Who owns the house? How criminals abuse the property market

Ted* acts as representative of Company X that wants to buy a lavish apartment in a sought-after part of town, but some of the information Ted provides the estate agent does not add up.

The estate agent must gather more information about Company X and Ted, as part of the customer due diligence process, to fully understand the nature of the business and control structure of Company X. The estate agent must identify Ted as the person acting on behalf of Company X, Company X, and the beneficial owner/s of Company X.  

After identifying Mr Z, the majority shareholder who is the beneficial owner of Company X, the estate agent discovers Mr Z is linked to a criminal syndicate. 

As demonstrated in the example above, criminals, such as Mr Z, may seek to use their illegally obtained funds to purchase property, motor vehicles or other high-end goods while using a corporate structure to camouflage their identity. 

The Panama Papers highlighted how front companies and offshore structures were used to conceal the true beneficial owners of assets, and where criminal beneficial owners set up shell or front companies controlled and used to disguise the source of illicit funds.

It’s for this reason that in terms of the Financial Intelligence Centre (FIC) Act, accountable institutions such as estate agents are required to understand the beneficial ownership structure as part of their customer due diligence compliance obligations. 

Section 21B of the FIC Act explains the basis of the requirement to identify and take reasonable steps to verify beneficial owners. The FIC Act places an obligation on accountable institutions to identify the natural person who owns a controlling interest in the company (legal person).

The accountable institution should follow a process of elimination: this entails first trying to identify the natural person who owns a controlling ownership interest in the client. However, if the accountable institution has doubts as to who this natural person is or there is no natural person, then the accountable institution must proceed to the next step, which is to identify the natural person who exercises control by other means over the client.

Should the second step not identify the natural person, the last step entails that the accountable institution must determine the natural people who exercises control over the management of the legal person.

The Financial Action Task Force (FATF), the global body for setting standards on combating money laundering and terrorist financing, published best practices on beneficial ownership for legal people in October 2019. SA, as a member of FATF, subscribes to its standards. 

For more information on this topic refer to guidance note 7, which has a chapter dealing with beneficial ownership, on the FIC website, along with other guidance notes, public compliance communications and user guides.

Contact the FIC’s compliance contact centre on +27 (0) 12-641-6000 or log an online compliance query by clicking here.  

* Fictitious name and scenario used for illustrative purposes 

This article was paid for by the Financial Intelligence Centre.