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Real estate sector has high exposure to money laundering risk, notes report

The local real estate sector has a high exposure to money laundering (ML) risk, according to the 2015/2016 National Risk Assessment Report.

“Considering data uncovered during the surveying process that some land developers (that allow for in-house financing) are not caught in the regulatory net of the Bahamas Real Estate Association (BREA), and the existence of possible unlicensed foreign and local brokers, the sector was deemed to be of high ML risk,” the report notes.

“Further, at present, commercial leasing and rentals are not captured in the Financial Transactions

Reporting Act definition as financial transactions and thereby pose some potential for ML risk.”

The NRA report states that the real estate sector presents a “common vehicle” for money laundering, due to the large amount of monetary transactions and the international nature of the real estate market.

“Real estate brokers can also receive funds to settle real estate transactions, making them vulnerable for ML/TF (terrorism financing),” the report explains.

“Research conducted during the assessment determined that the majority of brokers do not receive funds for the settlement of real estate transactions and the lawyers typically receive the funds for the settlement of real estate transactions.

“Trust or escrow accounts held by developers (domestic and foreign) can also pose some ML risk. These accounts can conceal the identity of the true beneficiary in addition to the source and/or destination of the illicit funds.”

The report adds: “However, the settlement of real estate transactions resting with the legal profession, the need for strengthening BREA’s enforcement powers is somewhat countered by the oversight of the Compliance Commission and the need for international purchasers of land and homes to be vetted and recorded by the Central Bank of The Bahamas.

“As a result, the sector was deemed to be inherently highly vulnerable to ML risk.”

However, the report states that the industry’s terrorist financing risk was deemed low, due to the “inordinate” time required to sell properties, which the report finds would limit its attractiveness to international terrorist groups.

“As such, the real estate sector appears not to meet the criteria of easy liquidation of assets to accommodate funding terrorist activities,” the report notes.

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