Real Estate Agents

In terms of subsection (h) of Designated Non-Finance Business in Section 33 of Financial Transactions Reporting Act No. 06 of 2006 (FTRA), real estate agents when they are involved in transactions for their clients in relation to the buying and selling of real estate, are required to comply with Anti Money Laundering and Countering the Financing of Terrorism (AML/CFT) measures. As per the Rule 2(b) of the Designated Non-Finance Business (Customer Due Diligence) Rules, No. 1 of 2018 (CDD Rules for DNFBPs) customer due diligence (CDD) measures should be carried out by real estate agents in prevention of Money Laundering and Terrorist Financing (ML/TF) activities.

 

What are the Legal Obligations for Real Estate Agents under AML/CFT?

 

  •  Appointing a Compliance Officer (CO):

 

According to the Rule No. 41 of the CDD Rules for DNFBPs, real estate agents are required to appoint a senior management level officer as the CO to deal with AML/CFT related matters in your entity. The appointment of CO is required to be informed to the Director, FIU using 'CO Declaration Form’.

 

The duly filled CO Declaration Form should be submitted to the FIU;

 

Address The Director, Financial Intelligence Unit
Central Bank of Sri Lanka
No. 30, Janadhipathi Mawatha
Colombo 01
Email fiudnfbp@cbsl.lk and copy to theja@cbsl.lk 

 

  •  Assessing the Money Laundering and Terrorist Financing (ML/TF) Risk of the Real Estate Agents:

As per the Rule No. 6(a) of the CDD Rules for DNFBPs real estate agents have to conduct an assessment on ML/TF risk of the entity based on the professional judgment, knowledge and expertise of the business management. Further, risk assessment of the entity should be done based on the types of customers, types of products, types of payment methods that the real estate agents are having and the geographical location.
Technical assistance to conduct ML/TF Risk Assessment of your entity could be obtained from FIU-SL. Please contact FIU-SL on 011 2398725.

 

  •  Having AML/CFT Policy and Procedures for Real Estate Agents:

Rule No. 6(g) of the CDD Rules for DNFBPs indicates the requirement to develop an AML/CFT Policy for the entity. Once ML/TF risk of the entity is assessed, it is required to establish a policy which includes procedures and controls to prevent, detect and manage the possible ML/TF risks.
Technical assistance to prepare the AML/CFT Policy for your entity could be obtained from FIU-SL. Please contact FIU-SL on 011 2398725.

 

  •  Conducting Customer Due Diligence (CDD):

In terms of Part II of the CDD Rules for DNFBPs, real estate agents when involved in transactions for their customers/beneficial owners in relation to the buying and selling of real estate, are required to conduct CDD measures.
The following minimum information should be collected to conduct CDD on a customer/beneficial owner;

 

  1. the full name;
  2. permanent residential or mailing address;
  3. occupation, name of employer, business or principal activity;
  4. an official personal identification number or any other identification document that bears a photograph of the customer or beneficial owner such as the national identity card, passport or driving license;
  5. date of birth;
  6. nationality;
  7. source of funds;
  8. purpose of transaction;
  9. telephone numbers (residence, office or mobile).

 

Once collected the above information, the identity of the customer should be verified. The real estate agents are required to verify the identity of the customer using reliable, independent source documents, data or information (10(a) of the CDD Rules for DNFBPs).
Further, information obtained on point (d) of the above should be verified by obtaining the relevant original document and a copy of the document should be taken.

 

  •  Customer Risk Profiling

According to the Rule No. 6(c) of the CDD Rules for DNFBPs, real estate agents are required to profile customers according to the risk level based on the collected information. In this customer risk profiling customer’s geographical location, products and services, transactions or delivery channel of a particular individual/corporate customer should be considered.
Technical assistance on customer risk profiling could be obtained from FIU-SL. Please contact FIU-SL on 011 2398725.

 

  •  Conducting Enhance Customer Due Diligence

According to Rule No. 16 of the CDD Rules for DNFBPs real estate agents are required to conduct Enhance Customer Due Diligence (ECDD) for high risk customers or high risk business relationships or transactions involved.


Eg: If a customer identified as a Politically Exposed Person (PEP) or having non-face-to-face business relationship with the customer or customer is profiled as a high risk customer then it is required to conduct ECDD for such customers.

 

Real estate agents should take following measures when conducting ECDD;

  • obtain additional information of the customer.
  • obtain approval from the senior management before establishing a business relationship with such customers (In the case of an existing customer, for continuing such business relationship with the customer).
  • obtain additional information on the intended nature of the business relationship.
  • regularly update the identification data of the customer/beneficial owner.
  • enquire and record the reasons for prospective or performed transaction.

 

  •  Screening against the United Nations Security Council Resolutions (UNSCR) lists:

Real estate agents are required to cross check customers’ or beneficial owners’ details against persons and entities designated by the UNSCR which have been issued in compliance with the United Nations Act, No. 45 of 1968, with respect to any designated list on targeted financial sanctions related to terrorism and terrorist financing and proliferation of weapons of mass destruction and its financing.

 

Click here for updated lists.

 

Technical Assistance on screening customers against the UNSCR lists could be obtained from FIU-SL. Please contact FIU-SL on 011 2398725.

 

  •  Reporting Suspicious Transactions (STRs)

As per the Section 7 of the FTRA, real estate agents are required to report any transaction(s) or attempted transaction(s) which has reasonable grounds to suspect that it may be related to the commission of any unlawful activity or any other criminal offence.

  • STR should report to FIU-SL as soon as practicable, after forming a suspicion or receiving the information, but no later than two working days of forming a suspicion.
  • STR could be submitted by way of mail, telephone which should be followed up in writing within twenty-four hours, fax or e-mail.
  • STR should be contained a statement of the grounds on which the real estate agent holds the suspicion and signed or authenticated by the real estate agent.
  • STRs should be submitted using Schedule V of the Suspicious Transactions (Format) Regulations of 2017 to report STRs. .

 

Whenever, forming a suspicion of ML/TF, and it reasonably believes that conducting the CDD measures would tip off the customer, it may proceed without conducting the CDD measures, but shall immediately file an STR.

 

  •  Other AML/CFT Measures

  • Training and Awareness Programmes: Real estate agents are required to provide training sessions regularly on AML/CFT compliance policies and procedures to the board of directors, senior management, employees, agents or any other individuals authorized to act on behalf of the entity. The compliance officer once appointed, is responsible on conducting regular AML/CFT trainings to other staff and employees.
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  • Employee Screening: Procedures should be adopted to screen employees before recruiting/hiring to make sure they are not connected to any activities relating to ML/TF.
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  • Independent Auditing: An independent audit should be carried out to ensure the AML/CFT functions within the entity.

 

  •  Raise the Red Flag

A set of possible suspicious indicators are as follows;

  • Customer procurements/purchases property in the name of a nominee such as a subordinate or a relative (other than a spouse), or in the name of minors or incapacitated persons or other persons who do not have the economic capacity to carry out such purchases.
  • Customer does not want to put their name on any document that would connect them with the property or submit different names on offer letters to purchase or closing documents and deposit receipts.
  • Customer tries to hide the identity of the beneficial owner or requests that the transaction be structured to hide the identity of the beneficiary.
  • Purchaser is a shell company and a representative of the company who does not like to disclose the identity of the beneficial owner.
  • Address given by customer is unknown, believed to be false, or simply a correspondence address.
  • Customer does not satisfactorily explain the last-minute substitution of the purchasing party’s name.
  • Customer pays substantial down payment in cash and balance is funded by an unusual source or offshore bank.
  • Customer purchases property without inspecting it. It realizes that the customer needs to fund for the property and not much worries about the location or any other characteristic of the property.
  • Customer purchases many properties in a short time period, and seems to have few concerns about the location, condition and anticipated repair costs, etc., of each property.
  • Customer is known to have paid large remodeling or home improvement invoices with cash, on a property for which property management services are provided.
  • Transaction does not match the business activity known to be carried out by the customer.
  • Transaction is entered at a value significantly different (much higher or much lower) from the real or market value of the property.
  • Property is sold in a series of successive transactions each time at a higher price between the same parties.
  • Buyer takes on a debt significantly higher than the value of the property.
  • Customer suddenly cancels/aborts transaction and requests refund either back to himself/herself/itself or to a third party.
  • Customer pays for the purchase entirely in cash (to include electronic funds transfers), especially when such a purchase is large or does not match the known profile of the customer, and especially when the purchase funds are transferred from an offshore jurisdiction.

 

  •  What Should You Know?

 

 Legislations relating to Real Estate Agents

 

  •  Other Publications

 

 

  •  Related Links

Condominium Management Authority (CMA):

 

Be Equipped

 

  •  Training Materials

 

 

  •  Need a Training on AML/CFT?

 

S P N S Senadheera Senior Assistant Director Tel : 011 2398766
E-mail: fiudnfbp@cbsl.lk

 

  •  Need More Information?

 

Mrs. T D S Pathberiya Senior Assistant Director/
Head of DNFBP Division
Tel : 011 2398726
E-mail: fiudnfbp@cbsl.lk

 

Special Notices

 

All Institutions engaged with FIU-Sri Lanka on Anti Money Laundering and Countering the Financing of Terrorism (AML/CFT) will be kept informed of any changes to the legislation or reporting procedures, trends, and other relevant developments.