International real estate agents could face ‘onerous’ anti-terrorism and money laundering regs

ICREA: Agents shouldn't have to do 'due diligence' on parties they don't represent

This article by OPP Connect editor Adrian Bishop is reposted with permission from OPP Connect.

Agents should not have to carry out due diligence on both buyers and sellers of a property transaction, and industry guidance should be altered to reflect this, argues a top trade body.

Money in need of laundering image via Shutterstock.
Money in need of laundering image via Shutterstock.

The International Consortium of Real Estate Associations (ICREA), a consortium of the world’s leading real estate associations that sets standards for international real estate practice, says “it is not reasonable to expect real estate agents to be in a position to conduct due diligence (including risk assessments) on individuals they barely encounter.”

The comment came as the Financial Action Task Force (FATF) — an intergovernmental body established in 1989 to combat money laundering and financing of terrorist groups — carries out a sector-by-sector review.

Updated guidance on how the real estate sector should act is expected to be discussed towards the end of the year or early in 2015.

ICREA, which represents the real estate sector on FATF, argues the current risk-based approach guidance and customer due diligence on both sides of property transaction are “onerous” and has called for a change in the methodology and the guidance issued to real estate agents.

ICREA CEO Thijs Stoffer tells OPP Connect, “ICREA has worked intensively to mitigate onerous effects in the current guidance for the real estate sector. As a result of redefined FATF Recommendations, these guidances for the various sectors are currently being updated and altered.

It is not reasonable to expect real estate agents to be in a position to conduct due diligence on individuals they barely encounter."

“FATF is currently working on drafting guidance for various sectors one by one, and real estate agency will follow by the end of this year/early next year. The guidances are extremely important, because national regulators base their national regulation on them.”

FAFT’s Private Sector Consultative Forum met in March to discuss implementation of the recommended anti-money laundering and counterterrorist financing measures and to seek input and feedback into its work. Stoffer and ICREA Regulatory Director David Salvatore attended.

In a follow-up letter, ICREA reiterated its concerns over the recommendation that real estate agents conduct customer due diligence on both sides of a property transaction and argues that other sectors simply have to carry out due diligence for clients for whom they have a contractual or fiduciary responsibility.

The group said, “There is an expectation with a risk-based approach for a reporting entity to ‘identify, assess and understand the money laundering/terrorist financing risks to which they are exposed and take anti-money laundering and counterfinancing of terrorism measures commensurate to those risks in order to mitigate them effectively.’ “

“What needs to be clarified in this definition is what a given reporting sector can reasonably be expected to know about their client. While money laundering and terrorist financing occurs, the ability to detect wrongdoing in a transaction varies by sector and is limited by the evidence that is both directly apparent and can reasonably be obtained.”

“It is worth highlighting that a future review will be an opportunity to resolve onerous requirements on the real estate sector. As we have pointed out, it requires agents to conduct customer due diligence (CDD) on both sides of a property transaction. This is unique to real estate, as CDD in every other sector is limited to their own clients for whom they have a contractual or fiduciary responsibility.”

Implementing the requirements is particularly challenging for smaller businesses with few resources. It is also concerning that when governments provide access to information needed meet the obligations, including sanctions and terrorist lists, they come in formats that are time-consuming and difficult to implement, argues ICREA.

ICREA supports the role the Private Sector Consultative Forum plays in fostering effective implementation of the FATF recommendations.

For more details, see the ICREA website at: www.worldproperties.com.

The National Association of Realtors has published voluntary anti-money laundering guidelines to help U.S. Realtors be aware of their responsibilities under the law and to recognize signs of suspicious activity.


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