According to the Spanish Language Royal Academy (Real Academia de la Lengua Española -RAE), ‘risk ' (riesgo) is the contingency or imminence of damage. It could also be defined as a measure of magnitude of the damages vis-à-vis a given situation. In the field of Prevention of Asset Laundering and Financing Terrorism (Prevención de Lavado de Activos y Financiamiento al Terrorismo - PLAFT), the risk consists of the possibility of loss or damage suffered by an entity due to its exposure to being used as an instrument for laundering assets and as a channel for funds to promote terrorist activities.
In the case of Real Estate Agents and Builders, they are frequently used for money laundering because investing funds for the purchase of real properties is a classical method for attempting to give dirty money a clean image. Because each Real Estate Agent and/or Builder is different, it is important to undertake an analysis of risk in order to identify where there is the greatest exposure and thus to apply the correct measures to mitigate it.
The international grupo de Acción Financiera Internacional - GAFI), as an intergovernmental agency that sets forth the applicable guidelines for the prevention of asset laundering throughout the world, published a guide on a risk factors for Real Estate Agents and Builders. The focus on risk consists of identifying, evaluating and comprehending the risks of asset laundering/financing of terrorism and thus taking action, including the designation of an authority or mechanism for coordinating actions for the evaluation of risks and applying resources towards ensuring that they are effectively mitigated. It is indispensable in the particular case of real estate to identify and verify the identity of the clients as the basis for applying the correct risk focus, at all times taking the necessary measures to get at the end beneficiary of the transaction.
In like manner, FATF establishes the risk criteria Real Estate Agents and Builders must consider upon designing a plan for the Prevention of Asset Laundering and Financing Terrorists (PLAFT). Below, some of the indicators, in the understanding that they are illustrative and must be adapted to the particular circumstances of each company in the sector in question:
- Countries involved in the operation: Each country represents a different risk level due to factors such as criminality, corruption, international reputation, and others.
- The behavior of the client: This includes the client’s reasons for conducting the operation.
- Significant and unexplained distance between the client and the real estate agent or builder.
- Identification of the end beneficiary of the operation.
- The method of communication between the client and the Real Estate Agent or Builder.
- If the client is a Politically Exposed Person (Persona Expuesta Políticamente - PEP).
- Client payments: In this case the frequency of client payments and unexplained changes in their value must be taken into account.
- The volume of properties involved.
- Introduction of unknown parties in a late stage of the transactions, with no apparent motive.
In my experience as Compliance Officer in the real estate sector, I have seen that implementing an adequate compliance program to the structure of the business and having the commitment of management, are the two most important aspects, not just for compliance with the obligations imposed by the Law in this sector, but also to efficiently deal with the risk of asset laundering. The commitment of top management facilitates the function of the Compliance Officer and motivates the rest of the term to be alert and to be able to convey any unusual behavior which may arise in the company.
Finally, it is extremely important for professional real estate companies which have not taken measures to comply with their obligations in the light of Law No. 155-17, to seek the counsel of experts to assist them in the implementation of a compliance program in keeping with the particular circumstances of their business.