3.2.3 Key Considerations for the Real Estate Sector

Effective from 16/6/2021

Customers that are overall low-risk, and whose business is unrelated to the real estate sector, can nonetheless engage in high-risk transactions related to the sector. For example, a retired businesswoman who has been a customer of an LFI for twenty years may sell her luxury villa to a foreign PEP. In such cases, the CDD that has been performed on the customer may not be sufficient to manage the risk of this particular transaction, and LFIs may need to perform additional transactional due diligence. Transactional due diligence may also be necessary to comply with the requirements of Article 7.1 of AML-CFT Decision, which requires LFIs to audit transactions carried out throughout the business relationship to ensure that the transactions are consistent with the customer's risk profile.

Transactional due diligence should at least involve collecting additional information about the underlying activity and the customer's counterparty. Information that an LFI may request in the context of transactional due diligence on real estate transactions includes:

	•	Sufficient information about the property to support an assessment that the purchase/sale price is reasonable and generally consistent with values for similar properties. This may include its official valuation for property tax purposes (where one exists); cadastral maps for the area where the property is located; floor plans; photographs; and recent sales information for similar properties. Where the LFI is financing a purchase, or has previously financed the purchase of the same property, it likely has this information on hand already.
	•	Information about the customer's counterparty. Where the counterparty is an individual, this should include sufficient information to perform adverse media, sanctions and PEP screening. Adverse media searches should include searches of public records and databases using relevant key words, including but not limited to, allegation, fraud, corruption, laundering.
	•	Where the counterparty is a legal person, it should include the jurisdiction in which the counterparty is registered/headquartered; identifying information on the counterparty's beneficial owners and line of business.
	•	Information on source of funds and source of wealth. LFIs should be able to identify the source of funds for every large transaction related to the real estate sector. Where a transaction is financed, the source of funds will often be a bank loan, but for unfinanced transactions the determination may be more difficult. For high-risk customers or counterparties, such as PEPs, LFIs should also understand the source of overall wealth, in addition to the source of the specific funds used to purchase the property.