According to the Real Academia de la Lengua Española or RAE (Royal Academy of the Spanish Language), “risk” is the contingency or proximity of damage. It could also be defined as a measure of the magnitude of damage in a given situation. In the area of Prevention of Money Laundering and Terrorist Financing (PLAFT), risk is the possibility of loss or damage suffered by an entity due to its exposure to being used as an instrument to launder assets or as a channel of resources to promote terrorist activities.
In the particular case of construction companies and real estate agents, their use for money laundering activities is very frequent, as investing illicit funds for the purchase of real estate is a classic method of pretending to give a legitimate appearance to dirty money. Considering that each construction company and/or real estate agent is different, it is important that a risk analysis is carried out to identify where there is greater exposure and thus apply the correct measures to mitigate them.
The Financial Action Task Force (FATF), as the intergovernmental body that sets guidelines for the prevention of money laundering worldwide, has issued guidance on the risk-based approach for Real Estate Developers and Agents. The risk-based approach consists of identifying, assessing and understanding the risks of money laundering/terrorist financing and taking action, including designating an authority or mechanism to coordinate actions to assess the risks, and applying targeted resources to ensure that they are effectively mitigated . In the particular case of the real estate sector, identification and verification of the identity of customers is indispensable as a basis for a proper risk-based approach, and all appropriate measures should always be taken to reach the ultimate beneficiary of the transaction.
Likewise, FATF establishes the risk criteria that construction companies and real estate agents should consider when designing a plan for the Prevention of Money Laundering and Terrorist Financing (PLAFT). The following are some of the factors indicated, considering that these are not limitative and should be adapted to the particularities of each company in the sector in question:
- Countries involved in the operation: Each country represents a different level of risk due to factors such as criminality, corruption, international reputation, among others.
- Customer behaviour: This includes the customer’s motivations for doing the transaction.
- Significant and unexplained distance from the client and the builder or real estate agent.
- Identification of the final beneficiary of the operation
- The method of communication between the client and the Builder or Estate Agent.
- If the client is a Politically Exposed Person (PEP).
- Customer payments: In this case, the customer’s payment frequency, payments with unexplained changes in value should be taken into account.
- The number of properties involved.
- Introduction of unknown parties at a late stage of transactions, for no apparent reason.
In my experience as a Compliance Officer in the real estate sector, I have seen that implementing a compliance programme appropriate to the structure of the business and having a committed management are the two most important aspects not only to comply with the obligations imposed by the Law on this sector, but also to efficiently manage the risk of Money Laundering. The commitment of senior management facilitates the role of the Compliance Officer and motivates the rest of the team to be alert and able to report any unusual behaviour that may occur in the company.
Finally, it is very important that real estate companies and professionals who have not taken steps to comply with their obligations in light of Law No. 155-17 seek expert advice that can assist them in the implementation of a compliance programme appropriate to the particularities of their business.
By Iris Villafaña
Lawyer of the Business Division
