The UAE has introduced new reporting requirements for “certain real estate transactions” conducted in the country to fight money laundering and terrorism financing.
As part of the latest directive, all real estate agents, brokers, and law firms are required to file reports to the Financial Intelligence Unit on the purchase and sale transactions of freehold properties that involve three methods of payment, whether for a portion or the entirety of the property value.
The Ministry of Economy (MoE) and the Ministry of Justice (MoJ), in collaboration with the UAE Financial Intelligence Unit (FIU), have announced the introduction of these new reporting requirements.
The UAE is one of the first countries to implement such a mechanism for real estate transactions involving virtual assets, marking the latest example of the UAE’s sustainable and evolving approach to the global fight against money laundering and terrorist financing. The decision was made following multiple meetings and discussions amongst the MoE, MoJ, FIU, and other competent authorities in the UAE, including the Executive Office for Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT).
The new requirements, which apply to both the real estate and legal sectors, aim to “ensure the development of their regulatory frameworks, leaving little or no room for manipulation or illegal practices that could negatively impact the work environment and the economy and investment within these sectors”, said Mr. bin Touq, Minister of Economy. In UAE includes any of the below three methods of payment, whether for a portion or the entirety of the property value:
• Single or multiple cash payment(s) equal to or above AED 55,000.
• Payments that include the use of a virtual asset.
• Payments where the fund(s) used in the transaction were derived from a virtual asset.
One of the requirements for the sale and marketing of off-plan units will now include that the developer has set up an escrow account. The proceeds from off-plan sales will need to be paid into this account and only taken out in stages to fund construction. Given the restrictions on withdrawals, the developer will effectively have to self-fund (or obtain finance) for the first 20 percent of construction works. These accounts also apply to existing projects as well, unless the building has reached at least 70 percent completions.
DNFBPs include a wide range of sectors that are mostly exposed to the risks of money laundering and misuse of commercial transactions and the funds traded by them for money laundering or other illegal practices, given the nature of the services they provide and the products they deal with. Last year, the country established the Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism, an agency to deal with money launderers, organizations, and people suspected of financing terrorists and organized crime. In November 2020, the Ministry of Economy set up a new anti-money laundering department to ensure that all non-financial businesses and professionals comply with local laws. The CBUAE has also been penalizing exchange houses operating in the country for failing to achieve the appropriate levels of compliance with anti-money laundering regulations.
The relevant private sector entities have been informed about the specific requirements in regulatory circulators issued by the MoE and MoJ. Additionally, to ensure preparedness, UAE authorities have collaborated to host three separate workshops with real estate agents and brokers, as well as law firms, helping to guide them through the new reporting requirements and enhance their familiarization with the FIU’s goAML system. The MoE and MoJ play a key role in the UAE’s framework for AML/CFT as the supervisory authorities for designated non-financial businesses and professions (DNFBPs), including real estate agents and brokers, and law firms, respectively. DNFBPs include a wide range of sectors that are mostly exposed to the risks of money laundering and misuse of commercial transactions and the funds traded by them for money laundering or other illegal practices, given the nature of the services they provide and the products they deal with. The MoE and MoJ apply a proactive, risk-based supervisory approach in line with UAE legislation and the international standards set by the Financial Action Task Force (FATF).
The DMA may fine developers to compensate purchasers where the developer is delayed beyond six months. Importantly, this may apply to existing developments depending on the stage of completion. The new law also includes provisions for the cancellation of projects or appointment of a new development where there is a significant delay.
PwC’s recent report, The UAE Virtual Assets Market, emphasizes the highly internationalized customer base of the real estate sector and its vulnerability to transactions in cash, as observed by the global Financial Action Task Force in its 2020 mutual evaluation report on the jurisdiction. Earlier in 2022, Dubai introduced a virtual assets regulatory regime supervised by the Dubai Virtual Assets Regulatory Authority. Some real estate firms are now accepting payments in cryptocurrencies, although the UAE nominally prohibits the use of cryptocurrencies as a method of payment. Real estate buyers must work with a third-party broker to convert their crypto-assets to fiat currency before sending them to the seller. Agents, brokers, and law firms will also have to obtain and record identification documents for all parties to a transaction. The Ministry of Economy and Ministry of Justice have issued regulatory circulars informing private sector entities about the new requirements. The rules apply to both individuals and corporate entities.
