FCIS: the real estate sector will have to change – fines for failure to prevent money laundering
In the real estate sales and purchases market, around 26.5% of settlements are still in cash. The strategic analysis of the real estate (RE) sector, which has analysed over 11,000 transactions, has been carried out in the last two years. The officials of the Financial Crimes Investigation Service (FCIS) calculated that cash accounted for at least €169 million of the total settlement volume, totalling €638 million. According to experts, active cash settlements make the real estate sector vulnerable and increase money laundering risks in particular, but only a small part of the real estate market is enforcing anti-money laundering measures, some of which have already received fines.
A strategic analysis of the real estate sector carried out by the FCIS has shown that only a small number of agencies, brokers or companies operating in the real estate market comply with the obligation under the Law on Prevention of Money Laundering and Terrorist Financing to provide information to the FCIS on cash transactions equal to or exceeding EUR 15,000.
"Some companies or brokers operating in the real estate sector are not even aware that they are obliged to provide information to the FCIS on cash transactions above EUR 15,000 or on the persons appointed to prevent money laundering. However, according to the FCIS, there are also entities on the real estate market that specifically avoid this obligation provided for in the law and do not want to lose clients who pay in cash", - Deputy Director of the FCIS Mindaugas Petrauskas.
It is noted that cash payments are a convenient means of legalising criminally acquired funds, increasing the shadow economy and avoiding taxes, by understating the price in contracts. Transaction controls become complex and property sellers are not interested in the origin of their clients' money or the clients themselves.
According to Mr. Petrauskas, the analysis showed that out of the selected 64 real estate construction companies, only five of them had reported at least once to the FCIS on cash settlements equal to or exceeding EUR 15 000. Out of the 30 real estate agencies examined, only 5 agencies made such reports at least once. The inspections also revealed that only 14 real estate brokers submitted reports on the person designated as responsible for the implementation of AML.
The FCIS carried out inspections of companies in the real estate sector to see how companies dealing in real estate in cash, and real estate agents (brokers) comply with the requirements imposed on them by the Law on the Prevention of Money Laundering and the Financing of Terrorists. By the beginning of December this year, 23 real estate agencies, 18 construction companies and 1 company dealing in other property in cash had been inspected throughout Lithuania. Signs of irregularities were detected in 32 of the inspected entities.
It has been noted that the failure to provide information to the FCIS is one of the most serious violations of the law, as in such cases neither suspicious transactions nor large cash settlements by clients are preventively analysed by the FCIS officers.
The findings of the inspections have been forwarded to the Commission for the Examination of Violations of the Law on Prevention of Money Laundering and Terrorist Financing, which assesses the violations of the Law and decides on the proportionality of the measure. The Commission has already considered the infringements recorded in 15 companies or agencies since it started its work.
The Director's decisions have already led to 15 real estate companies being sanctioned: 12 companies have been fined and 3 warnings have been issued. The smallest fine imposed was just over €2.7 thousand, while the largest fine was over €55 thousand. The fined entities have the right to appeal against the penalty imposed by the FCIS.
The FCIS may impose warnings, other sanctions or fines of up to €1.1 million on obliged entities (other than financial institutions) for systematic, serious or repeated breaches of the Law on the Prevention of Money Laundering and Terrorist Financing.