ISLAMABAD: Every cash transaction for sale and purchase of a housing unit of above Rs2 million is required to be reported under anti-money laundering (AML) / Counter Financing of Terrorism (CFT) to comply with conditions of Financial Action Task Force (FATF).
The FBR issued guidelines to provide guidance to real estate agents (REAs) in implementing and complying with requirement in AML/CFT regime.
The FBR said that currency transaction report (CTR) is required to be submitted when a developer receives cash or bearer negotiable instruments Rs2 million and above for selling real estate e.g. developer sells directly to buyer and receives direct cash payments.
Similarly, a developer pays with cash or bearer negotiable instruments Rs2 million and above for buying real estate e.g. property developer or builder pays for purchase of real estate for development.
Likewise, a broker receives or pays in case Rs2 million and above to be used subsequently in the purchase of real estate e.g. broker is a buyer’s agent who receives cash to be used subsequently to pay deposit/ or a settlement (either receipt or subsequent use may meet the CTR threshold).
However, real estate agent would not be required to file any CTR if all financial transactions are via wire transfers. If REA pays cash to sales staff as remuneration over the threshold, or to a supplier, or purchase of an asset such as a motor vehicle, it would not be subject to CTR filing. They would not be considered as buying and selling real estate.
The FBR said that the reason REAs are subject to the FATF standards and AML/CFT measures is because the real estate sector provides attractive assets for persons to launder funds from criminal activities given the large sums involved. “There are many example of criminals or corrupt officials using funds acquired from illegal activities to purchase real estate. REAs and their salespersons help customers to transact real properties and this could involve or facilitate the movement of large amounts of funds, sometimes across international boundaries. Real estate may also be involved with the financing of terrorism as terrorist groups may buy or sell real estate.”
Pakistan’s AML/CFT regulatory regime is strongly informed by the international AML/CFT standards promulgated by the FATF. The FATF is an international task force established in 1989 to develop international standards to combat ML, TF and the financing of proliferation (PF). The FATF published a revised set of 40 Recommendations on AML/CFT measures in 2012, which are being continuously updated.
Pakistan is currently under the FATF International Cooperation Review Process (ICRG) “Jurisdictions under Increased Monitoring” or “Grey list” process. Pakistan has committed to working with the FATF to address strategic deficiencies to counter ML and TF. Pakistan has also committed to improving its broader compliance with the FATF standards as part of its membership with the APG.
There is a definition of a REA under both the AMLA and AML/CFT regulations, as extracted below:
– AMLA, Section 2.Definitions (xii) (a)
(a) real estate agents, including builders and real estate developers, when performing the prescribed activities in the prescribed circumstances and manner;
-FBR AML/CFT Regulations for DNFBPs in Section 2.Definitions (n):
(n) “Real Estate Agent” includes builders, real estate developers and property brokers and dealers when execute a purchase and sale of a real property, participate in a real estate transaction capacity and are exercising professional transactional activity for undertaking real property transfer;
While the FBR AML/CFT Regulations for DNFBPs identifies four categories of REAs, in reality, your business could include all four with different business lines, or your real estate agency business is just brokerage.
