Changes to the German anti-money laundering rules require real estate agents to review their risk management systems.
Money laundering risks in the real estate sector have moved increasingly into focus in recent years. The German Government is about to implement stricter anti-money laundering rules following the enactment of the Fourth Money Laundering Directive in 2015 ("AML Rules"). The draft legislation in particular includes extended risk assessment and reporting requirements for real estate agents ("Agents").
The current draft AML Rules entail the following key regulations for the real estate sector:
- The definition of Agents has been broadened and now includes not only real estate agents procuring the sale and purchase of real property, but also letting agents.
- Agents are obliged to implement a risk management system: They need to identify the parties of a real estate transaction or a lease, persons acting on behalf of the parties, as well as the economic beneficiary. This applies from very early stages—it is sufficient that the relevant party shows a "sincere interest" (ernsthaftes Interesse) in the transaction or lease.
- Agents also have to analyze and assess possible risks of money laundering or financing of terrorism and to review their existing customer relationships when appropriate in the course of the business relationship, in particular if key parameters change or if the Agent has a legal obligation to contact the client in the course of a calendar year to review specific information.
- Agents have an obligation to notify the authorities in cases of suspected money laundering not only in connection with the sale and purchase of real property, but also in connection with the conclusion of lease agreements with a monthly rent of EUR 10,000 or more. Extended reporting obligations apply if a higher risk can be expected (e.g., if transactions are very complex or unusually large or follow an unusual pattern).
- Generally, fines up to EUR 100,000 can be imposed in case of noncompliance with the AML Rules, a significant, systematic, or repeated breach of the AML Rules can trigger higher fines.
Agents should carefully analyze which additional compliance obligations have to be covered by their risk management so that timely implementation of the necessary measures is ensured. Agents exclusively focused on lettings will need to review their risk management system, if one exists, and familiarize themselves with the new AML Rules. The Fourth Money Laundering Directive has to be implemented by January 10, 2020, so the changes can be expected to come into effect within the next months.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.