Real Estate in the Age of Terrorism
By Harriet Cochran Murray
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There are agencies in most countries which oversee and develop guidelines for dealing with the international problem of money laundering and funding for terrorism. The letters ML/FT are the international abbreviations for this subject.
The International Consortium of Real Estate Associations (ICREA), of which Mexico is a member, works on behalf of the global real estate industry to help each country evaluate its own particular customs and to help it take action appropriate for its own market.
Real estate brokers and agents worldwide need to be aware of laws and regulations designed to fight money laundering and terrorist financing (ML/FT). Professionals in real estate are reminded of their responsibility to be alert to suspicious activity related to any real estate transaction.
There are many parties to a real estate transaction including agents, attorneys, escrow companies, notaries, title companies in addition to the buyer and seller. Each party has a different relationship with the principals to the transaction. Professional interaction with the parties includes gathering of personal or company information, receipt and disbursement of funds and the recording of the transaction.
Each participant to the transaction should review their role in the process and determine how they might contribute to the important task of educating themselves about ML/TF red flags and practices to handle a situation when it occurs.
A list of red flags found to involve real estate in illegal financing schemes includes:
- Use of wire transfers. Mexico has very strict regulations on its banks and cash changing houses (casa de bolsa) wiring funds from or to unknown sources or persons.
Additionally, the use of escrow in this market through US title companies has been very instrumental in screening illegal financing schemes in the purchase of real estate properties.
- Transactions in which parties involved do not show a particular interest in the condition or location, or other characteristics of the property. These buyers do not seem interested in obtaining a better price or payment terms. They show a strong interest in completing the transaction quickly, without there being good cause. These buyers show considerable interest in transactions related to buildings in particular areas, without caring about the price they have to pay.
- Transactions performed through intermediaries.
- Transactions of the same property in quick succession with a significant increase or decrease in the price compared with the original purchase price.
- Transactions entered into at a value significantly different from the real value of property or from market values.
- Transactions carried out on behalf of minors, incapacitated persons or others who appear to lack the economic capacity to make such a purchase.
In Mexico real estate agents, notaries, other attorneys and accountants are identified as DNFBP (Designated Non Financial Business and Professional Persons) who are part of group with legal requirements to avoid engaging, innocently or deliberately, in any ML/FT schemes.
Notaries in Mexico are required to report to Hacienda (Mexican IRS) all purchases of real estate, regardless of type of payment.
This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review.
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