Property developers come under money laundering scrutiny

As real estate developers attract increasing attention for the possibility of money laundering activities, there is an emerging difference of opinion on whether this segment of the real estate industry is covered in the existing anti-money laundering and countering the financing of terrorism or AML/CFT regime for the country.

Jamaica’s AML/CFT framework is largely contained in the Proceeds of Crime Act, POCA, and the Terrorism Prevention Act, TPA.

The body that polices Jamaica’s compliance with global AML/CFT regime, the Prime Contact Secretariat at the Bank of Jamaica, sees developers as being outside the regime and is calling for their inclusion. However, a leading official of the Real Estate Board, REB, that regulates developers and other property professionals, is of the view that developers already fall within the AML/CFT framework although the amended POCA and TPA laws do not name them specifically.

Speaking to what has been deemed as the emerging AML/CFT risks of real estate developers, Hope Wint, the executive director of the Prime Contact Secretariat, Jamaica’s point organisation for AML/CFT matters, noted that at 2019, some 286 real estate developers handled more than $47 billion of business, equivalent to about three per cent of GDP, with the payments structure being highly cash intensive.

“What makes it of even greater concern is that they are currently not subjected to AML/CFT laws. They are not designated under POCA or the TPA and so the exposure remains clear and present,” Wint said at a real estate webinar on Tuesday.

Providing an AML/CFT profile of the real estate sector, she said the industry is governed by a robust legislative framework, accounts for 1.8 per cent of GDP, is characterised by frequent face-to-face encounters between professionals and clients, with the players being mainly salaried individuals and overseas residents. The sector’s AML/CFT vulnerability is assessed to be medium.

Wint noted a pattern of under-reporting of transactions within the real estate industry, highlighting that attorneys, who figure prominently in property transactions, are also currently outside the AML/CFT framework.

“It is probably a legal argument to be examined and fleshed out, but it is my view that given that developers fall under our regime to be regulated and are already regulated based on the fact that the Real Estate Dealers and Developers Act, REDDA, recognises that we (the REB) are the competent authority for the industry,” Christopher Henry, the legal REB’s legal adviser, told the webinar during his presentation on changes to the AML Guidelines for the real estate sector.

He was also responding Wint’s call for developers to the brought under the AML/CFT regime. The webinar, hosted by the REB, was intended to update property professional on the AML requirements and status of the sector.

Already, the REB has updated its August 2019 AML/CFT guidelines to take into account amendments made to the POCA and TPA in November 2019, including the designation of the REB as regulator for the sector which includes property developers, as the competent authority for AML/CFT purposes.

“These changes have had a far-reaching effect and it was necessary for us to amend our guidelines to ensure that the industry was compliant with international treaties as well so that we would stop the threat of money laundering. The changes represent a new paradigm for the way that we do real estate business as described in the Real Estate Dealers and Developers Act,” the REB legal officer added.

With the legal changes, he noted, the REB can issue directives to any entity that it regulates and conduct inspections, among other measures.

With the insertion in the REB’s guidelines for property professionals of the board’s status as AML/CFT competent authority for the industry, the regulator is now required by law to keep statistical information property and property professional mandated to store transaction records for not less than seven years. Individuals and companies regulated by the REB are also required to report to the regulator any unusually large transactions and the REB, in turn, must report any suspicions of money laundering to the director of public prosecutions, who is designated as the enforcing authority.

The sector guidelines amendments also speak to the need for increased monitoring of customers in certain named countries and territories regarded as being high risk within the global AML/CFT regime and to the application of enhanced due diligence procedures regarding those customers. Property professionals have been cautioned to limit transactions with those customers.

“If we don’t do this we could be dealing with terrorists and the like and don’t know. I cannot overemphasise the need for background checks by members of our industry,” Henry said.

huntley.medley@gleanerjm.com