By Sandra Nebritova
Cyprus is one of those countries that actively advertises its real estate market and offers additional perks that can come with the purchase – such as residence permit or even a passport.
Unfortunately, sometimes, this attracts the wrong people.
It has already been reported, that even the “Golden Passport” due diligence process had way too many flaws.
Or how many times have we heard of arrangements with the developers, paying certain amounts under the table.
All these practices may put the whole sector at risk as there is a chance that the funds used might be of a criminal source.
Looking at recently introduced practices in Germany and their anti-money laundering (AML) framework, and particularly how they are dealing with money laundering threats in the real estate sector, gives an excellent example on how things could be done in Cyprus.
One of the reasons why Germany decided to implement strict rules on buying real estate was the result of the investigations into the Frankfurt real estate market that dominated news headlines for many months.
The investigation clearly showed that bribes, tax evasion and fake invoices were “business as usual” in the world of real estate agents and construction companies.
This prompted the lawmakers to review their legislation and implement changes in their AML framework and their tax law in order to make real estate less attractive for money laundering.
So, what kind of procedures have they implemented?
In Germany, no real estate transaction can take place without a notary, therefore Germany has chosen to put quite a lot of responsibilities regards to prevention of money laundering specifically on notaries.
A special guideline has been issued to notaries on money laundering risks and how to mitigate them, as well as how to submit suspicious transaction reports.
The guideline is written in the best of German traditions – extremely precise, dotting all the i’s and crossing all the t’s.
It gives detailed descriptions, course of action and shows step by step how to submit a suspicious transaction report through the official FIU system.
It should be noted that the system used for submission of such reports, is the same as the one being used in Cyprus.
Notaries are now required to assess the risk, understand the control structure, and identify the ultimate beneficial owner (UBO).
This should be done of all the parties that are entering the agreement (e.g. buyer and seller).
The UBO should always be known and in the event that the notary is having difficulties obtaining that information – no further services can be provided.
In the event that the UBO is a politically exposed person or falls under high risk for other reasons, the notary should also obtain the source of funds, which would in turn, show where the funds are coming from and whether there could be any doubts about their legality.
Should Cyprus follow the same path?
While we do not have a practice of using the services of a notary, perhaps this could be substituted by another body, that would play a similar role.
Surely, this would require a lot of work and law amendments that always seem to take a long time, however, the result would be worth waiting for.
The author is a Certified AML specialist