AML Guidelines for Real Estate Agents under the PMLA (Prevention of Money Laundering Act)
With reference to the Prevention of Money Laundering Act, 2002 (PMLA) and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (PMLR), the Directorate General of Audit, Indirect Taxes and Customs, India, has issued AML and CFT Guidelines for Real Estate Agents, 2022.
The guidelines aim to summarise the anti-money laundering and countering the financing of terrorism (AML/CFT) compliance requirements of the Real Estate Agents (REA) as provided under the PMLA.
Applicability of the AML and CFT Guidelines for Real Estate Agents, 2022
The guidelines define the term “Real Estate Agent” as under:
any person who negotiates or acts on behalf of another person in a transaction of transfer of his plot, apartment or building, by way of sale, with another person or transfer of plot, apartment or building, of any other person to him and receives remuneration or fees for his services whether as a commission or otherwise and includes a person who introduces, through any medium, prospective buyers and sellers to each other for negotiation for sale or purchase of plot, apartment or building, and includes property dealers, brokers, middlemen, etc. having annual turnover of rupees twenty lakhs and above (equal to or exceeding INR 20 lakhs).
Developing and implementing the AML Program
In line with PMLA and PMLR, the guidelines require the Real Estate Agents to develop and deploy a robust internal AML/CFT framework, including policies, procedures, and controls to detect and prevent possible money laundering or terrorism financing activities and report it to the Financial Intelligence Unit (FIU-IND). The policies and program must be designed to adopt the risk-based approach. Accordingly, before framing the AML program, the REA must consider the size and nature of its business, clients and transactions, etc.
These internal AML/CFT policies and procedures must be well communicated amongst all the employees of the REA and be periodically reviewed to ensure their effectiveness.
Apart from developing and implementing the internal AML policies, the following are the key AML obligations imposed upon Real Estate Agents in India under PMLA and PMLR:
Appointment of Principal Officer and Designated Director
Every Real Estate Agent, subject to AML regulations, must appoint a Principal Officer and Designated Director. Information about the Principal Officer and the Designated Director must be submitted to the Director of the FIU-IND, the Real Estate Regulatory Authority (RERA).
The Principal Officer and the Designated Director shall be responsible for effectively implementing the AML program in the company and ensuring timely identification and reporting of suspicious transactions.
Know Your Client and Client Due Diligence (CDD)
All the REA must implement the “Know Your Client” and the Client Due Diligence process, requiring identification and verification of the clients, their beneficial owners, nature and intended purpose of establishing a business relationship. However, in exceptional cases where only an occasional transaction is executed for a value of INR 50,000 or more, the REA is just required to verify the identity of the clients.
The guidelines mandate that Real Estate Agents obtain the KYC records of the clients and furnish the same to the Central KYC Records Registry.
The CDD mechanism to be developed by the REA must be sufficient to support the risk classification of the clients into high-risk or low-risk, basis the client’s background, nature of the business relationship, business turnover, client’s location, etc.
The REA is restricted from dealing with clients where fake identities are used, or transactions are proposed to be executed with anonymous or fictitious names.
Moreover, the REA must apply Enhanced Due Diligence (EDD) measures for high-risk buyers and sellers, business relationships or transactions. The EDD process should include establishing the legitimacy of the client’s source of funds, applying more frequent reviews of the client’s profile and transactions, getting the client’s identity information reviewed by the senior personnel, conducting verifying the client’s details through independent and reliable data sources, etc.
Cash Transaction Report
In accordance with the PMLR, the guidelines also provide for filing of Cash Transaction Report (CTR) to the FIU-IND by the Real Estate Agents under the following circumstances:
- Cash transactions exceeding INR 10 lakhs or its equivalent in foreign currency,
- Series of linked cash transactions executed in a month where the aggregate value exceeds INR 10 lakhs or its equivalent in foreign currency,
- Cash transactions where forged or counterfeit currency notes or bank notes are used for facilitating the transaction.
The REA must file the CTR monthly, furnishing details of all the above-mentioned cash transactions by the 15th day of the succeeding month.
Suspicious Transaction Report
Real Estate Agents are required to file a Suspicious Transaction Report (STR) with the FIU-IND when the REA has reasonable grounds to believe that the transaction involves proceeds of crime or is associated with terrorism financing, irrespective of the amount involved.
Further, STR should also be filed in the following cases:
- the circumstances are unusual or unjustifiably complex,
- the transaction does not have any economic rationale or bonafide purpose,
- the transaction involves terrorism financing,
- when the KYC and CDD process cannot be completed,
- the client is identified as being associated with a criminal background.
The employee who observes the ML/FT suspicion must immediately report it to the Principal Officer or Designated Director, who shall review and decide whether reporting must be done with FIU-IND.
The STR must be reported to the FIU-INF within seven (7) working days from the occurrence of the suspicious instance.
CTR and STR are to be filed with the following:
Director, FIU-IND,
Financial Intelligence Unit-India,
6th Floor, Hotel Samrat, Chanakyapuri,
New Delhi-110021.
Website: http://fiuindia.gov.in
Implementation of Sanctions as per Section 51A of the Unlawful Activities (Prevention) Act, 1967 (UAPA)
Real Estate Agents are restricted from dealing with induvial or entities subject to sanctions as per the United Nations Security Council Resolution. The REAs must regularly screen their clients (all the buyers and sellers) against the UNSC sanctions lists and the list of banned entities, as made available and updated by the Ministry of Home Affairs (MHA, India).
If any such sanctioned person or entity is identified or the REA has already executed a transaction with such a designated person, the REA must report such person along with the transaction details to the FIU-IND and the RERA.
Other AML Compliance requirements
Real Estate Agents must ensure adequate screening of the employees and impart regular AML training to all its staff for effective implementation of the internal AML program.
Further, all the AML/CFT records must be maintained for five (5) years by the REA. This includes the information and records about the transactions executed, the client’s KYC and CDD files, suspicious transactions identified, reporting done to the FIU-IND, etc.
Moreover, all the entity’s employees must be adequately trained in AML/CFT compliance requirements and the internal AML program implemented by the entity.
