How are you doing with AML?
Undoubtedly by now, you have a well-written risk assessment specific to you your industry and your compliance programme has been formulated from this.
Although in practice it is not all that easy, is it?
As experienced AML auditors, we have gained many insights on matters real estate professionals are finding tough.
I think it is key to put in simple terms what we are trying to achieve. Really it is just about Knowing Your Client (KYC), so you do not get caught with someone using you to launder illegal money.
How to do this:
If it is a complex structure, get a diagram of the ownership structure and make sure you perform CDD on the whole structure, including ultimate beneficial owners.
Source of Wealth – this is a tricky one, but there are ways real estate professionals can rely on other agencies who also perform CDD on the same client, namely, the entities accountant or lawyer.
However, you can only rely on this if they are:
- also, a New Zealand reporting entity which must comply with the AML/CFT Act or is based overseas and has similar obligations in a country with sufficient AML/CFT controls;
- already have a relationship with your customer and has carried out CDD to the required standard;
- can provide you with its CDD documents when you ask for them within a reasonable timeframe.
With this case, it may pay to agree with your vendor that you will request this information from the lawyer handling the sale.
Ensure you have vendor consent to a third-party lawyer/accountant providing all relevant CDD information to you. This may take pressure off your agents when they are trying to sign up a vendor. If there is a simple clause, the CDD will be collected from the conveyancing lawyer.
If you rely on another business, you are still legally responsible for ensuring the CDD meets the required standard. It does not mean you must recheck all information provided, but you have internal procedures to check the information provided from time to time.
Source of Wealth (SOW) or funds what do you need to collect?
When your real estate agency performs SOW procedures, how far you must verify the customer’s source of wealth or funds. The simple answer is it depends on the level of risks involved. Normally you should start from the overall understanding of SOW, and then if necessary, you should go deeper. There is some subjectivity with the approach; however, your conclusion should be supported by your Compliance Programme. Have a read of this and make sure you are following the steps documented in your programme.
The key here is documentation of procedures undertaken and conclusions. Quite simply, you need to have support for your decisions that can be provided in the future if required.
Politically Exposed People (PEP) checking
During our audits, we have noticed agents are not paying sufficient attention to this. Under section 26(1) of the AML/CFT Act, the Reporting Entity is required to take “reasonable steps” to determine whether your customer or any beneficial owner is a PEP. This is required as soon as is practicable after you have established a business relationship or undertaken an occasional transaction. This should be a risk-based approach and does not require you to undertake extensive checking of every customer – a simple open-source internet search may be enough for lower-risk customers. Bear in mind that “reasonable steps” does not mean “no steps”; even New Zealand Citizens and Passport holders may, for example, have family links or associations that make them a PEP.
We would like to stress the importance of PEP checks as a way of identifying PEPs and fostering a know your customer responsibility. The internet has a wealth of knowledge, and its ease of access should not deter staff from using these tools available. Some free resources can be used, such as KYC360, MemberCheck, WorldCheck, NameScan (free) or GreenID (fees apply), or Google Search and Sanctions lists/Politicians lists in the event, a client is considered high risk. The list of the sources provided is only for illustrative purpose.
In addition, it is vital to incorporate the risks of dealing with PEP into training for staff involved in AML matters.
If you would like further resources or to discuss any of the information provided above, please do not hesitate to contact the author Cynthia Forbes firstname.lastname@example.org.