The Role of Real Estate Agents in Combating Money Laundering

1.   Introduction

1.1    Section 8 of the Money Laundering and Proceeds of Crime Act [Chapter 9.24] (MLPC Act) defines money laundering as “any act which seeks to disguise and/or conceal the true nature, source, location, movement or ownership of or rights with respect to property, knowing or suspecting that such property is the proceeds of crime, commits an offence”. The definition also covers the acts of acquiring, use or possession of property when one knows or suspects that such property is the proceeds of crime.

1.2    Additionally, the act of participation in, or associating with or conspiracy to commit, an attempt to commit, and aiding, abetting, facilitating and counselling the commission of any of the above listed offences amounts to a money laundering offence.

1.3    In simple terms, money laundering is the process of making money or assets from illegal activities appear legitimate. Real estate agents can be used by criminals as they attempt to launder their illegally acquired wealth through the purchase or disposal of real estate. It is therefore important for real estate agents to be fully acquainted with their responsibility of deterring, detecting and reporting financial crimes and activities linked to money laundering.

2.   International/Regional and local AML framework

2.1    Globally, the Financial Action Taskforce (FATF) is the responsible body for the regulation of anti-money laundering (AML). FATF is an intergovernmental body which crafts the international standards which all member nations should adopt and embed into their AML legal framework. Countries are members of the FATF directly or through FATF-Style Regional Bodies.

2.2    At a regional level, the fight against money laundering and terrorist financing is led by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), which serves as a Financial Action Task Force-Style Regional Body (FSRB). As a member of ESAAMLG, Zimbabwe aligns its AML measures with FATF standards, benefitting from regional collaboration and peer support for the effective implementation of FATF Recommendations. The body operates as an extension of the FATF dispatching duties such as AML awareness creation, conducting mutual evaluations, and providing member nations with AML related assistance among other activities. FATF created 40 recommendations which collectively provide a basis for fighting money laundering and terrorist financing.

2.3    In Zimbabwe, the Financial Intelligence Unit (FIU) coordinates the AML regime. FIU is largely responsible for the collection of information, the analysis and the assessment of that collected information and ultimately its dissemination to the law enforcement, prosecutorial, other competent authorities and foreign FIUs.

2.4    The FIU monitors and ensures compliance with the MLPC Act by competent supervisory authorities, self-regulating bodies, financial institutions and designated non-financial businesses and professions.

3.     Why are real estate professionals designated to comply with AML regulations?

3.1    Estate agents are subject to the MLPC Act, along with AML measures, as they act as "gatekeepers" to the financial system. Given the nature of their transactions and advisory roles, real estate agents are at a higher risk of encountering money laundering activities or dealing with illicit funds associated with money laundering.

3.2    In some instances, money launderers may seek assistance from real estate professionals, who may sometimes not be aware of the criminal activities involved. Real estate agents can be exploited to launder money, for example, by facilitating transactions that involve the purchase or sale of properties involving illicit funds or by structuring deals to obscure the true ownership of properties.

3.3    Given their integral role in the business world, it is widely recognized that real estate agents can contribute significantly to AML efforts. Therefore, it is critical for both registered estate agents and their employees to be well-versed in the risks and crimes associated with money laundering, and to understand their responsibility to report any suspicious or confirmed cases of these activities to the Financial Intelligence Unit.

3.4    Real estate agents also have a responsibility to combat terrorist financing and countering proliferation financing, although the latter is typically limited to enforcing United Nations Security Council Resolutions targeted financial sanctions related to terrorist financing and proliferation financing.

4.   The process of money laundering

4.1    Money laundering is the process of hiding the proceeds of illegal activity and disassociating them from the underlying crime. This process involves the placement, layering, and integration of illicit proceeds. However, some criminal networks deploy complex processes that go beyond these three (3) stages of money laundering.

 Placement 

4.2    In the real estate sector, placement may involve introducing illicit funds through various transactions facilitated by real estate professionals. For instance, a client might engage a real estate agent to facilitate the purchase of multiple properties. Alternatively, the agent could assist the client in using illicit funds to acquire high-value properties, which can then be sold or rented to obscure the origin of the money.

Layering

4.3    In the real estate sector, layering may involve creating intricate transactions that obscure the origin of illicit funds. For example, a real estate professional could facilitate a series of sales or leases to further distance the funds from their illegal origin. Additionally, funds might be channelled through various real estate transactions, such as inflated property values or complex leasing arrangements, often in jurisdictions with lax anti-money laundering regulations. In some instances, these transactions might be misrepresented as legitimate payments for real estate services or property management.

Integration

4.4    This involves the reintegration of illicit funds into the legitimate economy. Real estate professionals may assist clients in channelling these funds into property development and estate acquisition. Additionally, they might facilitate investments in other property-related assets. These transactions appear lawful, they enable illicit funds to circulate as legal income.

5.    Services in scope for AML supervision

5.1    The Money Laundering and Proceeds of Crime Act designated estate agents for AML supervision due to the service they offer of buying and selling of real estate.

6.   Obligations of the estate agents

Identifying, assessing and understanding money laundering risks

6.1    Section 12B of the Money Laundering and Proceeds of Crime Act requires real estate agents to implement a risk-based approach to mitigate money laundering risks associated with their activities. This means that real estate agents must identify, assess, and understand the money laundering risks to which they are exposed, and effectively mitigate them. Implementation of most of the AML requirements under the Money Laundering and Proceeds of Crime Act starts with an assessment and understanding of the money laundering risks to which the institution or business/profession is exposed.

6.2    A well-structured risk assessment delivers critical insights into a real estate agent’s risk tolerance concerning AML, guiding a risk-based approach to prioritize and allocate controls and resources effectively. For real estate agents, this means avoiding excessive controls in low-risk areas and instead focusing on reinforcing safeguards where risk is most significant, ensuring compliance and efficiency. A thorough risk assessment is also essential in pinpointing clients, transactions, and geographic locations that might be particularly vulnerable to ML risks. This enables firms to apply tailored action plans and controls that match the specific level of risk present.

6.3    Real estate agents are expected to apply enhanced due diligence measures on customers and situations that present higher money laundering risks. Some of the enhanced due diligence measures include subjecting higher risk customers to source of funds and wealth checks.

6.4    To meet regulatory expectations and safeguard against ML threats, real estate agents should incorporate several essential components into their risk assessment, ensuring it is both comprehensive and aligned with regulatory standards, strengthening the firm’s defence against financial crime.

6.5    There is no one size fits all in relation to implementation of AML requirements. The extent to which a real estate agent implements AML obligations is determined by the outcome of the institutional ML risk assessment mentioned above.

Registration on the goAML platform

6.6    Real estate agents are required to be registered on the Financial Intelligence Unit’s goAML system. GoAML is a secure platform used by the Financial Intelligence Unit to receive cash threshold reports and suspicious transaction reports from designated reporting entities that include real estate agents.

Internal programs to combat money laundering

6.7    Real estate agents are required to have in place an AML compliance programme, which must be continuously reviewed and developed to respond to the evolving ML risks. Section 25 of the Money Laundering and Proceeds of Crime Act sets out and prescribes a set of requirements that are recognized as the key pillars of an AML/CFT Compliance Program. Real estate agents as part of the designated institutions are required to have the following in place:

1. Internal procedures, partnership or board approved policies, and controls to fulfill the requirements of the Money Laundering and Proceeds of Crime Act;
2. Appointment of a compliance officer, at the senior management level, who is responsible for day-to-day AML compliance;
3. AML training program for staff;
4. Screening of employees to ensure high standards when hiring employees; and
5. Independent audit to review and verify the effectiveness of the measures in place to comply with the requirements of the Money Laundering and Proceeds of Crime Act.

Customer due diligence

6.8    Sections 15 to 23 of the Money Laundering and Proceeds of Crime Act speaks to the issue of customer due diligence. In the same vein, real estate agents are required to identify and verify the identity of their customers and beneficial owners, understand the nature of the customer's business, and conduct risk assessments to determine the level of customer due diligence (CDD) required. The purpose of CDD is to know and understand a customer’s identity and business activities and use this knowledge and understanding to assess the risk that the client might be involved in money laundering or seek to use the estate agents to assist them in this activity.

Reporting of suspicious transactions

6.9    Real estate agents and other designated non-financial businesses and professions are required, in terms of section 30 of the Money Laundering and Proceeds of Crime Act to report suspicious transactions to the Financial Intelligence Unit, promptly but in any case, not later than three (3) working days from the time when the suspicion arises. A suspicious transaction includes an attempted transaction, that is, where the transaction was not completed, but was nevertheless suspicious.

Submission of cash transactions reports

6.10    Financial institutions and designated non-financial businesses and professions which include real estate agents are required to submit cash transactions reports (CTR) for transactions amounting to USD5,000 or more on or before the 10th of every month. In cases where the real estate agents did not conduct business involving cash transactions amounting to USD5,000 or more, they are required to report nil returns on or before the 10th of every month.

Record keeping

6.11    Real estate professionals must maintain comprehensive records of client identification, due diligence measures, and transaction history for a minimum period of five (5) years, from the last transaction date.  This requirement is set out in section 24 of the section 24 of the Money Laundering and Proceeds of Crime Act.

7.     Implications of non-compliance     

7.1    Non-compliance with Anti-Money Laundering regulations poses significant risks and consequences for individuals, organizations and the country at large. As financial systems become increasingly interconnected, the importance of adhering to these regulatory frameworks cannot be overstated.

7.2    The Money Laundering and Proceeds of Crime Act together with several directives issued by the FIU from time to time have provisions for criminal and civil penalties that are enforceable against the financial institution or designated non-financial businesses and professions or against any of its employees, directors or agents, or against both the institution/business and the responsible individuals.

7.3    The Money Laundering and Proceeds of Crime Act spells out the administrative penalties that are enforceable by the FIU under section 5. Under this provision, the FIU can, among other enforcement measures impose a financial penalty against the institution/business or any of its employees, directors or agents; and/or order the removal of any employee, director, or shareholder; and / or require the designated non-financial businesses and professions to take specified remedial action.

7.4    In Zimbabwe, AML supervision of real estate agents is jointly conducted by the FIU and Estate Agents Council (EAC).

8.      Conclusion

8.1    In conclusion, real estate agents play a crucial role in maintaining the integrity of financial systems, particularly as gatekeepers in the fight against money laundering and terrorist financing. Given their access to sensitive financial information and their involvement in complex property transactions, real estate professionals are uniquely positioned to detect and mitigate financial crimes. However, this also makes them vulnerable to exploitation by criminals seeking to misuse the real estate market for illicit purposes.

8.2    To address these challenges, the profession must adopt a robust risk-based approach, ensuring that higher-risk clients and transactions receive greater scrutiny through enhanced due diligence measures. Continuous professional training, sectoral guidance, and adherence to evolving regulatory expectations are essential for estate agents to identify red flags and report suspicious activities effectively.