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FATF updates its risk-based approach for the real estate industry

The Financial Action Task Force warned the real estate sector to take "appropriate measures to adequately mitigate" risks in its recently released revised risk-based approach guidance.

Real estate is a well-liked investment, but it also draws criminals who use it for their illegal activities or to hide their illicit gains, according to FATF.

The FATF warns that real estate money laundering has a negative impact on society and "undermines the rule of law" because it enables criminal networks to "thrive and grow using the profits of their illegal activities."

The watchdog also issued a warning, noting that these actions "drive up the price of real estate," making housing unaffordable for some people, and further encouraging criminal activity.

The revised risk-based approach guidance emphasizes the "importance for the sector to increase its understanding of the money laundering and terrorist financing risks it faces," according to the body's assessment, which shows the real estate sector frequently has a "poor understanding" of the risks and "regularly fails to mitigate them."

The purchase of opulent real estate, the use of virtual assets, the use of anonymous companies and gatekeepers as tools to launder illicit funds are just a few of the vulnerabilities identified.

According to the FATF, the real estate industry should implement "appropriate measures" to reduce these risks, such as effective customer due diligence procedures that give customers access to details about the true beneficial owners of a real estate transaction.

The watchdog stated that supervisory authorities must "increase their understanding of risks that the real estate sector faces and ensure that they are adequately addressed" through "training, outreach sessions and regular supervisory efforts."

According to FATF, "should work together to prevent criminals from abusing the real estate sector and market, including through cross-border cooperation and action."

In March and April of this year, the body held a public consultation period regarding its draft risk-based approach guidance. During that time, stakeholders were invited to "comment and additional input" to the draft in accordance with their expertise and professional insights.

13 private sector representatives, including those from the legal profession, fintech providers, and the non-profit organization sector, submitted comments to the FATF.

The majority of remarks and suggestions centered on the need for "greater clarity" regarding the relevance of the real estate sector and DNFBPs, the "further harmonisation" of AML/CFT requirements, and the calls for a "de facto" and more efficient implementation of the FATF risk-based approach.

Stakeholders demanded that FATF recommendations have a "greater reach," especially when it came to applying R22 and R23 to broader real estate activities like "property development, leasing, and others" that are not currently specifically addressed by the standards.


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