Anti-Money Laundering and Terrorist Financing Obligations
The risk-based approach
Real estate is attractive to money launderers because of large values, cash flows, and complex ownership structures. Candidates must understand the risk-based approach: identify, assess, and mitigate risk rather than apply identical checks to every client.
Core duties
Know customer due diligence (CDD): identifying the client and beneficial owner, verifying identity using reliable sources, and understanding the purpose and nature of the transaction. Enhanced due diligence (EDD) applies to higher-risk situations - politically exposed persons, complex offshore structures, unusual cash payments, or transactions inconsistent with the client's profile. Simplified measures may apply only to demonstrably low-risk cases.
Ongoing monitoring and reporting
Understand continuous monitoring, record-keeping, and the duty to report suspicious transactions to the competent authority. Tipping off the client is prohibited. Refusing to proceed until CDD is complete is often the correct answer.
Common traps
Questions test whether CDD applies to buyers only (it applies to both parties and beneficial owners); whether a lawyer or agent can rely on third-party CDD without responsibility; and whether suspicion requires proof before reporting (it does not).
Rule of thumb
If you cannot identify the beneficial owner, you cannot proceed. Suspicion, not proof, triggers a report.
Worked example
A buyer pays a large deposit in cash through an unrelated third party and refuses to explain the source of funds. Correct response: apply EDD, seek source-of-funds evidence, and file a suspicious transaction report if concerns remain - do not simply accept the deposit.