FATF issues guidance on real estate AML risks

FATF's assessments show that the real estate sector often has ‘a poor level of understanding’ of these risks and fails to mitigate them. Vulnerabilities include exploitation by politically exposed persons, the purchase of luxury real estate, the use of virtual assets, the use of anonymous companies and gatekeepers as instruments to launder the proceeds of crime.

The organisation noted in 2021 that money laundering through real estate was continuing to be well-documented by its member jurisdictions and determined then to re-draft its guidance to meet the new challenges. Even agricultural and rural land are vulnerable to money laundering schemes, not just high-value residential property, it found. Commercial real estate is especially vulnerable 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.

The public consultation, which took place in March and April 2022, attracted feedback that broadly supported FATF's draft guidance on the issue. However, contributors called for need for greater clarity for real estate professionals as well as related professions such as lawyers, notaries and financial institutions. It also asked FATF to further harmonise its requirements so that the sector can operate with greater certainty in cross-border property transactions. There were also demands for more effective implementation of the risk-based approach. Some contributors asked for FATF's recommendations to be extended to cover activities such as property development, leasing and others, which are currently not directly targeted by the standards.

FATF says the ‘great majority of contributions were included as suggested and as long as within the scope of the existing obligations’.

Its revised guidance highlights the importance for the sector to increase its understanding of the money laundering and terrorist financing risks it faces. It includes advice on effective customer due-diligence measures, such as access to information about the true beneficial owners of a real estate transaction.

Sources

• FATF (consultation results)
• FATF (guidance, PDF)
• STEP International News 7 March 2022: FATF amends Recommendation 24 on beneficial ownership