Real Estate Agents: Common AML Compliance Mistakes To Avoid

The DIA are clear. They expect non-compliance or partial compliance found in an audit report to be considered and fixed by a reporting entity. As several common failures were noted across on-site inspections of real estate agencies, we can expect stronger enforcement to follow for this sector.

The key themes identified were:

1. Failure to properly maintain risk assessment and compliance programmes

These key documents shouldn’t be written, then filed away and forgotten. They should be living, breathing documents that are regularly updated. Legislation states they should be updated every two years but you should review your documents regularly (at least annually) so any changes in regulations, business activities, or customer base are accurately recorded.

Note: you should have updated your risk assessment and compliance programmes following the 1 June 2024 legislation updates.

2. Failure to conduct enhanced due diligence, or not doing it thoroughly enough to justify source of wealth, and/or source of funds

Carrying out standard due diligence on clients is an every-day activity for real estate entities, but it must be remembered that conducting enhanced due diligence (EDD) is also a critical activity for high-risk clients. To avoid non-compliance, you must correctly identify high risk clients and take appropriate measures to:

• obtain and verify your customer’s details, their representatives, other key persons, and details of their beneficial ownership structure;
• obtain and verify source of wealth and/or source of funds of your customer;
• obtain further information from the customer in relation to a transaction;
• examine the purpose of a transaction;
• conduct enhanced monitoring of a business relationship; and
• obtain senior management approval for transactions, or to continue the business relationship.

Note: as part of the 1 June 2024 legislation updates you must describe in your compliance programme when it is necessary to obtain and verify the source of funds, or source of wealth, or both for a customer.

3. Failure to keep sufficient records

There is no doubt that on any on-site review regulators will examine your key documents to ensure you have the necessary records to be able to understand the changing nature and purpose of your client relationships. The latest review of real estate agents was no different and the DIA found the information around Policy, Procedures and Controls, and details on how real estate entities react to the risk of different vendors lacking.

To ensure you don’t get caught out on the fundamental record keeping requirements ensure you keep comprehensive records on:

• Your customer and how you identified them.
• The beneficial owner and how you identified them.
• Any persons acting on behalf of your customer, and how you verified their identity.
• Your trustees.
• Source of wealth and source of funds.
• Nature of transactions.
• Company records and extracts.
• Documents showing how you have assessed and recorded risk.
• Reports of suspicious activities.
• Your independent audits.
• Your AML/CFT risk assessment and compliance programme updates and reviews.
• Transactions and ongoing monitoring of transactions.
• Any other records obtained in your business relationships.

4. Failure to write and submit suspicious activity reports

All entities, including real estate agents are required to monitor customers for suspicious transactions or activities. Recently a real estate company in Wellington, received a formal warning from the DIA for, among other breaches, failure to report suspicious activity on several of their listed properties.

To avoid a warning of your own, if you form a suspicion based on the monitoring of your customers and you reasonably believe your client is using you for unlawful purposes, file a suspicious activity report (SAR).

Ensure that once reasonable grounds for suspicion exist, you submit your SAR to the Financial Intelligence Unit (FIU) as soon as possible, but no later than three working days.

5. Failure to properly train staff and compliance officers

Without the right staff and training in place you’ll find it hard to implement and maintain an effective AML/CFT programme. To make it easier on yourself and to avoid non-compliance ensure you have regular training scheduled which is tailored to the specific roles within your business. For example, compliance officers may need more intensive training than agents.

Ensure staff in key roles have been vetted and you keep a record of all training and any staff vetting which has taken place.

While these failures may not be exclusive to the real estate industry it pays to take learnings from these identified issues and ensure you have these areas audit ready.

In light of the 2024 legislation updates it will also be important to ensure compliance activity and programmes have been amended and/or modified to take into account these changes. This will be an expectation of the regulators and there will be no excuses for failure to do this.