Who are you selling to?
With an increasingly competitive market, developers, sales agents and other real estate professionals in Kingdom of Bahrain (Bahrain) are under considerable pressure to attract buyers and complete transactions.
The real estate sector is, unfortunately, vulnerable to money laundering crimes. Money laundering is essentially the procedure used to conceal the origin of funds which have been generated through illegal activities. Money launderers often find real estate transactions attractive as they are able to move their illegal funds into the economy by way of a property transaction. As such, illegal funds are concealed and proceeds derived from rents or subsequent sales appear as legitimate sources of income.
Accordingly, many jurisdictions, including Bahrain, have implemented anti-money laundering (AML) laws with the goal of combatting this risk in the real estate sector.
The Real Estate Regulatory Authority in Bahrain (RERA) requires licensed real estate professionals such as developers, sales agents and others (Licensees) to comply with the relevant AML laws, including but not limited to Resolution No. 3 of 2019 Concerning the Obligations relating to the Procedures of Prohibiting and Combating Money Laundering and Terrorism Financing on the Activities of Real Estate License which was recently issued on 26 September 2019, Law No. 4 of 2001 concerning the Prohibition of Money Laundering and Ministerial Order No. 23 of 2002 with respect to Procedures of Money Laundering Prevention and Prohibition (AML Laws).
This article sets out an overview of the key requirements and responsibilities that Licensees are required to observe to comply with the AML Laws.
Know your Transactions
Licensees are prohibited from establishing any business relationships or separate processes that are intended for money laundering or financing terrorism.
Licensees are obliged to take additional precautions in monitoring all parts of transactions. They must ensure that they examine the background and purposes of transactions, particularly when a transaction gives rise to suspicion.
Specifically, the AML Laws define two types of transactions that relate to Licensees:
- Business Relationship: the continuous arrangements between two or more parties, where one party facilitates conducting regular or frequent transactions for the benefit of the other party, or where the value of the transaction is unknown when contracting, which will require further verification.
- Separate Process: any process beyond the scope of the Business Relationship.
Know Your Client
Licensees must verify the identity of the client as well as the ultimate beneficiary ahead of entering into any legal transactions or formal engagements. They must also ensure that reasonable procedures are in place to verify the client’s source of funds.
Licensees are required obtain the following details regarding the identity of clients, representatives and beneficiaries:
Natural / Individual Clients
Full passport details
Company’s full name
Company number and place of registration
Permanent place of residence
Type of activities
Employer’s details and address
Address of the main office and branches (if any)
Date, type, value, currency and details of the business relationship
Names of the directors and board members
Company’s legal representative and authorised signatories and their contact and identity details
Information regarding the incorporation of the company must be verified, which would include the memorandum of association, the articles of association and the power of attorney
Date, type, value, currency and details of the business relationship
Licensees should not engage clients that are unknown or those who refuse to disclose evidence of their identity or that of the ultimate beneficiary.
Additional client due diligence may be required where the client is a politically exposed person, is not physically present at the time of the transaction, is a charitable organisation or falls within any of the other special categories identified in the AML Laws.
Know Your Responsibilities
First and foremost, Licensees should familiarise themselves with the AML Laws in place. If there are any money laundering suspicions that arise during a property transaction, Licensees should report these to the implementing Unit at the Financial Investigations Unit at the Ministry of Interior (the Implementing Unit) and the specialised unit at RERA that deals with AML (Specialised RERA Unit).
Licensees must also retain the records of the identification details highlighted above and the relevant transaction for a period of five years from the date the transaction is completed. Licensees should ensure that any details retained comply with the data protection laws in Bahrain or other laws such as the GDPR where applicable.
Moreover, Licensees must also take precautionary measures when accepting payments from clients. For example, licensees, apart from developers, are prohibited from accepting cash payments in excess of BHD 2,000. Any payment valued above this must go through the banking system. Developers are required to ensure that all payments are made directly to the relevant escrow account in accordance with their obligations under the laws and processes issued by RERA.
Licensees are required to provide the Specialised RERA Unit with annual reports within 3 months from the end of the financial year or calendar year (as applicable) and in accordance with the AML Laws. These include audited financial reports and reports detailing all suspicious financial transactions together with all client due diligence collected.
Licensees must also appoint a compliance officer (Compliance Officer). RERA will approve the Compliance Officer in advance and may reject or request the replacement of such appointed individual.
The Compliance Officer must ensure that they are complying with the AML Laws. If the Compliance Officer becomes aware of any suspicious or unusual transaction, it must notify the Implementing Unit and the relevant unit at RERA of this activity. This must be done in writing, electronically or in person within one working day of this knowledge.
Know Your Penalties
The AML Laws provide details in relation to who / what will be deemed as perpetrators of money laundering, partners in the money laundering crimes, and crimes associated with money laundering crimes.
It should be noted that the above categories are broad and extensive. For example, Article 2(1) of Law No. 4 of 2001 provides that a perpetrator of money laundering crime will include a person (natural or corporate) that conducts any process related to the proceeds of crime with the knowledge or belief or a cause to believe that the relevant proceeds were acquired from a criminal activity or from any act considered to be associated with a criminal activity.
Any person who participates in, or is associated with, money laundering activities will be subject to imprisonment and / or fines. This includes those who do not comply with the relevant AML Laws and guidelines. Depending on the nature of the crime committed, the penalties can extend up to 7 years of imprisonment and / or fines up to BHD 1 million. In addition to these penalties, any proceeds of crime will be confiscated.
Know Your Processes
Licensees should therefore ensure that they have proper procedures in place to combat money laundering in accordance with the AML Laws. These may include but are not limited to the following:
- Establishing new or updating existing AML policies to reflect the current AML Laws.
- Adopting a system to ensure records of all details relating to all property transactions, including clients’ details are collected and retained for the required period.
- Appointing a Compliance Officer internally who will ensure that the Licensee is complying with the AML Laws and that proper procedures and controls have been implemented.
- Reporting all suspicious transactions to the Implementing Unit and the Specialised RERA Unit (as applicable) and complying with annual reporting obligations.
- Proceeding with caution if the client presents any suspicious behaviour and reporting any suspicious behaviour to the relevant bodies.
- Ensuring that staff members, such as the relevant sales team, are properly and regularly trained and are familiar with the AML Laws and internal policies in place.
Given the financial and criminal implications outlined above, Licensees should consider their duties and obligations with regards to AML carefully.
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