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Money laundering for professionals within the real estate sector

| News | Corporate Law and M&A

Obligations with regard to the prevention of money laundering and financing of terrorism (“PBCFT”) in the real estate sector

2017 marks a decade since the outbreak of the subprime crisis, one of the main milestones for Spain to enter into the worst economic crisis in living memory.

However, the main economic indicators confirm that in 2016 the Valencian Community has experienced the consolidation of the trend involving an increasing demand in the real estate sector, mainly residential but not exclusively, in light of the improvement of the economy, the favourable financing conditions, the high profitability in rentals and the reactivation of the development of new projects. The best forecasts indicate that in 2018 the upward trend in the sector will continue.

In addition to the moderate optimism that this panorama may offer to the developer and/or whoever performs the activities of agency, commission or intermediation in the purchase/sale of the real estate assets, one must keep in mind that our legislation imposes that they comply with a series of specific obligations with regard to the prevention of money laundering and financing of terrorism (“PBCFT”). These obligations also extend to rental management companies, due to the so-called “fourth” Directive (EU) 2015/849 of the European Parliament and of the Council, the transposition deadline of which for the Spanish Government concluded last 26 June.

We are referring to obligations which, in line with international standards, our regulations (mainly, Laws 12/2003, 10/2010 and Regulation 304/2014) has established that the obliged subjects approve and apply policies and procedures for prevention, establish internal control bodies which are responsible for their application and the approval of a prevention manual.

These obligations are independent to those applicable to, among others, notaries, lawyers or financial institutions that intervene in this type of transactions in their condition of obliged subjects.

As we know, the so-called “laundering” is a transaction that consists of making funds or assets obtained from illegal activities appear to originate from legal activities and can therefore circulate within the financial system without any problems.

If you or your company are dedicated to real estate development, are an agent, broker or intermediary in such transactions, you should at least comply with the following:

Designing in writing the internal procedures related mainly to detecting incidents or certainties relating to money laundering or financing of terrorism, by means of an analysis of the risks inherent to your business and your customers.

Identifying the individuals who, directly or via companies or other persons, intervene in the transaction that is carried out and, prior to formalising the contract, carry out an investigation on the nature of the customer’s businesses, the purpose of the transaction to be carried out and perform an ongoing follow-up of the business relationship.

Likewise, an internal manual should be prepared including the aforementioned internal procedures -unless this were to occupy less than 10 people and its annual turnover or overall annual balance statement does not exceed 2 million Euros-.

The identification documentation of your customers should be kept, as of the moment the relationship begins and until ten years after it has concluded. This information should be updated if the business relationship continues.

Your employees should receive appropriate training in the field and in relation to said internal procedures.

Likewise, unless you are an individual business person or professional, the internal control measures should be subject to a review by an external expert (Order EHA/2444/2007).

Lastly, you must appoint a representative before the public body responsible for supervising compliance with the PBCFT standards and informing the authorities, who should be the director or manager of the same. In the event of being an individual business person or professional, you should be the representative before said body.

Some of the above obligations can be adjusted based on the degree of exposure to the risk of money laundering, differentiating between simplified measures of due diligence in the case of customers, products or transactions that entail reduced risk and the reinforced ones, when the risk is greater (such as in relationships or transactions with people who have had public responsibilities, high risk countries or jurisdictions, etc.).

If the obligations established by the Law are not fulfilled, the commission of offences may entail sanctions with a maximum amount for very serious offences that could greater of 5% of the net assets of the obliged subject, double the economic content of the transaction or 150,000 Euros. In addition, the directors or managers responsible for the offence are subject to personal liability, with fines of up to 600,000 Euros plus their disqualification for holding management or administrator positions in the same entity for a maximum period of 10 years.

And the foregoing without prejudice that the facts may entail a money laundering crime, the basic type of which is established in article 301 of the Criminal Code.

Lastly, indicating that the regulatory trend on this matter goes beyond; the aforementioned fourth Directive grants further strictness to the existing regulation, reinforcing the obligation to carry out a risk assessment as imposed on certain professionals; establishing even clearer transparency requirements regarding the true identity of the counterpart and the publication and promotion of cooperation and exchange of information between the financial intelligence units of the different Member States, among others. 


For further information, please contact:

Ignacio Aparicio Ramos


Read the article in El Economista


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