S$1 billion money laundering probe: Real estate agents guard against suspicious deals with due diligence

SINGAPORE: Real estate agents are required to conduct due diligence checks on their clients to prevent money laundering and terrorism financing, according to the Council for Estate Agencies (CEA) and industry insiders.

The measures involve a due diligence checklist and a list of "suspicious indicators" that includes client behaviour. Clients' details are also checked against international databases, including leaked documents like the Panama Papers.

CNA spoke to property agents and analysts after 10 foreign nationals were arrested on suspicion of forgery and money laundering last week. About S$1 billion (US$736 million) in assets has been seized or frozen.

A total of 105 properties valued at around S$831 million – including Sentosa Cove bungalows, condominium apartments and commercial spaces – have been linked to what has become one of Singapore’s largest police probes into money laundering and forgery offences.

The 10 suspects were identified through extensive investigations that included the analysis of suspicious transaction reports, the police previously said. They have since been charged in court.

Real estate, banking and law are among the reporting industries where professionals are required to make suspicious transaction reports if they have reason to suspect a property is linked to criminal activity.

Chinese daily Lianhe Zaobao reported on Friday that about 60 real estate agents purportedly involved in deals with the 10 suspects were to assist with investigations.

DUE DILIGENCE CHECKS

In response to CNA's queries, the CEA said that real estate agencies and their agents must conduct customer due diligence before entering any business relationship with them.

This includes identifying and verifying the identity of their clients, and assessing the risk of them being involved in money laundering activities.

They must keep records of these due diligence measures for at least five years. They are also required by law to report any suspicious transactions or activities to the Commercial Affairs Department.

To this end, the CEA said it has circulated a list of "suspicious indicators" to the real estate industry.

The list includes behavioural indicators, such as the client appearing hesitant or declining to put his name on any document that would connect him with the property.

Entering the transaction at a value much higher or lower than the market value of the property is another indicator. So is buying multiple properties in a short time, with seemingly few concerns about location, condition and repair costs.

The CEA inspects agencies to check if they comply with these regulations. Failure to do so can result in financial penalties of up to S$200,000 per case for an agency, and up to S$100,000 per case for an agent. An agent's registration can also be suspended or revoked.

WHAT AGENTS DO ON THE GROUND

Property agent Shafik Yusope said that his employer – PropNex Realty, Singapore's largest real estate agency – requires salespersons to adhere to various measures to prevent money laundering and terrorism financing.

For example, they are required to submit multiple forms – provided by the CEA – to their agencies upon the exercise of an option to purchase.

One such form, which serves as a checklist on customer due diligence for sale and purchase transactions, gets salespersons to confirm things such as if their prospective client or beneficial owner:

• Is on the United Nations sanctions lists
• Is a politically exposed person
• Has obtained an exemption order under the Terrorism (Suppression of Financing) Act

Politically exposed persons are those that have been entrusted with a prominent public function, such as politicians and government officials. Due to their positions and access to sensitive information, they are often susceptible to bribery or corruption.

For higher-risk transactions, agents are required to conduct enhanced due diligence measures by seeking further information, including the purpose of the transaction and the source of their client’s funds or wealth.

They also have to seek approval from their agency to continue with the transaction.

These higher-risk areas include complex or unusually large transactions, which could include attempts to disguise the beneficial owner or obscure the multiple intermediaries used.

According to the checklist, if a salesperson believes conducting such due diligence measures will tip off their client, they should not pursue them and lodge a suspicious transaction report instead.

Agents should also consider lodging a suspicious transaction report if they suspect money laundering or terrorism financing activity, among other things.

Property agents now can conduct due diligence checks while on the go using web and mobile applications.

Mr Shafik uses the Anti Money-Laundering (AML) web app which was developed by the Singapore Estate Agents Association and KEO Connect, in collaboration with database firm Amicus.

Using this, agents can generate a report on a client that they submit to their agencies.

PropSage, another app that helps agents to manage their property transactions, has an AML checklist feature as well.

Agents simply have to enter their clients’ names into the system to find out if they are in various databases, such as the Singapore investor alert list, Panama Papers, Paradise Papers, United Nations sanctions lists, United Kingdom’s consolidated list of targets, Interpol lists, Politically Exposed Persons lists and others.

Agents can also check if their clients have been mentioned in a bad light in media reports, such as if they are a person of interest in commercial crime.

Outside of the checklist, one of the red flags that agents look out for is when a buyer requests a "kickback" on a property purchase.

These happen "quite often" in sales of luxury properties to foreign buyers, said Mr Alan Cheong, Savills' executive director of research and consultancy.

For example, an agent who brokered a sale is entitled to a 2 per cent commission fee. But the buyer asks to keep the agent's commission and offers the agent a smaller "hard work fee" of about S$10,000 instead.

It is "very suspicious" that the buyer is asking for a kickback from the agent instead of requesting a discount upfront from the property developer, said Mr Cheong.

This raises questions of whether the buyer is managing the funds himself, or whether the money he is using belongs to someone else, he added.

WHAT CAN AGENTS DO?

Agents usually look out for things like if their client uses a huge amount of cash, said Mr Shafik. If they run into issues, they will report the matter to their key executive officer and ask for their advice.

Key executive officers are responsible for the proper administration and overall management of an agency’s business, as well as the supervision of its salespersons.

OrangeTee & Tie agent Timothy Chew noted that if they discover irregularities in terms of payment from their client to the seller or landlord, such as a lump sum payment, they are supposed to report these transactions to their agency instead of telling or questioning the client about it.

“The agency will follow up from there. I have not experienced this so far but I think our agency will contact us to find out more,” he added.

“We do not confront the client as our job is not to investigate or alert the client, but (tell our agency about) these unusual transactions.”

If there are no issues, agents will indicate as such in their checklist. They will declare they have done their due diligence and observed no unusual practices from their client, added Mr Chew.

Savills' Mr Cheong said that suspicious transaction reports run on a parallel track to the due diligence measures. An agent can make a police report about a suspicious transaction at any point in time, even after the deal has gone through.

As for requests for kickback arrangements, although these raise suspicions, the dilemma is that "it's either S$10,000 or nothing" for the agents, he said.

Buyers will take their business elsewhere if agents do not agree, saying that "if you don't want to do (it), other agents will do it", he added.

Some newer agents are even willing not to earn any money from the kickback arrangement – zero commission and no "hard work fee" – as they want to be recognised as the agency's top performer based on the value of the deal alone, he said.

Mr Cheong said that when real estate agents suspect a buyer is not genuine, they can choose to take the "naive approach" and stop a deal or make a suspicious transaction report. The alternative is to complete the deal and earn what they can.

"The checks are failing because you want it to fail," he said of the due diligence process.

"Human beings are driven by greed, and greed will overcome all forms of propriety."