Property developers brace for surge in compliance work with new anti-money laundering rules

May 11, 2023

PROPERTY developers are gearing up, ahead of an impending surge in compliance work they face, to comply with new rules the Urban Redevelopment Authority (URA) has put in place to tackle money laundering and terrorism financing in real estate.

While the URA has provided guidelines for developers on the new requirements, many are grappling with how they will conduct checks that will be watertight, amid some lack of clarity on criteria and boundaries.

From Jun 28, developers are required to conduct customer due diligence checks on all transactions of uncompleted residential and non-residential properties regulated under the Housing Developers (Control & Licensing) Act and Sale of Commercial Properties Act.

If developers suspect money laundering or terrorism financing activity, they will be required to submit a report to the Suspicious Transaction Reporting Office of the Commercial Affairs Department. Detailed statistics related to the filing of such transactions are not publicly released.

In response to queries from The Business Times (BT), the URA said that as part of their money laundering and terrorism financing risk analysis, developers must consider various factors such as whether the purchaser is from a country that is subject to increased monitoring and to screen them against lists in the Terrorism (Suppression of Financing) Act and the United Nations Act.

“In addition, developers may choose to screen purchasers against public sources of information, such as public websites or third-party screening database,” URA said.

“Given the large sums involved, real estate players involved in such transactions such as developers play an important role in detecting and countering the threat of money laundering and terrorism financing.”

William Lai, chief executive officer of property data analytics company Amicus, said about 10 developers including major players have approached his company to enquire about its services.

He said: “Property developers have started to request training for their staff. They cannot wait until Jun 28 especially those with immediate launches.

“There is a lot of paperwork and the transactions they have to check include all projects that have yet to attain a certificate of statutory completion.”

Lawyers and professional services firms BT spoke to said they have also received requests for assistance from property developers, many of whom had concerns about how to comply with the requirements.

Jason Tan, a partner specialising in forensic advisory at KPMG Singapore, said since URA first announced the measures in March 2023, it has received “several enquiries from real estate developers”.

KPMG will conduct one-on-one sessions to educate property developers on the requirements of the guidelines and to share practical implementation approaches, he added.

A Dun & Bradstreet spokesperson said while it was unable to share the number of developers which approached the analytics company, it has observed an increase in the recent months.

He said: “Some of the most commonly asked questions include the total net worth of individuals and the frequency or possibility of encountering false positives during the screening and due diligence process.”

Leong Pat Lynn, senior partner and head of Dentons Rodyk’s real estate practice, said the firm has seen an increase in the number of queries from developers who have been asking for advice in certain scenarios which may require more scrutiny, such as when payments involve persons acting on behalf of the purchaser.

In some cases, a search on existing databases may not capture the full range of relationships, for instance, a close associate of a foreign politically-exposed person, she said. In addition to checking their identity, developers must take reasonable measures to establish the income level and source of wealth of such purchasers.

When the purchaser is an entity or legal arrangement, there may be challenges to identifying the ultimate beneficial owner too.

“It is not uncommon for criminals to procure properties using proxy or nominee arrangements. For offshore corporate entities registered in jurisdictions that are considered as tax havens, it can be difficult to identify the ultimate beneficial owner due to confidentiality protection,” said Ramesh Moosa, EY’s forensic and integrity services leader for Asean and Singapore. Falsified documents are a risk too, he added.

Chua Choon Hong, Moody’s Analytics’ head of financial crime practice for Asia-Pacific and the Middle East, added that developers are also concerned if the new requirements will add a burden to the client onboarding process and affect their business.

He said: “We have advised clients to make use of automation as much as possible to reduce manual work.”

Norman Ho, a senior partner in corporate real estate at Rajah & Tann, noted that the new requirements will impose a higher compliance cost on developers.

“This will hit smaller developers especially hard as they lack the economies of scale and dedicated compliance personnel and programmes,” he said.

Amicus’ Lai also pointed out that property developers may have to conduct background checks on some purchasers multiple times – before granting them an option to purchase a unit, and whenever there is an event which triggers the suspicion that a purchaser is engaging in money laundering or terrorism financing.

He said: “It is very fuzzy currently; what happens if a purchaser does not have any history of money laundering or terrorism financing when the option to purchase is issued, but is later discovered to have those ties. Can the property developer take over the unit and sell it to another buyer? All these must be addressed.”

One developer that BT spoke to said that its sales team has been trained to look out for certain tell-tale signs of suspicious buyers, such as those who arrive at a launch showroom just before closing hours claiming that they will not be able to provide personal information as they are in a rush.

When asked how URA will ensure that developers have conducted thorough checks on purchasers, URA said: “Developers are required to ensure proper record keeping… the controller will conduct regular audit checks on developers to ensure that they comply with the anti-money laundering and terrorism financing requirements.”

Those who fail to do so can be fined up to S$100,000 under the Developers (Anti-Money Laundering and Terrorism Financing) Act.