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

Published on

March 14, 2023

Published by

Evonne Yeo

A total of 105 properties valued at S$831 million have been linked to one of Singapore’s largest money laundering probes. CNA speaks to real estate agents and analysts about their due diligence measures and what they look out for.


In Singapore, real estate agents must perform thorough due diligence checks on their clients to mitigate the risks of money laundering and terrorism financing, as outlined by both the Council for Estate Agencies (CEA) and industry experts.


This involves implementing a comprehensive due diligence checklist and utilizing a set of "suspicious indicators," which encompasses scrutinizing client behavior. Additionally, clients' information undergoes verification against international databases, including references to leaked documents such as the Panama Papers.



DUE DILIGENCE CHECKS


In response to inquiries from CNA, the Council for Estate Agencies (CEA) emphasized that real estate agencies and their agents are obligated to perform customer due diligence before establishing any business relationship.


This process entails the identification and verification of clients' identities, coupled with an assessment of the risk associated with their potential involvement in money laundering activities.


Moreover, real estate professionals are required to maintain records of these due diligence measures for a minimum of five years. In accordance with legal obligations, they must promptly report any detected suspicious transactions or activities to the Commercial Affairs Department.


In support of these efforts, the CEA has disseminated a comprehensive list of "suspicious indicators" within the real estate industry. This list encompasses various behavioral cues, such as instances where clients display hesitancy or decline to associate their names with any documents linking them to the property.


Entering a transaction with a value significantly deviating from the market value of the property and the acquisition of multiple properties within a short timeframe, seemingly without due consideration for factors like location, condition, and repair costs, are identified as indicators of suspicious activities.


The Council for Estate Agencies (CEA) conducts inspections on real estate agencies to verify compliance with these regulations. Failure to adhere to these guidelines can lead to financial penalties, with agencies facing fines of up to S$200,000 per case, and individual agents facing fines of up to S$100,000 per case. Furthermore, non-compliance may result in the suspension or revocation of an agent's registration.


ON-THE-GROUND AGENT PROCEDURES


Shafik Yusope, a property agent with PropNex Realty, Singapore's largest real estate agency, outlined the measures implemented by his employer to prevent money laundering and terrorism financing.


Salespersons at PropNex Realty are mandated to submit various forms, provided by the CEA, to their agencies when exercising an option to purchase. One such form serves as a checklist for customer due diligence in sale and purchase transactions, requiring salespersons to confirm details such as whether the prospective client or beneficial owner:


  • Is listed 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, including politicians and government officials, are considered high-risk due to their prominent public functions, making them susceptible to bribery or corruption.


For transactions with higher risk, agents must conduct enhanced due diligence by gathering additional information, including the transaction's purpose and the source of the client's funds or wealth. Approval from the agency is also required to proceed with such transactions, particularly those involving complexity or unusually large amounts that may attempt to obscure the beneficial owner or involve multiple intermediaries.



According to the provided checklist, if a salesperson believes that conducting due diligence measures may alert their client, they are advised not to pursue such measures and instead lodge a suspicious transaction report.


Agents are encouraged to submit a suspicious transaction report if they suspect any activities related to money laundering or terrorism financing, among other concerns.


To facilitate these checks, property agents now have the convenience of conducting due diligence on the go through web and mobile applications.


Mr. Shafik utilizes the Anti Money-Laundering (AML) web app, a collaborative effort between the Singapore Estate Agents Association, KEO Connect, and database firm Amicus. This app allows agents to generate a comprehensive report on a client, which can then be submitted to their respective agencies.


Another application, PropSage, designed to assist agents in managing property transactions, includes an AML checklist feature. Agents can easily input their clients' names into the system to check various databases, including 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 more. Additionally, agents can verify if their clients have been mentioned negatively in media reports, such as being a person of interest in commercial crime.



Beyond the official due diligence checklist, real estate agents remain vigilant for additional red flags, and one notable concern is when a buyer requests a "kickback" in a property purchase.


This practice is observed "quite often," particularly in luxury property sales to foreign buyers, according to Mr. Alan Cheong, Savills' executive director of research and consultancy.


In this scenario, where an agent is entitled to a 2 percent commission fee for brokering a sale, the buyer proposes retaining the agent's commission and, instead, offers a smaller "hard work fee," typically around S$10,000.


Mr. Cheong highlights the suspicious nature of such a request, emphasizing that it raises questions about whether the buyer is managing the funds personally or if the money being utilized belongs to someone else. Notably, the atypical request for a kickback from the agent, as opposed to negotiating a discount directly with the property developer, adds an additional layer of concern and scrutiny in the real estate transaction.


WHAT AGENTS CAN DO


Real estate agents employ various strategies to identify and address potential issues in property transactions. Mr. Shafik emphasized that agents typically pay attention to clients using significant amounts of cash. In case of any concerns, they promptly report the matter to their key executive officer and seek advice.


Key executive officers, responsible for overseeing agency operations and managing salespersons, play a crucial role in addressing and resolving potential issues.


OrangeTee & Tie agent Timothy Chew highlighted that if agents discover irregularities in payment, such as lump sum payments from clients to sellers or landlords, they are obligated to report these transactions to their agencies. The agency then takes charge of follow-up procedures, investigating further if necessary.


Agents refrain from confronting clients directly about irregularities, as their primary role is not investigative but rather to alert their agencies to unusual transactions.


If agents encounter no issues during the due diligence process, they indicate as much in their checklist, affirming that they have conducted due diligence and observed no unusual practices from their clients.


Mr. Cheong from Savills noted that suspicious transaction reports run in parallel with due diligence measures. Agents have the option to make a police report about a suspicious transaction at any point in time, even after the deal has been completed.


Regarding requests for kickback arrangements, Mr. Cheong acknowledged the dilemma faced by agents, stating that some buyers insist on such arrangements, threatening to take their business elsewhere if agents refuse. Despite suspicions, the allure of securing the deal sometimes leads agents to agree to these arrangements.


Mr. Cheong observed that, in some cases, newer agents may forego any commission or "hard work fee" associated with a kickback arrangement, aiming to be recognized as the agency's top performer based on the deal's value alone.


He also highlighted the inherent challenge in due diligence processes, noting that human greed can sometimes override propriety, emphasizing the importance of agents' ethical decision-making in navigating such situations.

Singapore Real Estate Expert - Evonne Yeo, Professional Realtor

Discover your ideal property with Evonne Yeo, a seasoned real estate professional in Singapore. With keen expertise and years of experience, Evonne ensures unmatched support in your property transactions. Contact us to begin your real estate journey!

Singapore Real Estate Expert - Evonne Yeo, Professional Realtor

Discover your ideal property with Evonne Yeo, a seasoned real estate professional in Singapore. With keen expertise and years of experience, Evonne ensures unmatched support in your property transactions. Contact us to begin your real estate journey!

Singapore Real Estate Expert - Evonne Yeo, Professional Realtor

Discover your ideal property with Evonne Yeo, a seasoned real estate professional in Singapore. With keen expertise and years of experience, Evonne ensures unmatched support in your property transactions. Contact us to begin your real estate journey!