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Friday, January 27, 2023

Government asks property dealers to provide financial details of clients

The Government of Pakistan has started the enforcement of Statutory Regulatory Order 2020. Under this, the real estate brokers and other informal sectors are supposed to assess clients for suspicious money and report to FBR. This is a FATF requirement to curb money laundering.

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To meet the requirements of the Financial Action Task Force (FATF), the government has registered all tax returns-filing real estate dealers as Designated Non-Financial Businesses and Professions (DNFBPs) and directed them to provide full details of their clients and property transactions after completing customer due diligence.

Read More: Pakistan ready to be removed from the FATF grey list: Hammad Azhar

The government is supposed to appear before a plenary in June to show the progress on the three remaining points in order to get Pakistan removed from the grey list that the country was put on, in 2018.

One of the biggest hurdles is regulating the informal sectors like real estate, and thus this is one step by the government in that direction.

Thus, more than 20,000 real estate brokers, who are tax filers and have now been designated as DNFBPs, were served a four-page questionnaire containing 86 questions to submit online within seven days. “In case of non-compliance or partial compliance, action as per law will be initiated,” said the notices.

Simultaneously, Imran Khan’s construction package to boost up the industry and related amnesty scheme is in place until June 30 under which the people are not bound to reveal the sources of income for the investment being done in this sector.

Under Statutory Regulatory Order (SRO) 924 passed in September last year, the Federal Board of Revenue (FBR) has designated various professional entities as DNFBPs to meet the anti-money laundering and counter-financing of terrorism (AML/CFT) requirements of FATF.

According to the document, “The DNFBPs shall take appropriate steps in accordance with section 7F of the AML Act to identify, assess, and understand their risks for customers, countries or geographic areas, and products, services, transactions or delivery channels,” meaning that the brokers have to document the risk assessment and provide it to the FBR.

This includes local and foreign politically exposed persons and high net worth individuals, including non-resident clients present in high-risk Money Laundering/Terrorism Financing ML/TF areas.

They are also required to report if they have face to face or otherwise interactions with clients, types of payments for property transactions along with risk assessment of such clients and transactions and ensure risk mitigating controls and whether or not the procedures had been completed to fulfill the FBR and AML(Anti-Money Laundering) regulations.

Interestingly, the brokers have also been asked to identify clients and report the number of transactions related to “high-risk countries or areas of concern or the border areas of Khyber Pakhtunkhwa and Balochistan as well as South Punjab” as to ‘what was the value of those transactions” in rupees.

According to clause 14, the DNFBP are also required to issue suspicious transaction reports (STRs) and currency transaction reports (CTRs) relating to entities and individuals to the Financial Monitoring Unit (FMU) as required under section 7 of the Anti-Money Laundering Act.

According to the AML Act, “Every reporting entity shall file with FMU, to the extent and in the manner prescribed by the FMU, Report of Suspicious Transaction conducted or attempted by, at or through such reporting entity, in this case, DNFBP, if it knows, suspects or has reason to suspect that the transaction or a pattern of transactions of which the transaction is a part.”

The DNFBPs include lawyers and law firms, notaries, other legal professionals, accountants, and accounting firms, when they provide certain services to client, real estate agents, including brokers and dealers, builders and developers and housing authorities, as well as dealers in precious metals and stones, including jewelers, when they conduct cash transactions of over two million rupees. The accounting and legal sectors are also subject to AML/CFT rules when they provide trust and company services to clients.

However, reportedly, the language of the questionnaires sent is too difficult for the brokers, and the idea of risk assessment is very vague, as most of these businessmen are not well versed in finance and related fields.

Read More: Pakistan’s Real Estate Development: A Potential Gold Mine

Moreover, getting such private financial information may be contrary to the interests of these brokers, as it may disincentivize their clients from investing. Thus, we have to wait and see how the matters proceed in this regard, and how the real estate brokers react to the government’s initiative.