Money launderers are attracted to the real estate industry. They hide their illegitimate gains by concealing their identities and laundering money. The Financial Action Task Force (FATF) is contemplating revising its current Risk-Based Guidance and is seeking public input since appropriate monitoring of this sector is critical in order to prevent illegal money laundering.
According to a news statement from the FATF, the sixth Plenary resolved to evaluate the relevant guidelines in June 2021 and constituted a Project Team comprised of FATF delegates and private sector representatives to explore required revisions and collect essential data. As a result, the advice paper for public consultation incorporates the Project Team’s work and debate, as well as members’ contributions of relevant case studies and data on anti-money laundering and counter-terrorist financing (AML/CFT) supervision and practise in the real estate industry.
The FATF sought input and comments on the following:
- Facts and detailed information for practitioners, as well as other parts of guidance that would be worth considering but aren’t presently covered.
- Specific business instances of ML/TF dangers and threats in the real estate industry, as well as steps taken by the private sector to address them, so that the recommendations may be more useful and practical.
- Terrorist financing threats as identified by the sector practitioners.
Pakistan is regarded as a sanctuary for organized criminals, many of whom are involved in predicate crimes, and money launderers who use domestic real estate to move profits of crime overseas via legal and informal routes.
Pakistan attempted to resolve FATF concerns in all areas after being put on the grey list and agreeing to a twenty-seven-point action plan in 2018. After being pressed by the FATF and other international bodies about the regulations governing Designated Non-Financial Businesses and Professions (DNFBPs), Pakistan attempted to address those concerns by amending the Anti-Money Laundering Act, 2010 [AML, 2010] through the Anti-Money Laundering (Second Amendment) Act, 2020, which received President Asif Ali Zardari’s assent on September 22, 2020.
The AML, 2010 was amended to include section 6A, which gives the Federal Board of Revenue (FBR) the authority to regulate Designated Non-Financial Businesses and Professions (DNFBPs), such as real estate agents, jewellers, precious metals and precious stone dealers, and accountants who are not members of the Institute of Chartered Accountants of Pakistan or the Institute of Cost and Management Accountants of Pakistan.
Following that, FBR, as a regulator of the DNFBPS, used the authority granted under AML, 2010 to introduce regulations to regulate DNFBPs, namely the “Federal Board of Revenue Anti-Money Laundering and Countering Financing of Terrorism Regulations for DNFBPs, 2020” [“the said Regulations”] through SRO 924(1)2020 dated September 29, 2020. Despite the fact that we have said in several publications that the FBR’s laws are general and need to be rewritten to cover the possible hazards associated with this industry, no action has been made as of today.
We also said in our writings that the Regulations must be in accordance with FATF risk-based standards and international best practices, which call for measures against high-risk nations, yet most offshore havens with stringent secrecy rules are classed as medium or low risks. How can due diligence be carried out while dealing with offshore countries categorized as medium or low risk? When it comes to relying on third parties to undertake Customer Due Diligence (CDD), precise criteria must be followed to safeguard data privacy and data breaches.
Additional instructions from the FBR are needed to identify high-risk locations for money laundering and combatting the funding of terrorism, drug trafficking, and other financial crimes in places where criminals exploit real estate industry revenues across the country. Other vulnerabilities that money launderers and terrorist financiers regularly exploit in real estate firms include the value of real estate assets, operating format, number of offices and locations, offshore offices, total workforce size, and so on. Before issuing any form of compliance notice, these concerns must be addressed through extensive standards.
FATF is currently requesting comment to modernize our AML-CFT regulatory and operational framework since it does not fit with the existing risk-based standards. We should give our thoughts and ideas outlining the way ahead in addressing possible risks and mitigating tactics from Pakistan’s perspective, since we are already in the FATF programme and attempting to be reinstated on the white list. Our current rules, admittedly, are broad and leave the function of diverse stakeholders in the real estate market undefined.
As a result, there is a need to explain to FATF the problems we’re having and how our generic regulations will address their concerns about real estate professionals, such as traditional, exclusive, and non-exclusive buyer and seller representations (including those in the same transaction), the number of agents representing buyers and sellers, national and transnational representations, financial settlement, and real estate brokerage, and so on.
The Mutual Evaluation Report for Pakistan, which was issued in 2019, cited concerns about the lack of a licensing requirement for real estate brokers and the lack of information on the size and composition of the real estate market. The Federation of Realtors of Pakistan is likewise a Statutory Regulatory Body (SRB), although real estate agents are not obligated to join it, and its legal foundation is similarly questionable.
After revising the AML, the FBR now has the authority to control this industry, which is a problematic move. Pakistan has to come up with strong proposals to address concerns about regulatory organizations, as well as appropriate means to verify beneficial ownership identification, including the purpose and form of ownership.
Pakistan, as a responsible state, must take urgent action. Our lack of awareness of the AML-CFT threats has already been noted by the worldwide watchdog. In order to prevent launderers from pouring their illicit monies into our financial system, we must also address any flaws in the present legislative and operational framework.
Huzaima Bukhari and Dr. Ikramul Haq, attorneys and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members of the Advisory Board, and Visiting Senior Fellows of the Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is an expert in ‘White Collar Crimes and Sanctions Compliance’ and a business lawyer located in the United States. Pakistan Tackling FATF: Challenges and Solutions) is a book they just coauthored.