The global financial and economic system, as well as society at large, are threatened by the crimes of money laundering and financing terrorism. To combat money laundering, financing of terrorism and other national security risks, anti money laundering legislation was passed.
As per Article (15) of the AML Law No (20): “The Financial Institutions (FIs) and Designated Non-Financial Businesses and Professions (DNFBPs) shall, upon suspicion or if they have reasonable grounds to suspect a transaction or funds representing all or some proceeds, or suspicion of their relationship to the Crime or that they will be used regardless of their value, to notify the Unit in writing immediately or to provide the Unit with a detailed report including that transaction and the parties involved, and to provide the Unit with all relevant information regarding the transaction and the parties involved.”
Further, Cabinet decision No (10) of 2019 concerning the administrative regulations of Federal Decree-Law no. (20) of 2018 has been issued for complementation. Circular Number 05/2022 issued on June 25th of June 2022 specifically related to the real estate sector effective July 1st 2022.
DNFBP: Designated Non-Financial Businesses and Professions are entities carrying out trade or business activities which include:
- Auditors and accountants,
- Lawyers, notaries, and other legal professionals,
- Company and trust service providers,
- Dealers in Precious Metals and Stones,
- Real Estate agents and brokers,
- Any other DNFBPs not mentioned above.
Money laundering is defined by the AML-CFT Law as any of the following acts that are committed with knowledge that the proceeds are from a felony or a misdemeanour (i.e., a predicate offence):
• Transferring, transporting, or engaging in any other activity with the intent of hiding or masking their illegal source.
• Concealing or obscuring the true nature, source, or location of the proceeds, as well as how such monies were disposed of, moved, or who had ownership of or rights to such proceeds.
• Acquiring, possessing, or using proceeds upon receipt.
• Helping the person who committed the predicate crime to avoid punishment.
“Money laundering” refers to a wide range of procedures used to conceal illicit or “dirty” money. Profits from unlawful activities, such as the sale of illegal weapons, drug trafficking, prostitution, fraud, insider trading, theft, or tax evasion, are transferred and dealt with repeatedly until their illicit origin is hidden. The finances or assets look to be authentic or “clean” at that point.
The three stages of the money laundering process are typically followed. Bringing illicit profits into the financial system is the first step in money laundering, sometimes referred to as placement. Large sums of money are sometimes divided into smaller ones to accomplish this. They are then transferred into various bank accounts as cash, checks, or money orders.
The second stage, known as layering, starts after the money has entered the financial system. To separate the monies from their illicit source, several conversions or moves are made at this phase. The money may be transferred through the buying and selling of investments or by wire transfer through several different foreign bank accounts. This usage of dispersed accounts is particularly common in countries where anti money laundering investigations are not cooperative.
The money returns to the legitimate economy during the third stage, called integration. In the finances of trading companies, legal and illegal proceeds may be mixed. High-value commodities or assets may be picked by the launderer for purchase and eventual resale. Real estate, commercial enterprises, or goods like precious metals, diamonds, jewellery, vehicles, or antiques are some examples of these things.
The UAE has a stringent regulatory framework to prevent the use of the real estate sector for money laundering and terrorism financing. The foundation of this framework is laid by the Financial Action Task Force (FATF) recommendations, which are widely regarded as the international benchmarks for AML/CFT. The UAE has employed the Federal Law No. 20 of 2018 on Anti Money Laundering and Combating the Financing of Terrorism, along with the guidelines released by the UAE Central Bank, the Dubai Land Department, and other relevant authorities.
Customer Due Diligence is one of the crucial prerequisites for Anti Money Laundering compliance in the real estate industry (CDD). Real estate businesses must thoroughly investigate their clients to ascertain their names, sources of income, and other pertinent facts. This makes it less likely that real estate deals will be used to finance terrorism or launder money. Real estate agencies must also preserve records of the data and transactions involving their clients for a minimum of five years.
Two of the key elements of an efficient risk-based anti money laundering (AML) and combating the financing of terrorism (CFT) include the accurate identification and assessment of ML/FT risks, the implementation of reasonable and proportionate customer due-diligence measures, and the ongoing monitoring of customer relationships and transactions. It is not always feasible for real estate agents and brokers to continuously monitor the activities and transactions of their clients, however, because of the transactional nature of the real estate industry and the constrained roles that its actors play in many circumstances. Therefore, it is even more important for real estate agents in such circumstances to pay close attention to the efficacy of their CDD measures.
- First and foremost, real estate agents and brokers should make sure that they have a process in place for checking their clients’ names against sanctions lists (i.e., UAE Local Terrorist List and UN Consolidated List) and running background checks (like internet searches) on them to find out if they have any potentially negative information (such as associations with financial or other crime, or with politically exposed people) about them.
- The attempt to disguise beneficial ownership using third-party intermediaries, proxies, or legal structures or arrangements is a typical method employed in real estate-based ML/FT, and it can help to put some distance between the source of the illicit funds and the real estate transaction. These third-party intermediates could be members of the family, close friends, coworkers, attorneys, or other third parties. In this regard, real estate specialists should pay close attention to determining and confirming the name of the beneficial owner as well as, whenever possible, correlating their sources of finances through trustworthy independent sources.
As part of this verification procedure, real estate experts could ask for bank references or bank account details. The use of land registries, either domestic or foreign, as well as recommendations from other real estate agents or brokers, real estate regulatory bodies or industry associations, or financial institutions, among others, may be used in situations where the source of funds for a real estate transaction is income related to a prior real estate transaction (such as a transaction or a loan secured by another property.).
Further, as per the circular 5/2022, Real estate brokers and agents licensed in the United Arab Emirates are required to file Real Estate Activity Reports (REARs) in the goAML platform for purchase and sale transactions of Freehold real estate, according to the description and determination of the law of each emirate, in carrying out any single physical cash transaction or many purchases totaling at least AED 55,000 for all of the property’s worth or a portion of it.
Maintain records of all papers and data about the transactions for a minimum of five years. Note that submissions of REARs do not exempt you from your existing obligations to submit the other reports such as:
- Suspicious Transaction Report (STR);
- Suspicious Activity Report (SAR);
- Funds Freeze Report (FFR);
- Partial Name Match Report (PNMR);
- High-Risk Country Report (HRC); and
- High-Risk Country Activity Report (HRCA).
Reporting suspicious transactions is a vital part of AML compliance in the real estate industry. Any transactions that a real estate company suspects are connected to money laundering or terrorism funding must be reported to the appropriate authorities. To do this, reporting systems have been established by the UAE Central Bank and other pertinent institutions. Neglecting to disclose suspicious transactions can result in harsh punishments, such as fines and jail time.
The UAE has also put in place several additional safeguards to stop money laundering and the financing of terrorism in the real estate industry. For instance, the Dubai Land Department has launched a platform for the online registration of rental and leasing contracts called Ejari. This technology aids in making sure that all real estate transactions are transparent and have an audit trail.
The UAE has also created a Financial Intelligence Unit (FIU) to look into and stop financial crimes in addition to these measures. The FIU oversees collecting and examining reports of questionable transactions from numerous industries, including the real estate industry. Additionally, it works with other foreign FIUs to stop the financing of terrorism and international money laundering.
AML compliance is crucial for the UAE real estate market, to sum up. To prevent money laundering and the financing of terrorism in the real estate industry, the nation has put in place a strict regulatory structure based on international norms. These rules must be followed by real estate companies, including completing Customer Due Diligence (CDD) or Enhanced Due Diligence (EDD) in cases like customers from High-Risk Countries (HRCs) or Politically Exposed Persons (PEPs) and reporting suspicious transactions to the appropriate authorities. By doing this, they can ensure that the real estate industry isn’t used for illicit purposes and can make a sustainable and responsible contribution to the national economy.