Key AML Red Flags Associated with Real Estate Sector Businesses

Criminals use a wide variety of techniques to exploit the real estate sector for money laundering and financing of terrorism. The techniques used keeps on evolving and, in many cases, such methods are specific to the characteristics of a given real estate market. Yet, an AML Compliance Officer can observe a set of common AML red flags before elevating a suspicious case to the UAE Financial Intelligent Unit (UAE FIU) and enhance an organisation’s due diligence process and compliance framework.

The red flags list  (it’s not an exhaustive list, it’s an indicative list) indicates commonly used suspicious transactions which warrant appropriate due diligence but doest no mean the transaction involves ML/FT. AML Compliance Officers appointed by organisations can use the list to determine whether transactions are suspicious or not. Read on.

1. Possible Concealment of Real Beneficiary Owner 

In certain transactions, a customer may appear to be reluctant, unable or refuse to reveal certain information such as business activities, corporate history, source of wealth or funds, name of real beneficiary owner etc. Some customers may not have a clear answer to questions such as why they are conducting their activities in a certain manner, who they are transacting with or the exact nature of their business dealings with third parties outside the UAE. These are suspicious transactions that warrant a strict due diligence process.

2. Customer Makes Unusual Requests 

An AML Compliance Officer should consider it a suspicious transaction if a customer insists on the use of an intermediary in all professional and informal interactions without adequate justification. It’s a red alert if the customer eschews personal contact without a proper justification. Furthermore, due diligence should be enhanced if,

The customer is a foreign national without adequate dealings in the UAE or lacks any clear real estate transaction in the country

  1. Refuses to cooperate or provide the requisite information, data, and documents
  2. The customer makes unusual requests related to the real estate agency, brokerage, or its employees

3. Suspicious Nature of Customer 

The risk of money laundering becomes higher if the customer is either a politically exposed person or is connected with a person who is politically exposed. This connection can be either professional or familial. The following are some of the red flags that are associated with the suspicious nature of the customer:

  1. The customer conducts a transaction that is incompatible with his socio-economic or educational or professional background
  2. The customer is a signatory to multiple company accounts without proper justification
  3. Customer is interested in foreign company formation in tax havens or jurisdiction that provides secrecy incentives without proper commercial justification
  4. Express unusual interest in helping the business arrangements of the other party to the transaction

4. A customer is a Legal Person or Legal Arrangement

When a customer is a legal person or a legal arrangement, look for the following AML red flags:

  1. Inability to demonstrate a history or provide evidence of real activity
  2. No presence on internet or social business network platforms such as LinkedIn
  3. Registered under a name that does not indicate the activity of the company
  4. Registered under a name that indicates activities different from those it claims to perform
  5. The registered name of the company is identical or similar to big multinational companies
  6. Email address uses public or non-professional domains such as Hotmail, Gmail, Yahoo, etc.
  7. The address doesn’t match the company’s profile or can’t be located using Google Maps or other reliable internet mapping services
  8. The registered address of the company is the same as the address of many of her companies, indicating the use of a mailbox service
  9. Unable to contact or locate directors or controlling shareholders
  10. Directors or controlling shareholders are representatives of other legal persons or arrangements, indicating the use of professional nominees
  11. The company has an unusually large number of beneficiaries and other controlling interests
  12. The company is incorporated in a jurisdiction known for high money laundering risk
  13. The jurisdiction of incorporation doesn’t require companies to report the real beneficiary owner to a central registry
  14. A complex legal structure that doesn’t make commercial sense

5. Unusual Transactions of Legal Person 

An AML Compliance Officer should be on alert against the legal person customer if it carries out an unusual number of transactions within a short period. Some customers may ask for shortcuts to facilitate quick transactions knowingly downplaying the inherent risks of such shortcuts. This kind of transaction requires enhanced due diligence. Some other related risky transactions are given below:

  1. A transaction that requires an introduction to financial institutions to help avail of banking facilities
  2. Deposits and payments made from multiple accounts or sources
  3. Using the assistance of multiple professionals for the same transactions in the same jurisdiction without a justifiable reason
  4. Furnishing forged records or fake documents
  5. The legal person is on the Sanctions List

6. The Means of Payment 

The means or methods of payment turn out to be an AML red flag in the following conditions:

  1. Payment made through cash or negotiable instruments that do not state the true payer such as bank drafts, cashier’s cheques etc.
  2. The payment is divided into smaller parts with a short interval in between
  3. Dubious validity of the documents submitted with loan applications
  4. The payment involves a loan already granted, an attempt to obtain a loan or cash collateral that is deposited abroad

Navigate the Red Flags with the Help of Jitendra Chartered Accountants

Money Laundering and Financing of Terrorism can be tough to counter in low-tax jurisdictions. However, the UAE has implemented tougher AML / CFT laws that come with stringer punishments for criminals. Even though money laundering techniques used by the criminals may change, adopting a common guideline of red flags will come in handy for AML compliance officers. To boost the fight against money laundering, DNFBPs such as real estate agencies can seek the advice of the best AML advisers in the UAE such as Jitendra Chartered Accountants (JCA). JCA can assist Real Estate Companies in the following ways:

  • Design and prepare a profile of Money Laundering Reporting Officer (MLRO)
  • Establish Customer Due Diligence Profile
  • Establish ongoing monitoring for customer transactions
  • Establish Suspicious Transaction Reports and reporting
  • Suggest the best AML-CFT software