
obtain the client’s source of wealth and funds where required, and ensure
transparency of beneficial ownership. These are all cross-cutting issues
that affect several aspects of AML/CFT supervision.
• Review their assessment of real estate professionals ML/TF risk profiles
periodically, including when circumstances change or relevant new threats
emerge and appropriately communicate this assessment to the industry.

27 For more on group policies as relevant to DNFBP’s please see FATF Recommendations
18 and 23: The Application of Group-Wide Programmes by Non-Financial Businesses
and Professions, November 2021. Available at : www.fatf-
gafi.org/media/fatf/documents/recommendations/pdfs/Explanatory-Materials-R18-
R23.pdf

• Ensure that real estate professionals properly assess the risks associated
with legal persons and legal arrangements, such as trusts. This includes risk
around legal persons or legal arrangements being misused to obfuscate the
beneficial ownership of a real estate property for criminal purposes.
Mitigating ML/TF risk
188. Supervisors and SRBs should take appropriate and proportionate measures to
mitigate and manage ML/TF risk, including allocating more supervisory
resources to areas of higher ML/TF risk. Similarly, supervisors and SRBs should
determine the frequency and intensity of these measures based on their
understanding of the inherent ML/TF risks. This means that supervisors should
determine the frequency and intensity of periodic assessments based on the level
of ML/TF risk to which the sector and individual entities are exposed. It also
means that where detailed supervision of all agents, brokerages, and other
relevant professions for AML/CFT purposes is not feasible, supervisors should
give priority to the areas posing the highest risk while undertaking less resource-
intensive supervisory exercises on professionals posing a lower risk. (e.g., off-
site examinations and questionnaires).
189. As per FATF standards, countries are able to define thresholds for lower risk
entities which can facilitate supervisory efforts and allow additional focus on any
higher risk entities to the extent those characterisations match risks identified in
the national risk assessments.
190. The characteristics and vulnerabilities of the sector should be identified in order
to determine which real estate professionals pose the greatest risk of being used
by criminals for ML/TF purposes. This involves considering the probability and
impact (both nationally and internationally) of ML/TF risk. Probability means
the likelihood of ML/TF taking place as a consequence of the activities
undertaken by real estate professionals and the environment they operate
within. The risk can also increase or decrease depending on other factors, such
as:
• Service and product risk (the likelihood that services or products can be
used for ML/TF);
• Client risk (e.g. the likelihood that customers’ funds may have criminal
origins among others);
• The nature of transactions (e.g., payment method, frequency, volume, type
of property being purchased, counterparties involved);
• The nature of services offered;
• Geographical risk (whether the real estate professionals conduct business
in riskier locations e.g., certain regions or areas); and
• Other indicators of risk are based on a combination of objective factors and
experience, such as the supervisor’s wider work with real estate
professionals and businesses as well as information on a business’
compliance history, complaints about the professional or the quality of its
internal controls.
• Other such factors may include information from government/law
enforcement sources, whistle-blowers or negative news reports from

credible sources or media particularly those related to predicate offences

for ML/TF or to financial crimes.
191. In adopting an RBA, supervisors and SRBs may consider allocating supervised
entities sharing similar characteristics and risk profiles into groupings for
supervisory purposes. Some sectors, in particular DNFBPs, which include real
estate agents, have a very large number of entities such that understanding
ML/TF risks of each entity is difficult as supervisors may have little to no data on
individual entity activities. As such, supervisors of real estate professionals may
seek to identify sub-sectors or market segments or clusters within the sector and
understand their respective features or characteristics so that risk profiles can
be established at the sub-sectorial or segment level. This could include groups
such as: non-residents/foreign buyer markets, luxury property markets,
residential real estate markets, commercial real estate markets, large-scale
construction project markets, as well as the various types of supervised entities,
to include large firms with more dedicated resources and personnel for
AML/CFT and smaller firms with individuals that conduct AML/CFT duties in
addition to other roles.
192. Using such groupings could allow supervisors to take a comprehensive view of
the real estate sector, as opposed to an approach where the supervisors
concentrate on the individual risks posed by the individual professionals. Similar
to the above, examples of characteristics and risk profiles could include the size
of business, type of properties involved in a transaction, type of clients and
geographic areas of activities.
193. Supervisors and SRBs should update their assessment of risks on an ongoing
basis. The result from the assessment will help determine the resources required
to supervise the real estate agents, as well as other professions and firms, and
help them adjust their regulatory approach.
194. Domestic co-operation and information exchange between FIU and supervisors
of the real estate sector and others including law enforcement, intelligence
authorities, tax authorities, can also be important for effective monitoring and
supervision of the sector. Such co-operation and co-ordination may help avoid
gaps and overlaps in supervision and ensure sharing of good practices and
findings. Information sharing about active misconduct investigations and
completed cases between supervisors and law enforcement agencies should be
encouraged where appropriate. When sharing information, protocols and
safeguards should be implemented in order to protect personal data.

Supervisory Tools and Supervision of the Risk-Based Approach

General Approach
195. Supervisors should educate, encourage and monitor real estate professionals’
adoption of an RBA that is in line with the FATF recommendations, and that is
risk-appropriate in line with the business models and activities, size of
operations, and operating environments.
196. The real estate sector is inter-connected with other sectors, which includes the
banking sector and other entities involved in real estate transactions who may
have no AML/CFT requirements or that may apply them differently across
jurisdictions (e.g., mortgage brokers, private lenders, appraisers etc.).

Supervisors should get a good understanding of the ML/TF factors affecting the
real estate sector and make appropriate adjustments where necessary to their
supervisory RBA.
197. Supervisors should note that under the RBA, particularly in the real estate sector,
given the diversity in size, scale of operations, business models and domestic
regulatory requirements, there may be valid reasons for differences in controls.
There is therefore no one-size-fits-all approach and, in evaluating the adequacy
of their RBA, supervisors and SRBs should take into consideration the merits of
these differences, applying a proportionate response.
198. The task of supervising the implementation of the RBA is a challenging one. To
be effective, a supervisor should consider the following general principles:
a) Secure adequate resources and their effective allocation
o Knowledge about ML/TF in the real estate sector and how the sector is
vulnerable to ML/TF activities is important for understanding the required
resources and skillsets required as a supervisor. Based on the ML/TF risks, and
the size and complexity of the sector, supervisors should have adequate
financial, human, and technical resources to properly develop and apply risk-
based supervision.
b) Strong supervisory focus on effective implementation of controls by real
estate professionals.
o For an effective RBA, supervisors should also focus on assessing the quality of
the real estate business risk mitigation efforts. Supervisors should clearly
articulate and communicate their expectations, including the necessary
rectification measures or penalties where there are deficiencies or non-
compliance in a brokerages’ AML/CFT controls.

c) Conducting an ongoing review to develop a robust risk-based approach.

o Supervisors and SRBs should use their findings to review and update their
ML/TF risk assessments and, where necessary, consider whether their
approach to AML/CFT supervision and the existing AML/CFT rules and
guidance remain adequate. Whenever appropriate, and in compliance with
relevant confidentiality requirements, these findings should be communicated
to real estate brokers to enable them to enhance their own RBA.

d) Measuring the effectiveness of the risk-based supervision.

o Record keeping is important, so that supervisors can document and evaluate
the significant decisions relating to AML/CFT supervision. Supervisors should
have an appropriate information retention policy and be able to easily retrieve
information while complying with the relevant data protection legislation.
Record keeping is crucial and fundamental to the supervisors’ work but also to
the broader AML/CFT regime. Undertaking adequate quality assurance is also
fundamental to the supervisory process to ensure decision-
making/sanctioning is consistent across the supervised population.
o Supervisors and SRBs should continuously assess the type of data made
available to them by the sector and within their own organization. They should
consider what decisions rely on specific types of data and whether additional

data sources could be useful to inform decision making as well as how to store
data effectively. However, supervisors and SRBs must also avoid relying too
heavily on data to inform all supervisory functions and rely on other resources
when there is incomplete data available. Types of data that may be of interest
could include data related to suspicious transaction reporting, general annual
reporting metrics on number of transactions and accounts, as well as data on
cash payments.
e) Enforcement, including remediation, proportionate and dissuasive
sanctions
o Supervisors should practice continuous active supervision, including on-site
and desk-based reviews and exams. Supervisors must have the willingness and
ability to apply proportionate and dissuasive sanctions, whether civil, criminal,
or administrative. This kind of active supervision is essential as countries
institute new or enhanced controls and try to change old assumptions about
ML/TF risk mitigation in the real estate sector.

Investigative tools
199. Supervisors and SRBs should also continuously assess whether new
investigative tools should be adopted to enhance the overall ability to identify,
assess, and mitigate ML/TF risk. Cooperation between the different national
authorities and their FIU’s is essential to accessing data and information sharing,
as well as achieving effectiveness.
200. While this can be based on the own initiative of a supervisor and SRB,
supervisors and SRBs should also be encouraged to adopt new tools in response
to identified risks or other ML/TF issues. Tools can include various new types of
data collection measures, or any other element that facilitates supervisors’
ability to identify, assess, and mitigate ML/TF risk. Examples of tools adopted in
response to significant ML/TF risks include the UK’s Unexplained Wealth Orders
and the Geographic Targeting Orders in the United States (see Box 4.3).

Box 4.10. Investigative tools

Unexplained Wealth Orders (UWO) - UK

In the UK an unexplained wealth order (UWO) is an investigatory order made in
the High Court placed on a person whose assets, with a value over £ 50 000, appear
disproportionate to their income to explain the origins of their wealth. The UWO
requires the respondent to explain, within a specified timeframe, the nature and
extent of their interest in an asset, how it was obtained, the costs involved in
obtaining it and any other information ‘as may be so specified’.
A UWO is not (by itself) a power to recover assets. However, any response from a
UWO can be used in subsequent civil recovery proceedings. A person can also be
found guilty of an offence if they provide false or misleading information in
response to an UWO.
A UWO was issued against a businessman as investigators argued that his wealth
was probably accumulated through crime. The investigation resulted with a
written agreement with the businessman to hand over nearly £10 million of assets
including dozens of properties.

Geographic Targeting Orders (GTO) - USA

In the United States, a Geographic Targeting Order (GTO) is statutory mechanism
for the Financial Crimes Enforcement Network (FinCEN), and imposes temporary
recordkeeping and reporting requirements on a domestic financial institution or
group of domestic financial institutions, or any domestic nonfinancial trade or
business or group of domestic nonfinancial trades or businesses, in a geographic
area. Record keeping and reporting requirements issued pursuant to a GTO must
relate to transactions involving the payment, receipt, or transfer of funds. A GTO
may not exceed 180 days, but may be renewed as necessary.
FinCEN may issue a GTO on its own initiative or at the request of law enforcement.
In each instance, FinCEN must find that reasonable grounds exists for concluding
that additional requirements are necessary to carry out the purposes of the Bank
Secrecy Act (BSA) or to prevent evasion thereof. If so, FinCEN can, for example,
issue a GTO to support a law enforcement or regulatory agency's investigation, as
well as to identify regulatory gaps or to support a potential regulation.
Since 2016, FinCEN has issued and renewed GTOs to address money laundering
vulnerabilities in the real estate sector. Such GTOs have imposed temporary
recordkeeping and reporting requirements on title insurance companies involved
in certain non-financed purchases of residential real estate by legal entities. Law
enforcement agencies report that information submitted pursuant to these GTOs
has provided greater insight regarding assets held by persons of investigative
interest, have resulted in asset forfeiture actions, and have helped generate leads
and identify new subjects for investigation.
Source: UK and USA

Monitoring and Supervision

201. Supervisors and SRBs should take measures to effectively monitor the real estate
sector. The nature of this monitoring will depend on the risk profiles prepared
by the supervisor or SRB and the connected RBA. As well, the supervisory
approach should be fluid with the supervisor or SRB being able to adjust or
update their assessment of risks on an ongoing basis (see Box 4.4). The result
from each assessment will help determine the resources allocated to the
supervision of real estate professionals or of groups of real estate professionals
or firms and help supervisors and SRBs adjust their regulatory approach
effectively. Ways in which supervisors can adjust their approach to better target
risks include:
a) Selecting the type of AML/CFT supervision
o Supervisory tools that can be used individually or in combination to
achieve the intended supervisory outcomes.
o Off-site supervision may include off-site monitoring that helps keep
supervisors up-to-date on the ML/TF risk landscape, inherent risk
profiles of regulated entities, and potential control weaknesses in these
entities. It may also include undertaking thematic reviews, which may
include a focused scope on one or more specific aspects of the entities’
AML/CFT systems and controls, such as transaction monitoring or
treatment of PEPs. Off-site supervision alone may not be appropriate in
higher risk situations.
o On-site supervision offers supervisors an opportunity to conduct a
more thorough review of the entities’ controls through the performance
of sampling tests. For example, it may involve interviewing staff,
reviewing documentation, and testing their monitoring systems
(whether automatic or manual), and assessing the CDD and AML/CFT
procedures and how they function in practice (whether they are being
followed or not). Relatedly, there can also be an off-site process (pre-
engagement) where the regulated entities’ risk assessment is re-
validated prior to an on-site inspection.
o Some elements of supervisory inspections, including sample testing
may also be effectively carried out off-site, by obtaining the information
from the entity and the application of Supervisor Technology (SupTech)
tools. Where live testing is not possible off-site, the prior standard
sample testing can augment additional, more targeted live testing
during the on-site visit– e.g., when carrying out a walkthrough of a CDD
system, select customers (random selection/based on level of risk etc.)
and in a “live” assessment, request the member of the entity to produce
the customer risk assessment, CDD documentation etc.
b) Adjusting the frequency of ongoing AML/CFT supervision
o Supervisors and SRBs should proactively adjust the frequency of
AML/CFT supervision in line with the risks identified and combine
periodic reviews and ad hoc AML/CFT supervision as issues emerge
(e.g., as a result of whistleblowing, information from law enforcement,
or other supervisory findings resulting from real estate brokerages’
inclusion in thematic review samples).

c) Adjusting the nature and intensity of AML/CFT supervision:

o Supervisors should decide on the appropriate scope or level of
assessment in line with the risks identified, with the aim of assessing
the adequacy of a real estate firm’s policies and procedures that are
designed to prevent them from being abused.
o Examples of more intensive supervision could include: detailed testing
of systems and files to verify the implementation and adequacy of
businesses’ risk assessment, files on CDD and reporting including the
reporting of suspicious transactions, record-keeping policies, ongoing
monitoring measures and processes and internal auditing. This may
also include interviews with operational staff, real estate professionals
acting on behalf of a firm, senior management and the board of
directors, where applicable, as well as conducting AML/CFT
assessments of particular lines of business.
202. While most supervisory resources should be dedicated to the higher ML/TF risk
areas, supervisory strategies should also set out the supervisory approach for
areas of lower ML/TF risk. For example, supervisors should also ensure that
education and outreach extend to lower risk sectors to enable them to implement
risk-based, proportionate measures and to help identify and report any ML/TF
risks that may arise. Importantly, supervisors should detail that real estate
professionals should still provide resources and attention to areas identified as
presenting a low ML/TF risk.

Box 4.11. Case studies of RBA to supervision of the real estate sector

Singapore
Singapore’s Council for Estate Agencies (“Regulator”) regulates the real
estate agency sector by adopting a risk-based approach to supervision and
subjecting higher-risk estate agencies to more supervisory scrutiny. This
primarily involves more frequent on-site inspections on higher-risk estate
agents (property agencies) to assess their compliance with AML/CFT
requirements. In addition, through the use of data analytics on property
transactions, the Regulator is able to scrutinise transactions deemed to be
of higher risk during inspections (e.g. transactions involving private
properties which are more susceptible to ML, transactions involving
countries with ML/TF deficiencies).
For lower-risk estate agents, surveillance and monitoring are still
conducted regularly through the Regulator’s off-site desk-based
inspections. This also reduces the need for physical interactions in light of
the ongoing COVID-19 pandemic. For non-compliances found during such
desk-based inspections, the Regulator would issue a warning to the estate
agent and require the remediation of the deficiencies found. Should the
estate agent be found to have inadequate AML/CFT controls (e.g. failure to
conduct CDD, lack of internal policies, procedures and controls to manage
and effectively mitigate ML/TF) during the off-site inspection, the

Regulator would follow up with a comprehensive on-site inspection with

the estate agent involved.
The Regulator also conducts ad-hoc inspections when it receives any
credible adverse information or intelligence (e.g. from law enforcement
agencies through the Risk and Typologies Inter-Agency Group, which
comprises all relevant supervisory, regulatory, law enforcement and policy
agencies) on estate agents or their salespersons.
Source: Singapore

Enforcement
203. R.28 requires supervisors to have adequate powers to perform their functions,
including powers to monitor compliance by real estate agents and other
professions under their review. R.35 requires countries to have the power to
impose sanctions, whether criminal, civil or administrative, on DNFPBs.
Sanctions should be available for the board and senior management of a
brokerage or real estate firm when they fail to comply with requirements.
204. Supervisors should use proportionate actions within their legal framework,
including a range of supervisory interventions and corrective actions to ensure
that any identified deficiencies are addressed in a timely manner. Sanctions may
range from informal or written warnings, reprimand and censure to punitive
measures (including license withdrawal and criminal prosecutions where
appropriate) for more egregious non-compliance, as identified weaknesses can
have wider consequences. Generally, systemic breakdowns or significantly
inadequate controls as well as wilful or witting misconduct and reckless
disregard for the adequacy of controls will result in more severe supervisory
responses.
205. Enforcement by supervisors and SRBs should be proportionate while having a
deterrent effect. Supervisors and SRBs should have (or should delegate to those
who have) sufficient resources to investigate and monitor non-compliance.
Enforcement should aim to remove the benefits of non-compliance.

Guidance, Feedback and Collaboration

206. As part of a supervisory strategy, supervisors should communicate their
expectations of professionals or their businesses’ compliance with their legal and
regulatory obligations. This could be done through a consultative process after
engaging with relevant stakeholders such as the private sector. Guidance issued
to the real estate sector should also discuss ML/TF risk within their sector and
outline ML/TF indicators (transactional and behavioural) in order to help them
identify suspicious transactions.
207. Where supervisors’ guidance remains high-level and principles-based, this may
be supplemented by further guidance produced by the industry or their
representatives, which may cover operational issues, and be more detailed and
explanatory in nature. Additionally, supervisors may consider issuing
operational-level guidance if deemed helpful for the larger supervisory effort.

208. Supervisors should collaborate with other relevant domestic and international
regulatory and supervisory authorities to minimise disparities in the
implementation of international and national standards. This is particularly
important where more than one supervisor is responsible for supervision (e.g.,
where the market conduct supervisor and the AML/CFT supervisors are in
different agencies or in separate divisions of the same agency). When possible,
relevant regulatory and supervisory authorities should consider preparing joint
guidance.
209. To the extent possible, supervisors and FIUs should provide timely feedback to
real estate professionals on effectiveness of their monitoring/reporting systems,
quality of STRs filed and AML/CFT controls in general. A well-defined and
institutionalised feedback mechanism can enhance the effectiveness of the
monitoring and surveillance system to capture as many suspicious transactions
as possible. Guidance on potential risk indicators in the real estate sector, in
consultation with the industry, where feasible, can also be considered.
210. Information exchange between the public and private sector such as sharing i)
ML/TF risk assessments; ii) typologies (i.e., case studies) of how money
launderers or terrorist financers can misuse the real estate sector, can assist in
providing relevant and updated guidance and feedback (see Box 4.5). To develop
a good understanding of the risks facing supervised entities, supervisors should
maintain ongoing engagement with the private sector. ML/TF typologies evolve
rapidly and the private sector may be able to detect these changes first – given
their direct contact with customers - and inform supervisors. On-going co-
ordination between supervisors and other government authorities in their
engagement with the private sector ensures clear messages are sent on
expectations for risk management. If possible industry engagement should
include education and awareness raising.
211. Supervisory authorities should also enhance international cooperation and
collaboration mechanisms as needed and relevant to allow for increased success
in the development of standards, harmonised policies, procedures and controls,
as well as a better understanding of common AML/CFT risks.

Box 4.12. Examples of outreach by supervisory authorities

Example of Targeted Outreach Educational Programme, in Hong
Kong, China
As part of the Estate Agents Authority’s (“EAA”) outreach programmes to
raise awareness and strengthen the estate agents’ conversance with the
AML/CFT regulatory requirements, the EAA has run an outreach
educational programme titled “Anti-money Laundering & Counter-
Terrorist Financing Responsibilities Guidance Programme”, which
provided face-to face AML/CFT guidance and assistance to small-sized
operators, which generally had less financial or manpower resources to
appoint an individual to perform exclusive duties as a Compliance Officer.
The response collected from the visited operators in the form of a
questionnaire indicated remarkably positive feedback on the programme

as all of them agreed that the programme had strengthened their

conversance with the regulatory requirements.
Supervision and awareness of the real estate sector, in Mexico
In Mexico, the professionals that participate in the sale of real estate are
reporting entities (RE) that comply with the Mexican legal framework
indicated in article 17 section V of the Federal Law for the Prevention and
Identification of Transactions with Resources of Illicit Origin (LFPIORPI,
by its acronym in Spanish). Likewise, in article 18 of the same law, the
obligations that the RE must comply with are established, with the Tax
Administration Service (SAT, by its acronym in Spanish) being the
supervisory authority for compliance.
Of the activities oriented towards supervision with a Risk-Based Approach,
the SAT has undertaken the following actions: in October 2019, the
invitation was made to the subjects of the real estate sector that had not
yet been incorporated into the National Registry of DNFBPs, likewise, on-
site and off-site visits have been carried out based on the associated high
or low risk. Recurrent infractions were observed, for which actions of
virtual and face-to-face outreach was carried out to continue constant
feedback and updating of the risk profiles, as well as to give monitoring
and advice to professionals.
In the National Registry of DNFBPs, the real estate sector is the second
activity with the highest number of REs registered, so it is a priority to
encourage this sector to have a better understanding, evaluation and
comprehensive management of the associated risks to money laundering.
The real estate sector is located in the third position of the DNFBPs with
the highest number of visits made by the supervisor (SAT). The findings
obtained through the result of the on-site and off-site supervisions,
observed that the recurrent infractions committed by the REs in the real
estate sector are focused on the following:
1. 77% is linked to the lack of appropriate measures to carry out the
correct Customer Due Diligence (CDD).
2. 13% corresponds to the failure to submit notices within the
established times and in the form provided by the national
authorities.
3. 7% is linked to the lack of appropriate measures to carry out the
correct identification of the beneficial ownership.
4. The remaining 3% corresponds to the other obligations described
in article 18 of the Ley Federal para la Prevención e Identificación de
Operaciones con Recursos de Procedencia Ilícita (LFPIORPI).
In response to this, the SAT, through conducted additional outreach to the
real estate sector in March 2020. This resulted in increased awareness in
the real estate sector and strengthening of the measures that allow
mitigation of the risks of effectively. It facilitated the fulfilment of their
obligations before the national authorities and clarified doubts regarding
the correct fulfilment of the obligations established in the national

legislation and its impact within the framework of international

recommendations.
Future actions by SAT include virtual and face-to-face outreach with the
real estate sector to allow constant feedback; training classes through
digital platforms; issuance of guidance materials such as brochures,
presentations, sector analysis, among others. These activities will seek to
raise awareness and sensitize REs thus ensuring the adequate
implementation of the risk-based approach by the sector, as well as by the
supervisory authority in Mexico.
Operational Brief on ML/TF in the Real Estate Sector, Canada
The Financial Transactions and Reports Analysis Centre of Canada
(FINTRAC) created an operational brief outlining indicators of money
laundering in financial transactions related to real estate. The brief
provides detailed guidance on ML/TF indicators in order to improve
quality reporting on suspicions of ML related to relevant real estate
transactions, and to dispel misunderstandings related to the nature of ML
methods and their complexity. It is intended as guidance for real estate
brokers, agents and developers, as well as other types of reporting entities
that are also involved in financial transactions related to real estate.
The operational brief outlines how criminals bring illicit funds into the
Canadian financial system through methods and techniques that disguise
them as legitimate financial transactions. This allows criminals to
purchase assets and eventually sell them in order to enjoy the funds
generated by what otherwise appear as honest activities. They may also
keep an asset purchased with illicit funds for investment, housing of illegal
activity or as a mechanism for future laundering activities. Some examples
of common methods used by criminals to launder illicit funds through real
estate related transactions may include the under-valuing or over-valuing
of property value, rapid successive buying and selling, use of third parties
or companies that distance the transaction from the criminal source of
funds, witting participation by some lawyers, accountants, real estate
agents and financial advisors, cash from criminal sources, and private
sales. Criminal organizations often combine methods in novel ways in
order to avoid the detection of money laundering.
The brief includes a table that details a list of indicators that should be
utilized by the real estate sector to recognize, assess and report suspicious
financial transactions to FINTRAC. FINTRAC uses these indicators, along
with other sources of information, to assess compliance with reporting
obligations. In addition, reporting entities should build and maintain
training programs that ensure the submission of high quality STRs.
Source: Hong Kong, China, Mexico and Canada

Training
212. Training is important for supervisors to understand the sector’s vulnerabilities
of ML/TF risk, which includes understanding the real estate sector’s business
models, regulatory environment, challenges and any emerging trends. In

particular, supervisors should ensure that supervisors are trained to assess the
quality of real estate ML/TF risk assessments and the adequacy, proportionality,
effectiveness, and efficiency of AML/CFT policies, procedures and internal
controls in light of its risk assessment. Supervisors should also be prepared to
maintain similar levels of preparedness for those responsible for supervising the
related professions involved in the real estate industry.
213. Training should allow supervisors to assess and form sound judgments about the
quality of the businesses risk assessment and effectiveness of the brokerages’
AML/CFT controls. It should also aim at achieving consistency in the supervisory
approach at the national level in case of multiple competent supervisory
authorities or when the national supervisory model is devolved or fragmented.
214. Given the diversity and complexity within the real estate sector (e.g., diverse
clientele, cross-jurisdictional nature, use of lawyers and nominees, etc.),
supervisory authorities should conduct continuous training programmes for
supervisors, so that they can develop and maintain their proficiency. A training
programme could include the following topics:
• General AML/CFT issues;
• Business models of various sub-segments of the real estate sector (e.g.,
various size of brokerages, number of agents, real estate developers and
other professions, and the associated ML/TF risks or issues);
• Interaction among the various sub-segments of the real estate sector, and
with other parts of the financial system (e.g., the banking system), as well
as the impact on the scale and nature of ML/TF risks;
• Sanctions, embargoes or similar measures issued by international
organisations such as the United Nations.
• National and international supervisory cooperation mechanisms; and
• Other pertinent issues (e.g. the implementation of common reporting
standards for a specific country, enhancing transparency of beneficial
ownership, and the effect of financial technology developments including
the use of virtual assets on ML/TF risks, as well as country relevant case
studies).

Ongoing Review of Supervisory Risk-Based Approach

215. Supervisors should ensure that their supervisory strategies are kept under
regular review. In implementing the strategy, supervisors will develop a better
understanding of the quality of the supervised entities’ AML/CFT controls and
the ML/TF risk profiles of the business models, as well as the effectiveness of
various supervisory tools. This knowledge should be utilised to enhance the
overall ML/TF risk understanding at both the sectoral and the individual entity
levels along with consideration of any new/emerging ML/TF risks.
216. Further, supervisory authorities should use the experience garnered from
carrying out supervisory tasks to enhance the effectiveness of their supervisory
strategies and to continuously refine and enhance these methods. Any changes
to the ML/TF risk understanding and/or proposals for refinement or
enhancement of the mix of supervisory tools to be applied should be considered

in the context of the review of the overall strategy with the aim of continuing to
improve and strengthen the supervisory approach to ensure it remains effective.
217. Supervisors should implement mechanisms to ensure sound and consistent
supervisory assessments and independence regarding decision-making in
AML/CFT risk-based supervision. For example, when determining a risk rating
for a sector and for individual entities the decision should be supported by a
documented outline of the assessment (including findings from onsite and offsite
activities etc.) and the rationale to explain the proposed risk rating.

Measuring the Effectiveness of the Supervisory Risk-Based Approach

218. Supervisors should also properly record, monitor, and analyse their own
supervisory activities and outputs. Supervisors, when developing their
supervisory approach, should ensure that they have a repository for recording
engagement activities (ideally in digital form) with each entity including details
of the issues identified, relevant action plans and the risk assessment for each
entity. The supervisor should be able to extract data and management
information to:
• Illustrate how supervision has impacted risk management and compliance,
both at the firm and sectoral level;
• Identify changing patterns in terms of numbers, degree of seriousness of
issues identified overtime and fluctuations in ratings of the effectiveness of
the controls; and
• Measure performance against key risk indicators and on issues identified
and risk profiles of each individual entity and sector, and feed these in
aggregate form back into the NRA process.
219. Supervisors are encouraged to use data to determine and demonstrate the
impact of their supervision. For example, using a system to record supervisory
engagements that enables the extraction of data can help. However, supervisors
should be wary of the overreliance on data, and make sure to take into account
all information when making decisions based on incomplete and low-quality
data.
220. This information should also be used to better target the application of
supervisory resources and supervisory tools and to inform the approach on
outreach initiatives. For example, analysis of the supervision data may indicate
increasing problems resulting from potential deficiencies in the transaction
monitoring capabilities of the regulated entities, leading the supervisor to issue
new guidance or requirements to address this developing trend. On the other
hand, data can also indicate whether supervisory efforts are succeeding in terms
of their impact on the improvement of AML/CFT measures in an entity or across
a sector. For example, findings identified during an inspection may initially show
significant gaps in the entity’s AML/CFT program but overtime, the findings
identified should be of a less serious nature and more in the space of refinements
or enhancements. Improvements in the quality of risk assessments undertaken
by entities may be another measure of effectiveness.
221. Finally, supervisors should consider the key outputs from AML/CFT frameworks,
e.g., the quality of suspicious transaction reports in determining the impact of
their supervision on entities’ risk management effectiveness. Supervisors should

either review these outputs themselves, or seek feedback from the jurisdictions’
FIU as to the number, quality and timeliness of reports they have received from
sectors and entities, as improvements in this area can also be an indicator of the
successful results of supervisory activities.
222. Overall, the implementation of RBA supervision relies on strong risk
assessments, frequent exchanges with the supervised sector and ongoing
collaboration with other stakeholders that may have relevant insights into
ML/TF risks and their mitigation.

PART FIVE:
CONCLUSIONS

223. This Guidance sets out the key principles of a RBA to AML/CFT and builds on the
FATF Recommendations to provide viable suggestions and best practice
examples to enable the establishment and implementation of appropriate
AML/CTF regimes. The Guidance emphasises the importance of a comprehensive
understanding of the FATF RBA and the threats real estate professionals might
be exposed to in carrying out their day-to-day functions, whilst recognising that
legal and regulatory frameworks vary by country and a ‘one size fits all’ approach
to AML/CTF is unfeasible.
224. The Guidance recommends that understanding the RBA should form the basis of
an AML/CTF regime, enabling appropriate measures to prevent, mitigate and
manage ML/TF risks proportionally. In doing so, resources are likely to be more
targeted and allocated more efficiently, consequently improving outcomes. A
robust risk assessment and a NRA that anticipates and responds to changes in
risks and severity of risks is crucial and necessary to increase levels of awareness
and to enable appropriate strategies to be developed in response.
225. In following the recommendations outlined in this Guidance, real estate
professionals will be better placed to develop effective processes and procedures
to identify, mitigate and manage ML/TF risk and ensure that the RBA to ML/TF
is implemented. In doing so, those in the real estate sector, which has been
identified as high-risk for ML/TF activity, can remain vigilant in their approach
to AML/CFT.

Annex A. Additional case studies of criminal behaviour through real estate

Directorate of Enforcement Actions (India)

Mr. A was involved in illegal trade of arms & drug, extortion, murders, etc. and thereby
generated huge proceeds of crime (PoC) in cash. The PoC was subsequently invested in
domestic real estate sector by purchasing properties at various locations in India. When
Mr. A came on the radar of investigating agencies, he fled from India apprehending
prosecution by Indian authorities. After sometime he started selling his properties in
India. Mr. A transferred the sale proceeds to foreign jurisdictions mainly through Hawala
channels and invested the amount in real estate in the name of relatives and associates in
various foreign jurisdictions. Apart from real estate the proceeds were also infused in
already running businesses and in opening of new business / ventures.
An investigation led to unearthing of huge proceeds of crime in this case (both in India
and foreign jurisdictions). The proceeds of crime so unearthed (to the tune of USD 114
million) were attached under PMLA in India and overseas. 5 persons were also arrested
in this case. 2 Prosecution Complaints were filed for prosecuting the accused and
confiscation of proceeds of crime before the Special Court, PMLA. The court took
cognizance of Prosecution Complaint.

Mr. X developed a ponzi scheme to amass huge wealth by cheating gullible public. He
falsely proclaimed that he was blessed by God and by her blessings he had acquired
special powers to fulfil the wishes of the God to make the members of a particular Indian
Community Crorepatis (Millionaires). He orchestrated that any “Prasad” offered to God
by him would be tripled in three days. He further elaborated it that if a rupee was
dedicated to God, the donor would be returned with Rupees three (in multiples of three).
By falsely propagating so in association with other accused persons Mr. X duped many
innocent people by luring them in a non-existent scheme under which money invested
was to triple the amount within a short span of time and thereby generated proceeds of
crime amounting to 9.6 million USD. Mr. X invested PoC so generated in real estate by
purchasing agricultural lands in anonymous names. The PoC was also invested in gold and
silver ornaments and in purchase of vehicles. PoC to the tune of Rs. 6.15 crore was
identified and attached. Prosecution Complaint has been filed in this case before the
Special Court, PMLA upon which cognizance has been taken by the Special Court, PMLA.

FINTRAC (Canada)

Illustration of how indicators might raise suspicions in residential real estate

Jane Doe contacted real estate broker Mary Smith to enquire about two properties
she was considering for a purchase. Jane stated that she worked as a server in a
restaurant. Mary conducted research into the two properties and emailed Jane
with pros and cons for each. They made appointments for viewings.
Initial suspicion is triggered
On the day in question, Jane advised Mary by email that she was unable to attend
due to illness, and that in any case she had already decided to purchase the
$800 000 home. Jane explained that she was in the middle of a custody battle and
was in a rush to buy a house in order to demonstrate that she was capable of

providing for her two children. Mary was taken slightly aback by her choice of the
most expensive home and her willingness to buy without first viewing the house
or having anyone else inspect it first [Trigger: Transaction speed, Inconsistency].
Concerned about this choice, Mary pointed out that the selling price was
overvalued by $50 000 and that she was in a good position to benefit by making a
first offer under the asking price, but that in any case it would be important for
Jane to visit the house in order to ensure that it met her needs. Jane emailed Mary
to let her know that given her pressing need to find a home for her children that
she had already made up her mind and directed Mary to offer the asking price
[Escalation of suspicion: Value; Transaction speed, Inconsistency].
Trail of additional indicators and decision to report suspicions to FINTRAC
Mary explained that in order to write up an offer, Jane would have to provide a
deposit and identification. At this point, Jane emailed Mary and unexpectedly
advised her that her brother would actually be mortgaging the house because he
would be living with them (anonymity – last minute third party). Mary offered to
make the 45 minute drive to meet them and write the offer, however Jane
requested that she be emailed the form with the purchaser's name blank in order
to enter the brother's name (anonymity). Her brother was arriving from Iran
(geography) on May 1 and would fill in the details when he got there. They would
then scan the offer and email it back to Mary (anonymity).
Given the rise in suspicion, Mary explained that the brother’s ID would need to be
checked personally. She offered to drive over to pick-up the deposit cheque and
validate her brother’s identification at the same time. Mary also requested bank
and lawyer information as part of the standard financing and legal steps. Jane
explained that they preferred to mail out the deposit cheque because her working
hours at the restaurant were unpredictable (anonymity).
Along with the deposit cheque signed by her brother on April 25 (several days
before he was actually scheduled to arrive – inconsistency), Jane faxed a copy of
her brother’s driver’s license (anonymity), and provided only mortgage pre-
approval with none of the required details.
When Mary called Jane and started to explain once again that the brother’s
identification document would have to be validated in person in order to proceed,
Jane became very defensive and threatened to find another real estate agent. At
this point, Mary explained that without proper ID validation, it would not be
possible to go through with the deal. Jane informed Mary that her brother had
decided to cancel the deal and requested that her brother’s deposit be put into his
bank account (defaulting).
As a result of the overall level of suspicion raised by the combination of observable
factors linked to indicators of suspicion, a suspicious transaction report was
submitted to FINTRAC.

Annex B. Glossary of Terminology

Beneficial Owner
Beneficial owner refers to the natural person(s) who ultimately28 owns or controls
a customer 29 and/or the natural person on whose behalf a transaction is being
conducted. It also includes those natural persons who exercise ultimate effective
control over a legal person or arrangement. Only a natural person can be an
ultimate beneficial owner, and more than one natural person can be the ultimate
beneficial owner of a given legal person or arrangement. 30
Competent authorities
Competent authorities refers to all public authorities with designated
responsibilities for combating money laundering and/or terrorist financing. In
particular, this includes the FIU; the authorities that have the function of
investigating and/or prosecuting money laundering, associated predicate offences
and terrorist financing, and seizing/freezing and confiscating criminal assets;
authorities receiving reports on cross-border transportation of currency & BNIs;
and authorities that have AML/CFT supervisory or monitoring responsibilities
aimed at ensuring compliance by financial institutions and DNFBPs with AML/CFT
requirements. SRBs are not to be regarded as a competent authorities.
Designated Non-Financial Businesses and Professions (DNFBPs)
Designated non-financial businesses and professions means:
a) Casinos
b) Real estate agents
c) Dealers in precious metals
d) Dealers in precious stones
e) Lawyers, notaries, other independent legal professionals and accountants
– this refers to sole practitioners, partners or employed professionals
within professional firms. It is not meant to refer to ‘internal’ professionals

28 Reference to “ultimately owns or controls” and “ultimate effective control” refer to

situations in which ownership/control is exercised through a chain of ownership or by
means of control other than direct control.
29 This definition should also apply to beneficial owner of a beneficiary under a life or
other investment linked insurance policy.
30 The ultimate beneficial owner is always one or more natural persons. As set out in R.10,
in the context of CDD it may not be possible to verify the identity of such persons
through reasonable measures, and, to the extent that there is doubt about whether a
person with a controlling ownership interest in a legal person is the ultimate beneficial
owner, or where no natural person exerts control through ownership interests, the
identity should be determined of the natural persons (if any) exercising control of the
legal person or arrangement through other means. Where no natural person is
identified in that role, the natural person who holds the position of senior managing
official should be identified and recorded as holding this position. This provision of R.10
does not amend or supersede the definition of who the beneficial owner is, but only sets
out how CDD should be conducted in situations where the beneficial owner cannot be
identified.

that are employees of other types of businesses, nor to professionals

working for government agencies, who may already be subject to
AML/CFT measures.
f) Trust and Company Service Providers refers to all persons or businesses
that are not covered elsewhere under these Recommendations, and which
as a business, provide any of the following services to third parties:
‒ acting as a formation agent of legal persons
‒ acting as (or arranging for another person to act as) a director or
‒ secretary of a company, a partner of a partnership, or a similar
‒ position in relation to other legal persons
‒ providing a registered office; business address or accommodation,
‒ correspondence or administrative address for a company, a
‒ partnership or any other legal person or arrangement
‒ acting as (or arranging for another person to act as) a trustee of an
‒ express trust or performing the equivalent function for another
‒ form of legal arrangement
‒ acting as (or arranging for another person to act as) a nominee
‒ shareholder for another person.

Politically Exposed Persons (PEPs)

Foreign PEPs are individuals who are or have been entrusted with prominent
public functions by a foreign country, for example Heads of State or of government,
senior politicians, senior government, judicial or military officials, senior
executives of state owned corporations, important political party officials.
Domestic PEPs are individuals who are or have been entrusted domestically with
prominent public functions, for example Heads of State or of government, senior
politicians, senior government, judicial or military officials, senior executives of
state owned corporations, important political party officials. Persons who are or
have been entrusted with a prominent function by an international organisation
refers to members of senior management, i.e. directors, deputy directors and
members of the board or equivalent functions.
The definition of PEPs is not intended to cover middle ranking or more junior
individuals in the foregoing categories.
Supervisors
Supervisors refers to the designated competent authorities or non-public bodies
with responsibilities aimed at ensuring compliance by financial institutions
(“financial supervisors”) and/or DNFBPs with requirements to combat money
laundering and terrorist financing. Non-public bodies (which could include certain
types of SRBs) should have the power to supervise and sanction financial
institutions or DNFBPs in relation to the AML/CFT requirements. These non-public
bodies should also be empowered by law to exercise the functions they perform,
and be supervised by a competent authority in relation to such functions.

© FATF/OECD 2022
GUIDANCE FOR A RISK-BASED APPROACH
REAL ESTATE SECTOR
Real estate is a popular choice for investment, but it also attracts criminals who use real
estate to assist in their illicit activities or to launder their criminal profits. The real estate
sector needs to effectively implement measures to detect and prevent money laundering
and terrorist financing. This guidance provides real estate professionals, supervisors,
regulators and policy-makers with strategies and tools towards a more effective anti-money
laundering and counter-terrorist financing system.

www.fatf-gafi.org | July 2022

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