Anti-Money Laundering and Counter Financing of Terrorism Guidelines for Real Estate Agents (REAs) Federal Board of Revenue Anti-Money Laundering and Counter Financing of Terrorism Guidelines for Real Estate Agents December 2020 1 | P a g e Anti-Money Laundering and Counter Financing of Terrorism Guidelines for Real Estate Agents (REAs) Table of Contents Acronyms/terms ..................................................................................................................................................... 5 1. Introduction .................................................................................................................................................... 1 1.1 Purpose ................................................................................................................................................... 1 1.2 Target audience .................................................................................................................................... 1 1.3 Scope and terminology ........................................................................................................................ 1 1.4 Structure ................................................................................................................................................ 2 2. Background .................................................................................................................................................... 3 2.1 Why are REAs required to comply with AML / CFT? ..................................................................... 3 2.2 Financial Action Task Force (FATF) ................................................................................................. 3 2.3 Asia/Pacific Group on Money Laundering (APG) ............................................................................ 3 2.4 The FATF grey list ................................................................................................................................ 3 2.5 Money laundering ................................................................................................................................. 3 2.6 Terrorism financing.............................................................................................................................. 4 2.7 Differences between money laundering and terrorism financing ............................................ 4 3. Pakistan AML/CFT Regulatory Regime ................................................................................................... 5 3.1 AML/CFT regulatory regime in Pakistan .......................................................................................... 5 3.2 Government authorities responsible for REAs............................................................................... 6 4. Real Estate Agents and Activities Subject to AML/CFT ..................................................................... 7 4.1 Real estate agents (REAs) and specified activities subject to AML/CFT .................................. 7 4.2 Categories of REAs subject to AML/CFT .......................................................................................... 8 4.3 Real estate activities/services subject to AML/CFT ..................................................................... 8 4.4 Real estate activities/services not subject to AML/CFT .............................................................. 9 4.5 Customers (seller and buyer) subject to AML/CFT ..................................................................... 10 4.6 Transactions subject and not subject to AML/CFT ..................................................................... 11 4.7 Professional vs personal real property transactions .................................................................. 12 4.8 Support and guidance on AML/CFT ................................................................................................ 13 5. Risk Assessment and Mitigation ............................................................................................................ 14 5.1 Statutory requirements under AML/CFT legislations ................................................................. 14 5.2 Sanctions for non-compliance ......................................................................................................... 14 5.3 ML/TF enterprise risk assessment .................................................................................................. 14 5.4 Difference between an inherent and residual enterprise risk assessment .......................... 15 5.5 How to conduct the ML/TF enterprise risk assessment ............................................................ 15 5.6 Quantitative and qualitative information for enterprise risk assessment ............................ 19 5.7 Example of an enterprise risk assessment template ................................................................. 19 6. AML/CFT Programme, Policies and Procedures ................................................................................ 23 6.1 Statutory requirements under AML/CFT legislations ................................................................. 23 6.2 Sanctions for non-compliance ......................................................................................................... 23 6.3 Role of senior management ............................................................................................................. 24 6.4 Compliance officer ............................................................................................................................. 24 2 | P a g e Anti-Money Laundering and Counter Financing of Terrorism Guidelines for Real Estate Agents (REAs) 6.5 Written policies and procedures..................................................................................................... 25 6.6 Group compliance .............................................................................................................................. 26 6.7 Staff vetting and employment ......................................................................................................... 26 6.8 AML/CFT training ................................................................................................................................ 26 6.9 Monitoring and review of AML/CFT programme .......................................................................... 27 6.10 Independent audit function ............................................................................................................. 27 7. Risk Based Customer Due Diligence (CDD) ............................................................................................ 29 7.1 Statutory requirements under AML/CFT legislations ................................................................. 29 7.2 Sanctions for non-compliance ......................................................................................................... 29 7.3 Who to conduct CDD on .................................................................................................................... 30 7.4 Timing of CDD ...................................................................................................................................... 30 7.5 CDD identification and verification ................................................................................................ 32 7.6 Verification using reliable and independent documents, data or information ................... 35 7.7 Purpose of real estate transaction or business relationship .................................................... 35 7.8 Identifying and verifying beneficial ownership ........................................................................... 36 7.9 Politically Exposed Person (PEP) .................................................................................................... 48 7.10 Source of wealth or funds ................................................................................................................ 52 7.11 Enterprise risk assessment and customer risk assessment ...................................................... 54 7.12 Customer risk assessment and rating ............................................................................................ 54 7.13 Three categories of CDD ................................................................................................................... 56 7.14 Simplified CDD ..................................................................................................................................... 56 7.15 Standard CDD ....................................................................................................................................... 57 7.16 Enhanced CDD ..................................................................................................................................... 57 7.17 Examples of standard and enhanced CDD .................................................................................... 58 7.18 Prohibited customers and risk screening ..................................................................................... 62 7.19 Delayed verification ........................................................................................................................... 63 7.20 Unable to complete CDD ................................................................................................................... 63 7.21 CDD and tipping off ...........................................................................................................................