Real estate still poses a high risk of money laundering

(CNS): More than 40% of real estate developers and real estate agents selected last year by the Ministry of Commerce and Investment for inspection for their anti-money laundering processes were found to be non-compliant with the regulations. According to the DCI’s 2021 Monitoring Report and the 2021 National Risk Assessment, both of which have been made public, the local real estate sector remains highly vulnerable to both money laundering and terrorist financing abuse. , given the lack of restrictions on foreign ownership.

In May last year, The CNS reported the risk real estate development poses, creating a weak link in Cayman’s anti-money laundering regime. However, it appears from these latest reports that work is still needed to address the vulnerabilities.

Estate agents provide money launderers with the appearance of respectability and normality for large transactions, which hampers detection and investigation, according to the 2021 NRA report. Property here is a very high value commodity that is attractive for both money laundering and investment of the proceeds of crime. And there are a large number of transactions involving foreign buyers, which, according to risk assessment, are fertile ground for money laundering.

The real estate sector is seen here as even riskier than traders in precious stones and metals and jewelry stores, despite their inherent appeal to financial criminals given the high value and portability of assets. These dealers have mitigated their risk by sourcing inventory from reputable entities with GIA certificates and selling face-to-face to customers, primarily from cruise ships.

The DCI oversees traders in precious stones and metals as well as real estate agents and developers, collectively known as Designated Non-Financial Businesses and Professions (DNFBPs). Of the two categories, property dealers are at greater risk of abuse due to the more complex nature of their business.

Of DCI’s 60 inspections last year, only four involved jewelers; the rest was property related. Of these, only one entity was fully compliant with the rules and 22 were only partially or non-compliant. The report does not distinguish between the two categories, but given the dominance of the real estate sector in the reviews, it appears that the failures documented by the DCI were largely due to real estate agents or developers.

On the long list of verified compliance requirements, 23 entities failed to properly collect and maintain customer due diligence records, 46 failed to conduct an independent audit of their systems, 18 did not did not have effective staff training, 22 had no or deficient policies to screen new workers, 12 could not screen customers against sanction lists and 19 had no monitoring system in place against potential financial abuse.

“Inspection teams continue to find deficiencies,” the DCI found, the most significant being the lack of procedures for training new employees and conducting independent audits. They also found that in several cases, no one in the organization was responsible. for the prevention of money laundering. Although things have improved since 2019, the DCI said, “Non-compliant filers remain a concern and plans for improvement have been implemented.”

According to the NRA report, 164 real estate developers and real estate agents are classified as DNFBPs. The report concluded that Cayman’s real estate sector is vulnerable to abuse as exposure to international influences is significant.

“The appeal of Cayman Islands real estate to international high and ultra-high net worth buyers and investors for development is particularly notable, given the risk that the local market could be abused by foreign criminal elements,” indicates the report. .

“It is not uncommon for an agent to be used and for the beneficial owner to be added to the sale and purchase agreement at the last minute,” the authors said and explained how buyers can make a purchase on behalf of a trust. “This presents difficulties in identifying the true beneficial owner or effective controller of the client,” they said.

See the reports below: