10 JUL 2018
According to the World Bank, businesses and individuals pay an estimated $1.5 tln in bribes each year. This is about 2% of global GDP - and 10 times the value of overseas development assistance.
Money laundering and terrorism financing are among the European Commission's top priorities and many countries across Europe have already adopted a considerable legal arsenal in their battle against corruption and are actively working to improve standards in this field, both at an international level, through their contribution to the work of the internationally recognised Financial Action Task Force (FATF), and at a regional level.
Today, with the entry into force of the 5th Anti-Money laundering EU Directive, the European Union shows its commitment to strengthen the EU framework to combat financial crime and terrorist financing introducing stricter and more efficient transparency rules.
This proposal was the first initiative of the Action Plan to step up the fight against terrorist financing following the terror attacks and part of a broader drive to boost tax transparency and tackle tax abuse in the aftermath of the Panama Papers revelations.
The new rules introduce stricter transparency requirements, including full public access to the beneficial ownership registers for companies, greater transparency in the registries of beneficial ownership of trusts, and interconnection of these registers. The key improvements also include: limiting the use of anonymous payments through pre-paid cards, including virtual currency exchange platforms under the scope of the anti-money laundering rules; widening customer verification requirements; requiring stronger checks on high-risk third countries as well as more powers for and closer cooperation between national Financial Intelligence Units. The 5th Anti-Money laundering directive also increases the cooperation and exchange of information between anti-money laundering and prudential supervisors, including with the European Central Bank.
Member States will have to implement these new rules into their national legislation before 10 January 2020. For more information see factsheet.
The real estate sector is directly concerned by the rules against money laundering which oblige real estate professionals to be alert to potential criminal activity and impose reporting requirements. As part of a preventive system developed by the EU, real estate professionals are under an obligation (known as ‘customer due diligence’) to check the identity of their customers, ensure ongoing monitoring, identify beneficial ownership and politically exposed persons (PEPs).
Despite legislation, there are still many examples of unethical behaviour in the property sector. In a high-profile case in the Netherlands, for example, senior executives at electronics group Philips' pension fund and developer Bouwfonds were found guilty in 2015 of large-scale money laundering, fraud, and bribery, earning them jail sentences of up to seven years. RICS has also undertaken recent regulatory action in this area, including expelling a member for being involved in money laundering, and issuing a six-digit fine for a firm involved in bribery and corruption.
In France, a unique publication entitled “real estate toward money laundering and terrorism financing” published by RICS experts in collaboration with TRACFIN - the national Financial Intelligence Unit in charge on anti-money laundering in this country, outlines the important role that property professionals play in mapping and reporting against suspicious money laundering practices and offer the best guide to professionals in the sector on how to handle the situation.
The publication outlines that according to French law*, not only real estate agents but other legal persons or individuals carrying out, controlling or giving advice on the acquisition, sale or rental of real estate assets are obliged to inform the local authority.
Although the level of sanctions increases and they are expected to be reinforced in France in 2018, statistics show that the level of reporting coming from the real estate sector to TRACFIN is still very low, compared to other sectors, with only 84 declarations from real estate agents in 2016 out of 64,815 in total, while notaries for example reported 1,044 the same year.
Meanwhile, in the last 12 months, more than one million of real estate transactions in France could be a potential risk to be reported to the national authority.
The French intelligence unit welcomes RICS' initiative to inspire confidence in the property industry by raising awareness and sharing advice and best practice among built environment professionals on how to cope with money laundering.
In Spain, the situation is very similar, real estate and property management activities and all associated business, is one of the many activities subject to anti money laundering legislation in Spain, however according to the authority responsible “Servicio Ejecutivo de la Comisión de Prevención del Blanqueo de Capitales e Infracciones Monetarias” (SEPBLAC), the participation of real estate professionals to their obligation to declare suspicious practices is very low.
If these risks are not appropriately identified and managed, this could have a direct impact on surveying practices as well as on consumers and the trust they have in the services our professionals provide.
That’s why, RICS in its mission to bring confidence to the real estate industry through ethics and self-regulation for the benefit of society, is seeking feedback from industry stakeholders before adopting a professional statement on bribery and corruption to equip professionals with common principles.
RICS draft statement sets out the obligations for RICS professionals and firms when exposed to situations where bribery and corruption and/or money laundering and terrorist financing may be occurring. It aims to provide the profession with a clear description of how to manage these risks within the RICS Rules of Conduct. By providing practitioners and firms with clear and consistent ethical principles, it informs them about what constitutes a breach of conduct.