Increased AML Risks In The Real Estate Sector

With the current period of health pandemic due to Covid-19, many sectors such as shops, small and medium-sized enterprises have suffered great economic losses since about a year ago, which has unfortunately led to the unpleasant consequences for them of entering bankruptcy or the permanent closure of the company.

Also, the criminal organizations, singular and own that operate in the single States have suffered important economic losses, for example, the Italian criminal organizations, like the Ndragheta, Camorra, etc…, because of the limits of circulation and to the frequent police controls carried out with greater intensity, control measures disposed of the previous waves of lockdown. A criminal business that has economically lost a lot in pre-covid19 times could get their earnings in a month even to hundreds of thousands of euros through illegal activities such as international drug trafficking, prostitution, child trafficking, etc.

According to economists, a particular period like this one where markets are still skeptical mainly due to the lack of confidence in new investments and slow economic recovery (although in less than a year, they have already compensated for the economic and financial losses of March 2020), this has meant almost automatically that some business categories such as logistics, energy services, e-commerce, health care and pharmaceuticals have instead increased their gains. With the issuance of vaccines to combat the pandemic, the international market is beginning to see hopeful signs of a recovery in the coming months.

In particular, thanks to this reopening, the financial police authorities (such as the national FIUs, the FATF-FAFT, and the FinCen) constantly monitor all those sectors where there could be dangers and risks of conduct aimed at generating illicit flows of money. The real estate sector is one of those sectors under observation since productivity growth has been seen, made possible, above all, thanks to the very low-interest rates and to the greater issuance of economic liquidity by the Central Banks, measures necessary to face the current pandemic. Thanks to these two advantages, buying a new house more easily and at a lower cost than in the pre-covid19 period became possible.


AML Risk in Real Estate Sector

The anti-money laundering function that constantly monitors by means of indicators of anomaly, which business activities considered fragile for possible criminal infiltration, can be subjected to a risk of instrumental use of cash and money to carry out conducts of abnormal transfer or placement in the internal and external market of illicit proceeds, not only also, but also to the avoidance or evasion of taxes and fees provided by the States, for the purchase of a house. In fact, with the purchase of a home, the contract of sale provides that the seller will sell the property and the buyer will pay a certain amount previously agreed. The professional, the real estate agent, in addition to dealing with the practices inherent in the transfer of the property, performs as a recipient of anti-money laundering obligations, a whole series of operations governed by domestic and international AML regulations such as verification regarding the identification of the holders of the transaction/transfer, the existence of the object of transfer, ascertains the purpose of the sale and purchase and proves the lawful origin of the amount paid by the buyer.

The real estate agent is not the only one and the only subject required to AML obligations; in fact, during a real estate sale, there are other subjects also responsible for the fulfillment of anti-money laundering procedures, for example, the professional category of notaries, the bank employee who authorizes the transfer. When proceeding with the checks, the real estate agent must also take into account what may be relevant, for example, to know the willingness of the buyer after the sale, make sure not only the correct procedure of the transfer of the sum of money but also take into account the possibility that the buyer may not only pay with money from illicit but that the property may be resold at a later time to a new buyer, so as to “clean up” and conceal the money previously used for the purchase of the previous property.

Equally serious, if it occurs, is the fact that the property is purchased without paying the tax and fiscal obligations connected with the transfer of the property from the seller to the buyer. In some jurisdictions, to counter this practice, to ensure the actual payment of taxes, real estate agents are declared by the tax authorities as tax substitutes, i.e., subjects delegated by the State to collect on their behalf a fixed percentage of the total amount generated by the sale. The quantity that will then be paid to the Treasury, so doing the real estate agent replaces the taxpayer.

There is also the initiative, which has been dominating the international market scenarios for some time now, to be able to buy a house with the Blockchain electronic money transfer system, specifically using cryptocurrencies in Bitcoin. The first case dates back to the purchase of a property in 2017, in Essex in the UK. Subsequent to this fact, this practice has gradually become more widespread.

There is no specific article of law that in commercial or contractual matters peremptorily denies or declares the impossibility of selling and buying an asset in bitcoin, but rather the current legislative indications refer to the necessary presence, under penalty of nullity, of a bilateral contractual agreement prior consent of the parties in favor of the transfer. The financial nature of the two objects of exchange is very different, with very different principles and methods of investment. By culture and tradition, the house is an asset of refuge, stability, and protection; it clashes with the dizzying rhythms, ups and downs that we have recently seen on Bitcoin. However, the interests and issues surrounding the combination of Bitcoin and home are expanding. The current financial risks related to the “high unpredictability” do not allow, however, to generate a collective interest; this is due precisely to a lack and deep knowledge of the use of the guarantees produced by Cryptocurrencies such as Bitcoin.


Written by Dimitri Barberini, published on Sanctions Scanner

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