Real Estate Agents : Time To Roll Up Sleeves

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1. The Prevention of Money Laundering Act, 2002 (“PMLA”) was enacted with an objective to prevent money laundering i.e., preventing legitimising of money earned through illegal and criminal activities by investments in movable and immovable properties.

2. Under PMLA, Reporting Entities (being banking company, financial institution, intermediary or a person carrying out a designated business or profession) (“REs”) are cast with certain obligations and duties. Real Estate Agents (“REAs”) were included in the definition of “person carrying out designated business or profession” by way of GSR 1423 (E) dated 15 November 2017.

3. On 29 November 2023, the Directorate General of Audit, Indirect Taxes & Customs (Regulator under PMLA for REAs) has published detailed updated guidelines called the ‘Anti Money- Laundering, Countering the Financing of Terrorism, and Combating Proliferation Financing Guidelines for Real Estate Agents, 2023’ (“Guidelines”), framed under PMLA, the Unlawful Activities (Prevention) Act, 1967 (“UAPA”) and the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (“WMDA”). These Guidelines supersede earlier guidelines.

4. The Guidelines set out steps that REAs must take to discourage and to identify any money laundering or terrorist financing activities. The Guidelines are in two parts. First Part deals with obligations of the RE under PMLA; Second Part deals with obligations for all REAs under UAPA and WMDA. The Guidelines so far as they deal with the First Part are applicable to all REAs having an annual turnover of Rupees 20 lakhs and above.

5. Under the First Part of the Guidelines concerning PMLA, REAs, like other REs are cast with the obligation to:
i. Prepare Internal Policies – to establish appropriate internal policies and procedures for the prevention of money laundering and terrorist financing, in line with PMLA; and also for certain client identification procedures in respect of the buyers and sellers.
ii. Appoint Designated Director and Principal Officer - and updating their details with the Financial Intelligence Unit-India (“FIU- IND”) as well as the Real Estate Regulatory Authority. The Principal Officer is responsible for furnishing the information with respect to specified transactions including the ones mentioned in 5.v. below to the FIU-IND on a monthly basis by the 15th day of the succeeding month. Suspicious transactions on the other hand have to be reported immediately. The Designated Director is responsible for evolving an internal mechanism with respect to the Guidelines, communication of group policies to all management and relevant staff, client due diligence measures including maintenance of records, compliance with statutory and regulatory requirements, timely disclosure of information to law enforcement authorities and internal audit.
iii. Client Due Diligence (CDD) measures and Know Your Client (KYC) norms – To frame internal directives, adopt written procedures to implement the Anti Money Laundering provisions. To identify the clients and verify their identity, understand their nature of business, determine the beneficial owner (if any) on whose behalf the client is acting. In this process, REs are required to obtain KYC records of clients and file with same the Central KYC Records Registry.
iv. Enhanced Due Diligence (EDD) – to be conducted for higher risk clients and Politically Exposed Persons (including heads of States or Governments, senior politicians, senior government or judicial or military officers and senior executives of state-owned corporations). EDD covers measures more than mere documenting income proofs and includes frequent review of clients’ profile/transactions, application of additional measures like gathering information from publicly available sources, reasonable measures to know clients’ source of funds and conducting independent enquiries.
v. Maintain records and report transactions – pertaining to all the transactions, information relating to such transactions whether attempted or executed, identity of clients, and beneficial owners. Report inter-alia all cash transactions of the value of more than Rs. 10 lakhs or its equivalent in foreign currency; all series of cash transactions taken place in a month which although individually value less than Rs. 10 lakhs but aggregately exceed Rs. 10 lakhs or its equivalent in foreign currency; all cash transactions where forged or counterfeit currency notes or bank notes have been used
as genuine; and all suspicious transactions, independent of monetary threshold and whether or not made in cash.
vi. Report suspicious transactions – where the identity verification of the client seems difficult or clients that appear not to cooperate, clients based in high-risk jurisdictions, substantial increases in business without apparent cause, clients transferring large sums of money to or from overseas locations with instructions for payment in cash. Such transactions are to be reported to the FIU-IND, if RE has reasonable grounds to suspect that funds used by client are proceeds of a criminal activity or are related to terrorist financing.

6. In case of non-compliance with the obligations, the Directorate of Enforcement (ED) has the power to issue warnings; or direct the RE to comply with the specific instructions; or direct the RE to send reports; or impose a monetary penalty not less than Rs. 10,000/-, which may extend to Rs. 1,50,000/- for each failure.

7. Under the Second Part of the Guidelines, REAs irrespective of their annual turnover are required to comply with the following obligations under UAPA and WMDA:
i. Not to transact with specified individuals/entities - To ensure that they do not enter into any transaction with a client whose identity matches with any person in the sanction list or with banned entities and those reported to have links with terrorists or terrorist organizations or the with the designated individuals or entities notified by the Ministry of Home Affairs.
ii. Maintain Designated Lists – updated in electronic form and run a check on the given parameters on a daily basis to verify whether designated individuals or entities have any dealings or entered into any transactions with them.
iii. Suspicious Transaction Report – to be filed of a transaction undertaken with the designated individuals or entities, with the FIU-IND and the UAPA Nodal Officer.

8. In consonance with PMLA, the Real Estate (Regulation and Development) Act, 2016 (“RERA”) also mandates preservation of books of accounts, records, and
documents in accordance with applicable Law and produce them for inspection if so needed for grant or renewal of registration. Moreover, the Maharashtra Real Estate Regulation Authority (“MahaRERA”) has by way of Order No. 43 of 2023 dated 13 February 2023 provided directions for disclosure of real estate transactions undertaken for half yearly period from April to September 2023 and October 2023 to March 2024 in the manner prescribed, wherein the REAs are also required to provide details of the Principal Officer and Designated Director under PMLA. MahaRERA has the power to impose penalty and revoke registration of the REA for non-compliance with the provisions of RERA and the directions.

9. REAs play a significant role in real estate transactions and are closely connected to the clients during the transaction. With the inclusion of REAs in REs, an improved