Real Estate Developers and Used Car Dealerships Will Soon be Brought Under Jamaica’s Anti-Money Laundering Laws

Signals are being sent that real estate developers and used car dealerships will soon be brought under Jamaica’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework given their high vulnerability to financial crimes.

In fact, the authorities have detailed cases of crimes involving real estate transactions and drug dealers getting involved in real estate acquisitions in Jamaica’s AML/CFT National Risk Assessment report for 2021, which was recently released by the Bank of Jamaica. The report observes that the proceeds of crime have been used by criminals to finance real estate development projects as a means of laundering money in Jamaica.

The available evidence indicates that the AML/CFT risk posed by used car dealers have been assessed as high. The report, which covers the assessment period of 2016 to 2019, identified real estate developers and used car dealerships as emerging areas of risk, which do not fall under Jamaica’s current AML/CFT framework.

The report assessed that, “Given the number of investigations involving these sectors, they are areas of concern and the risk must be managed to reduce Jamaica’s AML/CTF risk and vulnerability.”

REAL ESTATE DEVELOPERS

Real estate developers do not currently fall under the Proceeds of Crime (Designated Non-Financial Institution) (Real Estate Dealers) Order, 2013. As a result, there is no legal framework requiring this group to conduct customer due diligence and file suspicious transaction reporting (STR), although they are allowed to carry out the functions of a real estate dealer.

This current state of affair constitutes a gap in Jamaica’s AML framework, as developers are not being held to a similar standard as dealers. Also, developers are not regulated under Proceeds of Crime Act (POCA), hence they have no legal obligation to apply AML/CFT due diligence when dealing with their clients.

Even though the Real Estate Board (REB) does not have any legal authority to request source of funding from developers, this is done in practice before approving new developments. However, concerns have been raised regarding the proof of financing provided by a small percentage of developers.

From a review of STR data and criminal investigations that have been conducted, it has been shown that developers feature in a number of the investigations concerning money laundering. The primary concern of the Jamaican authorities at this time is that real estate developers may use their operations to legitimise ill-gotten gains, given the lack of supervision.

“Taking all this into consideration, the AML/CTF threats and vulnerability posed by developers have been assessed as high,” Jamaica’s 2021 AML/CFT National Risk Assessment report stated. Though real estate developers featured in a number of investigations, it should be noted that the majority of the sector is legitimate with funding provided by financial institutions.

Developments may also be financed through bonds raised through the private capital market.

CASE EXAMPLES

In November of 2016, A drug trafficker Mr XX was convicted of conspiracy to possess with intent to distribute 1,000 kilogrammes or more of marijuana, while his wife was convicted of conspiracy to commit money laundering. Subsequently, a joint effort between US Marshall Service and the Financial Investigations Division (FID) discovered that the couple had used the illicit funds they had acquired to purchase and construct over $400 million in property.

These properties included:

• a 16-unit apartment complex valued at $180 million

• a 10-unit apartment complex valued at US$800,000 ($103 million)

• another apartment complex valued at US$500,000 ($65 million)

• a parcel of land being developed of unspecified value.

The officers investigating the case stated that the construction and purchase of these properties were financed directly with USD cash. The properties were disposed of in accordance with a signed memorandum of understanding (MOU) between Jamaica and the United States.

In another case, Mr Z, a former municipal government official was found guilty of defrauding a parish municipality of over $400 million in 2020. In court, evidence was provided that showed that Mr Z used the illicit funds to acquire several high-value properties, all of which were done through cash transactions, including the purchase of materials and the payment of labour.

The properties in question included:

1) an 11-unit apartment complex

2) a four-storey family house

3) four residential lots

For his crimes Mr Z received a five-year prison sentence. Additionally, the Government has successfully taken possession of properties and other assets valued at more than $220 million under the forfeiture clause found in the Proceeds of Crime Act.

The cases highlight the heightened risk of real estate being used aa vehicle to circumvent AML/CFT efforts.

USED CAR DEALERS

The used car dealers sector is not regulated for AML/CFT purposes in Jamaica. From a review of investigations conducted, the seizure of motor vehicles feature in a number of the investigations concerning money laundering.

The concern is that individuals wishing to convert their illicit funds may use the car dealerships to acquire vehicles as assets, given the lack of supervision. In light of the available evidence, the AML/CTF risk posed by used car dealers have been assessed as high.

Investigations have shown that proceeds of crime are laundered through the used car business. Based on information received during interviews with four dealers, the report detailed loopholes through which money can be laundered through used car dealerships:

• Multiple payments are made in cash over a short period of time for vehicles.

• Dealerships established for the sole purpose of laundering funds – only two or three vehicles are parked at a location, but millions of dollars in purported sales – not commensurate with the low number of vehicles on the lot.

• Shell operations – multiple dealers sharing an operating address for the purpose of inspection by the Trade Board and granting of a licence to operate. It should be noted that once approved, no other inspection or verification is conducted by the Trade Board. No real business is conducted by most of these registered dealers, but are instead used as a front to launder funds from other illicit activities.

• Unregistered dealers can also operate with the assistance of a facilitator who obtains the certificate to operate and charges for the use of that certificate. The facilitator’s records only reflect the cost of the vehicles sold, but not the income indicating possible tax evasion.

• Lottery scammers’ counterparts in the United States are sending the money directly to Japan to purchase motor vehicles which are then delivered to Jamaica. These vehicles are sold to customers who often secure financing from a financial institution from which payment is then made directly to the account of the dealer.

• Some used car dealers own taxis and buses. Tainted funds from the dealership are then commingled with the funds earned from operating the taxis.

Article credit: https://www.jamaicaobserver.com/sunday-finance/we-are-watching-you-d_234395