Money laundering prevention in the property sector

The First National Risk Analysis of the Federal Republic of Germany attests that the property sector poses an "outstanding risk" for money laundering activities. This is justified by the great importance of property from an economic and social perspective, its stable value and the resulting high transaction volumes. In its guidelines for a risk-based approach in the property sector, the Financial Action Task Force also points out the secondary benefits of property, such as the possibility of obtaining residence permits or citizenship.

In its Federal Situation Report on Organised Crime, the Federal Criminal Police Office also noted the importance of real estate as a key investment category for criminals. According to the report, real estate represented by far the largest share of the provisional asset seizures carried out in financial investigations in 2023, totalling 32 million euros. In the previous year, the total was as much as 130 million euros.

Particular risks arise in the property sector when formal ownership and beneficial ownership diverge. Despite existing transparency requirements, criminals can create de facto anonymity through the use of nested company structures or property companies.

In the context of so-called clan crime, the acquisition of property for money laundering purposes has increasingly become the focus of public attention. (Forced) auctions in particular harbour an increased risk of money laundering. Criminal groups acquire properties and often settle the purchase price with cash acquired in connection with a criminal offence.

In response to the identified risk exposure, the legislator requires various intermediaries involved in property transactions to comply with anti-money laundering screening measures. In addition to credit institutions and notaries, this also includes real estate agents¹. Real estate agents within the meaning of the Money Laundering Act are commercial brokers of purchase, lease and rental agreements for land, leasehold rights, commercial premises and residential premises.

In principle, brokers must fully comply with the requirements set out in the Money Laundering Act. However, the legislator provides relief for pure letting agents. They only have to have an effective risk management system, including group-wide procedures, if they broker contracts with a monthly net cold rent of at least 10,000 euros. No due diligence obligations need to be applied for brokerage transactions below this value threshold. The appointment of money laundering officers has so far been entirely voluntary for estate agents - unlike for financial companies.

If obliged brokers carry out their professional activities as employees of a brokerage company, the obligations under money laundering law are incumbent on this company². According to the Joint Interpretation and Application Guidance of the federal states for non-financial companies, estate agents are generally responsible for compliance with the obligations when working with freelancers - provided that the brokerage is carried out in their name. There is an exception for estate agents based in Hesse. The locally responsible regional councils consider the individual legally independent brokers to be independently obligated parties, provided they have an official licence to exercise the profession and have registered a business. This applies regardless of in whose name or for whose account the brokerage contract is concluded, i.e. in particular also for commercial agents and franchisees³.

The European Union adopted a comprehensive money laundering package on 31 May 2024. The centrepiece of this amendment is the Money Laundering Regulation. This means that, for the first time, the material requirements for the prevention of money laundering will be standardised and directly applicable throughout the Union without the need for further national implementing acts.

According to the recitals, property entrepreneurs who broker the purchase, sale and letting of property should take measures under money laundering law, regardless of their name, their main activity or their profession. This also applies to property developers involved in brokerage.

The regulation stipulates that estate agents must treat both parties to a property transaction as clients and are therefore subject to due diligence obligations⁴. If an obliged real estate agent acts for both parties, the exception that the agent only has to identify his client has applied to date⁵. This special provision is missing from the text of the regulation, which is why estate agents will have to reckon with corresponding additional expenses when concluding transactions in future.

The previous value threshold of EUR 10,000 for brokering rental agreements remains unchanged. However, the European legislator generally excludes letting agents below this threshold from the obligation under money laundering law. This goes beyond the previous regulations, according to which obliged entities must at least report suspicious cases regardless of whether they have an effective risk management system in place. According to the current legal situation, attention must be paid to the economic plausibility of transactions, and indications such as unusual time pressure on the part of the client or payment of the purchase price in cash or from accounts in high-risk countries must be critically assessed⁶.

In future, obliged real estate agents will also have to appoint money laundering officers and formalise their existing money laundering measures in terms of organisational structure.

The Anti-Money Laundering Regulation will apply directly in all EU member states from 10 July 2027. At various points, the regulation refers to technical regulatory and implementation standards that are still to be developed by the new Anti-Money Laundering and Terrorist Financing Authority (AMLA). These standards are intended to further specify the obligations under money laundering law. It is currently unclear to what extent national legislators will have further regulatory powers or will utilise them. A comprehensive revision of the administrative practice of the locally competent supervisory authorities is to be expected.

Real estate agents should familiarise themselves with the new regulations at an early stage and sound out their impact on their existing risk management system as part of a gap analysis.

The experts at KPMG will be happy to answer any questions you may have about preventing money laundering.

¹Since the Anti-Money Laundering Act came into force on 15 August 2002.

²Vgl. § 6 Abs. 3 Geldwäschegesetz

³Auslegungs- und Anwendungshinweise zum Geldwäschegesetz der Regierungspräsidien in Hessen

⁴Vgl. Art. 19 Abs. 6 lit. c Geldwäscheverordnung

⁵Vgl. § 11 Abs. 2 Geldwäschegesetz

⁶FIU-Typologiepapier mit besonderen Anhaltspunkten für den Immobiliensektor