AMLA Compliance and Reporting Procedures in Real Estate

AMLA Compliance and Reporting Procedures

A. Legal Basis and Purpose

• R.A. 9160: The original Anti-Money Laundering Act (AMLA).

• RA 10927 (2017): Expanded coverage to Real Estate Developers and Brokers.

  • Objective: Prevent laundered money from illegal sources from entering the real estate market and ensure compliance with the Anti-Money Laundering Council (AMLC) rules.

• Recognized as “Covered Persons”: Real estate brokers (REBs) and real estate developers (REDs) must report cash transactions and suspicious activities to the AMLC.

B. Covered Persons and Covered Transactions

• Covered Persons:

  • All real estate developers and brokers engaged in the buying and selling of real property.

• Covered Transactions:

  • A transaction in cash or its equivalent exceeding $P7,500,000$, involving the purchase or sale of real estate.

• Suspicious Transactions:

  • Any transaction, regardless of amount, that is unusual, lacks legal purpose, inconsistent with the client's profile, or structured to evade the $P7.5M$ threshold.

C. Responsibilities of Real Estate Brokers

1. Customer Due Diligence (KYC):

   • Establish and verify the true identity of clients using official documentation.

   • For corporations, verify their legal existence and authorized representatives.

   • Anonymous or fictitious accounts are strictly prohibited.

2. Record Keeping:

   • Maintain transaction and client identification records for five (5) years.

   • For closed accounts, retain records for five years from the date of closure.

3. Reporting Obligation:

   • Submit reports of covered and suspicious transactions to the AMLC within five (5) working days of occurrence.

   • Reporting must be done in good faith and kept strictly confidential.

   • Brokers are immune from liability when reporting in good faith.

D. Reporting Process

• Steps:

  1. Identify:

  • Detect covered transactions; any transaction or series amounting to or exceeding $P7,500,000$, whether in cash or property.

  1. Verify & Document:

  • Conduct customer due diligence, verify identity, and secure supporting documentation.

  1. Report to AMLC:

  • File a Covered Transaction Report (CTR) or a Suspicious Transaction Report (STR) through the AMLC Portal within five (5) working days.

  1. Maintain Records:

  • Keep copies of filed CTR/STR, identification data, and transaction records for five years.

  1. Observe Confidentiality:

  • Do not disclose to clients or the public that a report was filed.

E. Red Flags for Suspicious Transactions

• Buyer pays in large cash amounts that are inconsistent with their income source.

• Purchase made by a third party with unclear relation to the buyer.

• Multiple properties bought in a short time without clear investment intent.

• Requests to split payments into smaller amounts to evade the $P7.5M$ threshold.

• Buyer refusing to provide identification or insisting on anonymity.

• Early resale or flipping with no legitimate purpose.

• Payment from offshore or unrelated bank accounts.

G. Penalties and Liabilities

• Offenses and Corresponding Penalties:

  1. Money Laundering (Sec. 4a):

  • Penalty: 7-14 years imprisonment + $P3,000,000$ fine or up to twice the property value.

  1. Failure to Report / Keep Records:

  • Penalty: 6 months-1 year imprisonment + $P100,000$-$P500,000$ fine.

  1. Malicious or False Reporting:

  • Penalty: 6 months-4 years imprisonment + $P100,000$-$P500,000$ fine.

  1. Breach of Confidentiality:

  • Penalty: 3-8 years imprisonment + $P500,000$-$P1,000,000$ fine.

  1. For Corporate Entities:

  • Responsible officers held personally liable, with potential license revocation.

H. Quick Summary Table

• 
  

• Requirements and Deadlines:
  

  Requirement	Who Must Comply	Deadline
  1. Register with AMLC	All REBs and REDs	Upon start of practice/business
  2. Customer Due Diligence (CDD)	All clients before sale/closing	Before completing the transaction
  3. Record-Keeping	REBs and REDs	5 years from transaction
  4. Covered Transaction Report (CTR)	REBs/REDS (cash > $P7.5M$)	Within 5 working days
  5. Suspicious Transaction Report (STR)	REBs/REDS (any suspicious transaction)	Within 5 working days of suspicion
  6. Money Laundering Conviction	Any person proven guilty	---
  I. Due Diligence in Real Estate Transactions

  A. Legal Concept of Due Diligence

  • Definition:

    • Due diligence is the legal and ethical duty of a licensed broker to verify the authenticity, ownership, and legal status of any real property before marketing or transacting it.

  • Mandated Under RA 9646 (RESA Law, Secs. 36-39 & Rule IV IRR):

    • "A broker shall protect the interest of his client and ascertain the ownership and legal status of the property."

  B. Legal Bases and Connection to Real Estate Service Requirements

  1. RA 9646 - RESA Law & IRR:

     • Sec. 36-39: Legal duty to verify title, ownership, tax status, and encumbrances before offering property.

  2. PD 1529 - Property Registration Decree:

     • Secs. 53, 57-58: Requirements for property registration.

  3. RA 7160 - Local Government Code:

     • Book II, Title II: Contains provisions related to local governance and process.

  4. PD 957 - Subdivision & Condominium Buyers' Protection Decree:

     • Secs. 20-25: Protects buyers in property transactions.

  5. BP 220 - Economic & Socialized Housing:

     • Legal framework for economic and socialized housing developments.

  6. Civil Code - Arts. 2085-2123:

     • Governs contracts and obligations related to property transactions.

  C. Due Diligence Checklist

  • Steps:

    1. Title Verification:

    • Confirm authenticity and ownership of TCT/OCT; review encumbrances and annotations.

    1. Tax Validation:

    • Secure Tax Declaration and Official Receipt; check for delinquent RPT or special levy.

    1. Property Identification:

    • Match technical description with the survey plan and on-site boundaries.

    1. Regulatory Compliance:

    • Confirm developer’s registration, permit to sell, and DHSUD certificate before marketing projects.

    1. Encumbrance Check:

    • Verify absence of mortgages, lis pendens, or court attachments.

    1. Tax Clearances for Sale:

    • Ensure Capital Gains Tax and DST are paid; obtain BIR Certificate Authorizing Registration (CAR).

    1. Client KYC and AMLA:

    • Verify client identity and source of funds under R.A. 9160 ($P7.5M$ threshold).

    1. Contract Review:

    • Ensure terms are clear, lawful, and compliant with RA 9646 and the Civil Code.

  D. Importance of Due Diligence in Legal Practice

  • Benefits:

    • Protects the broker's license from violations of RA 9646 and PRBRES Code of Ethics.

    • Prevents fraud, double sales, and forgeries.

    • Assures clients of clean ownership and compliance with government regulations.

    • Forms a part of Legal Requirements for Real Estate Service ensuring transactions are valid, binding, and enforceable.

  E. Common Red Flags Detected Through Due Diligence

  • Duplicate or tampered titles (not printed on LRA security paper).

  • Unpaid real property taxes with annotated tax liens.

  • Mortgages or court attachments not disclosed by the seller.

  • Properties sold by a person without a Special Power of Attorney (SPA) or proof of authority.

  • Developers lacking a valid License to Sell or those with expired registration.