Real estate still poses a high money laundering risk

(CNS): More than 40% of real estate developers and real estate agents selected last year by the Ministry of Commerce and Investment for inspections for their anti-money laundering operations do not comply with the regulations. According to both the DCI Supervisory Report 2021 and the National Risk Assessment 2021, which were announced, the domestic real estate sector remains highly vulnerable to both money laundering and terrorist financing abuse, given the lack of restrictions on foreign ownership.

In May last year, The central nervous system reported the risk Real estate development poses, creating a weak link in the Cayman AML system. However, it appears from these recent reports that work is still required to address the vulnerabilities.

The NRA’s 2021 report said real estate agents are providing money launderers with an appearance of respect and normalcy for large transactions, frustrating the detection and investigations process. Property here is a high-value commodity that is attractive to both money laundering and investing the proceeds of crime. A large number of transactions involve overseas buyers, which the risk assessment has found to provide fertile ground for laundering cash.

The real estate sector here is seen as more risky than metal and gem dealers and jewelry stores, despite its inherent attractiveness to financial criminals due to the high value and portability of the goods. These merchants mitigated their risk by providing stock from reputable entities with GIA certificates and selling face-to-face to clients, primarily from cruise ships.

DCI oversees precious metals and stone dealers as well as real estate agents and developers, known collectively as Designated Non-Financial Business and Professions (DNFBPs). Of the two categories, real estate dealers face a greater risk of abuse due to the more complex nature of their business.

Of the 60 inspections carried out by the General Directorate of Defense of Children last year, only four were of jewelers. The rest was related to property. Of these, only one entity was fully compliant and 22 were only partially compliant or non-compliant. The report does not differentiate between the two categories, but given the real estate sector’s dominance in the reviews, it appears that the failures documented by DCI were largely to landlords or developers.

Of the long list of compliance requirements examined, 23 failed to properly collect and maintain customer due diligence records, 46 failed to conduct an independent audit of their systems, 18 did not have effective staff training, and 22 did not have policies or Underage to screen new employees, 12 were unable to screen clients against sanctions lists and 19 did not have monitoring systems against potential financial violations.

“Inspection teams continue to discover some shortcomings,” the General Directorate of Defense found, the most important of which is the lack of procedures for training new employees and conducting independent audits, and they also discovered that in many cases there was no one responsible in the institution to prevent money laundering. Although things have improved since 2019, DCI said, “Non-compliant registrars remain a concern and improvement plans have been implemented.”

According to the NRA report, there are 164 real estate developers and real estate agents classified as DNFBPs. The report concluded that the Cayman real estate sector is vulnerable to abuse because the exposure to international influences is significant.

The report stated that “the attraction of Cayman Islands real estate to high net worth and international luxury buyers and investors for development is particularly noteworthy, given the risk of abuse of the local market by foreign criminal elements.” .

“It is not uncommon for the nominee and beneficial owner to use a last-minute sale and purchase agreement,” the authors said and explained how buyers can make a purchase in the name of a trust. “This presents challenges in identifying the true beneficial owner or effective controller of the customer,” they stated.

See the reports below:


%d bloggers like this: