New Money Laundering Regulations for Real Estate Sector

6 November 2017

The IMPIC estimates that new regulations for the sector will be ready by the end of the year. After that, it promises expanded training and oversight. The sector’s Achilles heel continues to be the development and sales of real estate.

Amendments to the new rules for the prevention of money laundering in the real estate sector should be ready by the end of the year, the IMPIC (Institute of Real Estate and Construction Public Markets) estimates. Until then, business operators should continue to use existing forms and follow the current guidelines.

An official source at the real estate regulator told Negócios that “it is analysing the legislative decrees and is currently reviewing its procedures and contents of the site, to adapt the regulations that were in force and that will remain in force until repealed.” Estimates suggest that the new regulations will be approved by the Governing Board “by the end of 2017″.

“What businesses need is help with compliance. (…) The last thing we need is to see regulated companies being penalised because they are subject to all these laws.”

Manuel Reis Campos – President of the Construction and Real Estate Confederation

This regulation is a kind of guide for business operators and will be accompanied by a risk model, which will allow each to adapt the rules to the size of their business and to the degree of risk of their operations (for further information, see “the real estate sector’s principal obligations”). At the same time, the IMPIC is updating its forms, to accommodate two of the law’s new requirements: one, to ensure that the periodic communication of real estate deals explicitly references the means of payment used; and, two, to include rentals above 2,500 euros.

Developments and purchases and sales: Achilles heel

The new rules to prevent money laundering must be applied to all types of real estate activities – from mediation to buying and selling, from leasing to development – but the regulator admits that it can only oversee a relatively small part. Contrary to the mediation and construction sectors, the development and purchase and sale of real estate are not under the regulatory purview of the IMPIC: they are obliged to register their activities, to comply with the regulations regarding the prevention of money laundering and to communicate relevant transactions, but since they do not depend on licensing, in practice they may operate without the IMPIC being aware of their existence.

“The IMPIC is planning to hold clarification sessions in the district capitals at the beginning of 2018. (…) Special attention will be given [at the inspection level] to control and identification.”

Fernando Oliveira Silva – President of the IMPIC, via official source

The problem has long been identified and, in Business, the regulator acknowledges that ignorance of the number of entities operating in these sectors lends “greater difficulty to the IMPIC’s activities, either in a preventive and pedagogical way or through supervision”, limiting its activities in the fight against money laundering and terrorist financing.

Money Laundering

The sector’s main obligations

As one of the sectors most prone to money laundering, real estate companies have long been required to follow a set of preventive procedures. These rules have now been substantially reinforced, with the IMPIC overseeing their implementation.

Reporting buying and sales transactions

Mediators, builders and real estate developers are already required to send IMPIC a semi-annual statement identifying each of the real estate transactions in which they participated. However, in the future, the scope of reporting will be extended, as will the level of detail. In addition to reporting transactions involving purchases and sales, leases with a monthly payment in excess of €2,500 will also be subject to disclosure. Whereas until now the means of payment had to be identified, in the future, “details of bank accounts used in the transactions” must be communicated to the IMPIC. This information will also be included in the deeds, with notaries and other entities certifying public instruments prevented from authorisation such contracts should the relevant information be absent. The IMPIC is changing its forms to include these changes.

Acceptance of cash payments

As “obligated entities” under rules designed to prevent money laundering, real estate sector companies cannot participate in transactions which involve payments more than 3,000 euros (or 1,000 euros if the person who receives the payment is a company) in cash – the law speaks of “refraining from celebrating or otherwise participating in any transactions” that violate this limit. That is, not only can they not receive their commission in cash, above the defined values, they cannot broker deals with these characteristics. Otherwise, the party will be guilty of double infringement: that of the money laundering decree and that of cash-dealing.

Reinforced identification and diligence duties

The rules for the prevention of money laundering already obliged the sector to a set of KYC (know your customer) procedures, to understand the purpose of the transaction, and identify the effective beneficiaries of the same, all to ensure that their purposes are legal. However, while until now these duties have been fulfilled in a formalistic way, with a large number of entities merely collecting data on the entities involved in the business, henceforth the law details what has to be done, ensure that the duties are correctly fulfilled – just as is the case with the baking system, information on the stakeholders, the purpose of the transaction, and the origin of the funds will be required. These obligations now also extend to leasing entities. Naturally, implementation will depend on the regulatory oversight. The IMPIC promises to pay particular attention to the duty of identification and control.

Appropriate internal control systems

Firms must employ a risk management model that can identify money laundering prevention vulnerabilities and will be required to implement internal control systems to ensure that risks are adequately addressed. In theory, none of this is new, but the law establishes the minimum requirements each company has to observe: how to monitor customers, what procedures to follow, training of employees and internal reporting guidelines, for example. The IMPIC will evaluate the necessary resources according to the size of companies and the transactions.

Original Story: Jornal de Negócios – Elisabete Miranda

Photo: Miguel Baltazar

Translation: Richard Turner