New EU money laundering directive enhances security in the purchase and sale of real estate
As the new year got underway, a number of new laws came into effect in Germany, including a number of new regulations that apply to the real estate industry. The 5th EU Money Laundering Directive, which is being implemented by Member States from January 2020, is designed to increase transparency and security within the real estate industry for both buyers and sellers alike. For example, the new law contains both improvements and tighter regulations and expands the definition of obliged entities to include real estate agents. As a result, real estate agents will now be required not only to ascertain and identify the beneficial owners involved in real estate transactions, but also to check them against relevant transparency registers. Another novel feature of the law is that real estate agents who lease real estate are also now required to comply with general due diligence obligations, with the restriction that the respective mediated transaction amounts to a monthly rent of EUR 10,000 or more. More stringent due diligence obligations already applied to transactions involving politically exposed persons (PEPs). Individual Member States are now required to submit lists of politically exposed persons, including the reasons for their classification as PEPs by January 2020.
Stricter reporting requirements for banks, notaries and estate agents
Since the introduction of the German Organized Crime Act (OrgKG) in 1992, money laundering has been deemed a criminal offence. In the intervening years, the law has been repeatedly expanded and tightened. As early as 2006, the EU introduced a Money Transfer Regulation, which required financial institutions to confirm the identity of any party when transferring money. Banks, insurance companies, notaries, tax consultants, lawyers, auditors and real estate agents must now conduct strict checks of every transaction and business relationship for possible money laundering and, if suspicion arises, report the transaction to the authorities.
In the future, all foreign companies will also have to register in the transparency register if they wish to buy property in Germany. In addition, the ownership and control structures of the contractual partner will need to be verified and documented in any planned real estate transaction.
What does this mean for you as a buyer or seller?
For clients of David Borck, the new law will not result in any additional fees or expenses. Together with our partners, we will handle all of the necessary document checks and due diligence, such as determining the identities of the buyer and seller, to ensure that the process runs smoothly all the way through to the notary appointment. Incidentally, the obligations apply to all transactions, i.e. to both private individuals and companies. We are required by law to keep the necessary records for five years in order to enable subsequent verification. In addition, our employees receive internal training in order to heighten their awareness of any risks associated with a specific real estate transaction or contractual partner at the earliest possible stage in the transaction process.