BY RONALD ZVENDIYA
Money laundering (ML) is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of criminal activities.
If successful, the criminal property can lose its criminal identity and appear legitimate, meaning that criminals can benefit from their crimes without the fear of being caught by tracing their money or assets back to a crime.
The threats of money laundering and the financing of terrorism and the proliferation of weapons of mass destruction have led financial sector regulators and financial institutions to strengthen their vigilance in support of the efforts of governments to counter these threats and to minimise the possibility that their jurisdictions or institutions becoming involved.
Effective enforcement of policies to deter money laundering, the financing of terrorism, and the proliferation of weapons of mass destruction, should, inter alia, enhance the integrity of the financial system and reduce incentives for the commission of a crime within the jurisdiction.
Experience has taught me that the threats of money laundering and the financing of terrorism extend beyond the traditional financial entities which have been receiving attention for control of these activities.
It is, therefore, necessary for certain designated non-financial businesses and professionals to be regulated to keep them safe from these nefarious activities and to protect the legitimate financial system from illegitimately acquired funds that could find their way into the financial system via these non-financial entities.
It is good news to note that Zimbabwe has been removed from the Financial Action Task Force (FATF) grey list.
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Thus, the country is no longer subject to the FATF’s increased monitoring process.
This came after the country received an on-site visit in January 2022, where the FATF team of experts confirmed that Zimbabwe has strengthened the effectiveness of its AML-CFT regime and addressed related technical deficiencies to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in October 2019.
However, Zimbabwe should continue to work with the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) to improve further its AML-CFT system, especially in non-financial sectors such as real estate.
The AML-CFT risk may emanate from the activities of real estate agents involved in transactions concerning the purchase or sale of real property.
Thus, real estate agents are gatekeepers that can provide access to the financial system.
They can allow illicit funds into the financial system, whether knowingly or not. This informs why it is necessary to regulate their activities for anti-money laundering purposes, although they are not financial institutions.
In addition, the real-estate sector is of extraordinary importance to the economy in general and the financial system in particular.
The economic development and growth of tourism in Zimbabwe have also led to exponential growth in the number of financial transactions linked to real estate.
The range of possibilities for misusing these processes allows suspected criminals to integrate and enjoy illegally obtained funds.
Real estate transactions can involve large monetary transactions and due to the international nature of the real estate market, it is often extremely difficult to identify real estate transactions associated with money laundering or terrorist financing.
Hence, real estate agents should have certain basic competencies such as the ability to identify potential money laundering activity; knowledge of what steps to take to mitigate the potential risk; knowledge of where to go for help if there is a potential threat; and appreciation of the commonality between money laundering and terrorist financing strategies and that funds directed towards terrorist activities often come from clean sources.
Even though individual real estate agents may be able to conclude that specific AML-CFT obligations do not apply to them, ethical standards require them to ensure that their services are not being misused, including by criminals, and they should carefully consider what they need to do to guard against that risk.
The real estate agents should assess money laundering and terrorist financing risks by applying various categories.
The most commonly used risk categories include geographic risk; customer risk; and transaction risk.
Geographic risk — real estate agents should be wary of doing business with persons from countries with a high level of drug trafficking or corruption.
Greater care is needed when establishing a relationship or accepting business from such countries.
Real estate agents should observe the public statements issued by the FATF relating to non-compliance with FATF recommendations.
Real estate agents should also have regard to where a transaction or request for their services originated.
Customer risk – Based on their criteria, real estate firms and agents should seek to determine whether a particular client poses a higher risk and the potential impact of any mitigating factors on that assessment.
The application of risk variables may mitigate or exacerbate the risk assessment. The issues that point to a risky customer include:
n titling a residential property in the name of a third party; for example, a friend, relative, business associate, or lawyer;
n politically exposed persons and/or their family members and close associates;
n cash-intensive businesses including money transfer services, casinos, and other gaming institutions, dealers in precious metals and non-profit or charitable organisations; and
n reluctance to provide relevant information or the real estate agent having reasonable grounds to suspect that the information provided is incorrect or insufficient.
Transaction risk – when determining the risks associated with the provision of services related to specified activities, consideration and appropriate weight should be given to transaction risks including under or over-valued properties; use of large amounts of cash; immediate resale of the property after purchase; and purchases being made without viewing the property, no interest in the characteristics of the property.
Real estate agents can manage and mitigate money laundering and terrorist financing risk in at least four ways.
First, real estate agents’ supervisory authorities should employ skilled and trusted personnel with the requisite knowledge and technical tools commensurate with their responsibilities.
Similarly, service providers responsible for customer due diligence, report filing, or transaction monitoring must ensure they have the expertise and staff necessary to accomplish these functions.
Second, real estate professionals should develop internal policies, procedures and controls, and appropriate screening and investigations to ensure high standards when hiring employees.
Third, real estate professionals should also develop or have in place an ongoing employee training programme.
Such training programmes can also be facilitated or provided by professional associations representing agents and the real estate sector.
Fourth, use new or innovative technological tools to facilitate AML-CFT implementation as part of a proactive posture concerning identifying and mitigating ML/TF risk.
In conclusion, real estate professionals are better placed to develop effective processes and procedures to identify, mitigate and manage ML/TF risk and ensure that the risk-based approach to ML/TF is implemented.
In doing so, those dealing with property, which has been identified as high-risk for ML/TF activity, can remain vigilant in their approach to AML-CFT.
However, an understanding of the risk-based approach should form the basis of an AML-CTF regime, enabling appropriate measures to be taken to prevent, mitigate and manage ML/TF activity that is proportionate to the risk posed.
In doing so, resources are likely to be allocated more efficiently, targeted based on risk, and outcomes consequently improved.
- *Ronald Zvendiya is an independent economist. You may contact him on: [email protected]
- These weekly articles are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe. Email- [email protected] and Mobile No. +263 772 382 852