Real estate has become a buzzing industry recently to cater to the demand of a rapidly increasing global population, making it a profitable business venture around the globe.
However, its rising popularity and leniency in customer scrutiny have led to the looming threats of financial fraud, scams, and money laundering.
Real estate provides lucrative investment opportunities, thus, it has created a way for financial criminals to legitimize their illicit wealth.
What is KYC Verification in Real Estate Sector?
KYC stands for know-your-customer, and KYC verification means the identification of customers during the onboarding process. It involves collecting identity documents to verify the authenticity of customers as legitimate individuals with legal identities.
In the real estate industry context, KYC verification holds immense importance because of the spiraling risk of money laundering and illicit fund transfers. Fraudsters and financial criminals hide money earned through illegal channels by investing in properties.
Corrupt politicians, business tycoons, and influential personalities around the world launder money abroad and buy costly properties to conceal the source of wealth.
Real estate is an ideal medium for money laundering because it is relatively anonymous. Properties can be bought through shell companies, thus, the source of illicit funds cannot be traced. Unlike other investments undergoing sufficient transaction surveillance, real estate can be purchased through cash without getting monitored.
This is why millions of dollars are laundered annually. In the US alone, over 2.3 billion US bucks have been laundered through actual property between 2015 and 2021. These figures illustrate the gravity of the money laundering threat in the housing sector.
Therefore, KYC verification is critical for real estate businesses to ensure secure property dealerships and AML compliance.
Document Authentication in KYC Verification Process
The KYC verification process involves document identification and authentication of customers, or in this case, property purchasers. Your estate agency should collect accurate and legally valid customer data to comply with Know Your Customer regulations.
These credentials include the customer’s full name, birth date, and present residential address. It also requires government-issued identity documents, such as a national ID card, driver’s license, and passport.
The KYC verification procedure also needs the customer’s utility bills as proof of address. This document verification is necessary to determine whether your client is a legitimate entity having accurate identity documents.
KYC Online Verification through OCR/ICR Document Extraction Techniques
Character recognition is an artificial intelligence-backed technology for efficient and accurate digital document extraction. The real estate industry can use optical and intelligent character (OCR/ICR) recognition software solutions to extract data from customers’ documents.
OCR and ICR scan clients’ identity documents during KYC verification and convert the content into digital data. Moreover, intelligent character recognition is an excellent tool for scanning and verifying handwritten and typed documents with various layouts or fonts. ICR/OCR ensures an error-free and time-efficient data extraction solution during the KYC document verification.
Online KYC & Client Due Diligence for AML Compliance
Like every financial and non-financial business sector, the real estate industry should also integrate digital or online KYC procedures into their customer onboarding mechanism. Online KYC verification is more precise, comprehensive, and efficient.
It is a powerful solution to mitigate money laundering in the estate agency sector. Client due diligence is another essential KYC process. It involves continuous monitoring of suspicious financial activities and aims to ensure AML compliance. CDD deals with risk exposure, which means that a customer’s financial activity undergoes monitoring, and the organization assigns a risk profile to every customer.
If a client is flagged as suspicious, it undergoes strict surveillance, known as enhanced due diligence (EDD). Such a client is checked and screened against lists such as sanctions, embargoes, and politically exposed persons (PEPs).
It is checked if the investor is from any black-listed country or is on a watch list. Therefore, real estate agencies should ensure enhanced due diligence and comply with money laundering and countering-terrorism financing standards.
Financial Action Task Force Rulings
FATF is the primary inter-governmental regulatory body dealing with anti-money laundering and counter-terrorism funding efforts. It launched an up-to-date guiding principle for enforcing a risk-primarily based totally technique in actual estate. Some of the rules stated by FATF are presented below. The property dealing agencies should:
- Develop internal policy frameworks to implement a risk-based approach.
- Verify customers’ identities and identify the property’s true owner, called the ultimate beneficial owner (UBO).
- Perform due diligence procedures to detect if a customer is linked to money laundering or terrorist financing.
- Most significantly, be aware of the AML/CFT regulatory laws in the countries where clients or their funds originate to ensure compliance.
- Devise a comprehensive policy to produce a suspicious activity report and report to relevant authorities for further investigation if any client is flagged as suspicious.
In a Nutshell
KYC verification holds equal significance for the real estate sector, just like any other industry. Real estate agencies must integrate sufficient KYC procedures into their system.
They should adhere to AML/CFT standards to help combat financial crimes committed through property investment and ensure a safe investment environment.
