The real estate sector, by virtue of the nature and amounts of transactions it generates, is highly exposed to the risks of money laundering and terrorist financing (ML/TF). Indeed, according to the 2023 CNS report, it is the main sector subject to sanctions issued by the CNS for breaches of ML/TF obligations, representing 62.5% of total sanctions in 2023.
In order to strengthen the resilience of this high-risk sector, the TRACFIN services ( Processing of intelligence and action against illicit financial networks ) and the DGCCRF ( Directorate-General for Competition, Consumption and Fraud Control ), have published joint guidelines for the TRACFIN obligations in real estate, November 6, 2018. They aim to support real estate professionals in implementing their obligations, with the main objective of helping to identify and assess risks, and then to prevent them.
I – Guidance on TRACFIN guidelines – DGCCRF
These guidelines constitute an explanatory document, without any normative value, but indispensable for interpreting and applying the obligations of the French Code of Finance and Securities ( CMF ) in relation to LCB/FT.
Updates to incorporate Directive 2015/849 of May 20, 2015, European anti-money laundering, They have essentially practical and pedagogical scope. They allow :
- To recall which professionals and real estate sector operations are subject to LCB/FT obligations ;
- To identify the specific risks related to the real estate sector ;
- To assist professionals subject to implementing their risk assessment and management system ( with the stages of mapping of risks and the implementation of measures and internal policies ) ;
- To specify the monitoring measures to be applied ( For example, for a real estate intermediary, the identification of a client and an ultimate beneficial owner will intervene before the signing of a mandate. Another example, in the case of a business relationship, identification will intervene from the manifestation of interest of the client for the property (purchase offer, manifestation of interest to rent );
- To assist professionals subject to distinguishing vigilance obligations depending on whether a client is regular or occasional ( For example, client identification measures provided for in Articles L561-5 and R561-10 of the CNIL are always required if the relationship is established with a regular client, whereas with an occasional client, measures are only required if the operation exceeds 15,000€ or if there is suspicion );
- To recall what a suspicious transaction report is to TRACFIN ( What triggers? What modalities? What to declare? What deadlines ) ;
- To specify the internal control and governance obligations of the LCB/FT framework ;
- To specify the training and information obligations for personnel ( The continued awareness of employees ) ;
- To specify that there is a control by the authorities, that they have powers of sanctions ;
- Propose in the appendix, risk situation typologies, alert criteria ( relating to operations, funds, effective beneficiaries, due diligence measures ).
These guidelines are addressed to all actors governed by Article 1 ( 1st, 2nd, 4th, 5th, 8th and 9th ) of the Hoguet Law such as real estate agents, property managers, condominium managers, etc.
II – What lessons for the implementation of TRACFIN procedures ?
1. A risk-based approach
The LCB/FT framework relies on a risk-based approach. Therefore, each professional must identify risk factors ( customer profile, nature of the transaction, source of funds, countries involved, etc. ), assess their level, and subsequently classify clients and operations accordingly.
These actions give rise to what is known as a risk mapping, which is specific to each entity and which is documented in writing, shared with employees and updated regularly.
2. Differenciated diligence obligations
The obligations of due diligence vary depending on whether it is a business relationship with a regular customer or a one-off customer. In all cases, the identification of the customer and the beneficial owner is imperative. However, the intensity and timing of verification differ :
- For an ongoing or repeated business relationship, constant vigilance is required ;
- For a one-off operation, targeted vigilance is sufficient, unless there is suspicion or a particular risk, in which case reinforcement is required.
A streamlined procedure may be considered in the event of low risk, but must be justified and documented.
3. The suspicion declaration TRACFIN, a central device
In the event of atypical or inconsistent elements that raise doubts about the legality of the funds or the real intention of the operation, the professional has an obligation to conduct a confidential suspicion declaration to TRACFIN, via the secure platform Ermes. A TRACFIN correspondent must be designated in each structure to centralize and coordinate these types of reports.
4. Organization, internal control and training
To comply, each professional must formalize their prevention framework around several pillars :
- Written and adapted internal procedures ;
- The appointment of a LCB/FT data protection officer is essential for internal procedures for real estate ;
- Ongoing training for teams on LCB/FT matters ;
- A control mechanism to ensure the monitoring and effectiveness of measures ;
- A retention of records and supporting documents for at least five years.
III – Key points for real estate professionals
Case studies of Risk typologies and trigger criteria are presented in the annexes of the guidelines. They are not mere theoretical examples, but translate real situations, regularly encountered in practice, that professionals must be able to identify, understand and integrate into their risk assessments.
Risk typologies — that involve purchases made through third parties, the use of shell companies, or opaque financing — demonstrate how even weak signals can be indicative of money laundering and terrorist financing risks. Their detection can only rely on a actual and proactive from professionals. In other words, these alerts must become concrete analytical tools for daily use, adapted to the reality of each structure.
On the frequent risk typologies ( Annex 1 ) :
| Individuals of Political Exposure) – Case of a real estate purchase by a REIT and its associates.- Risks associated: suspicious origin of funds, tax favored jurisdictions, freezing of assets, use of intermediaries, concealment of the beneficial owner |
| Questionable origin of funds/tax fraud – Case of a suspicion of tax fraud and an inconsistency between declared income and funding- Risks associated: absence of link between the lender and the borrower, the sale price is abnormally low, the financial flows are unjustified |
| Concealment of the beneficial owner’s identity – Case of using a third party as a “straw man” to conceal the true purchaser- Risks associated: inconsistency between the profile and the transaction, presence of an active third party, absence of recourse to a loan, cash payment |
| Use of funds derived from sham employment – Case of a purchase of an asset financed by funds originating from a company suspected of illegal labor practices- Risks associated: high-risk sector (construction), attempted corruption with “off-the-table” payments, the buyer and the payer are different |
| Use of foreign accounts/high-risk countries – Case of a payment via a foreign account located in a country with favorable taxation- Risks associated: overvaluation of the asset, absence of financing, refusal to provide supporting documentation, suspicion of intermediary use to conceal the true beneficiary |
| Circumvention of control through the transfer of shares – Case of a substitution of a real estate sale by a transfer of shares in a company- Risks associated: operation not subject to notary intervention, transactions outside the French banking system, beneficiary not declared |
How to anticipate a LCB/FT inspection in the real estate sector ?
Beyond mere documentary compliance, real estate professionals must be able to demonstrate at all times the reality and effectiveness of their LCB/FT scheme during an inspection by competent authorities (DGCCRF, ACPR, TRACFIN, Commission nationale des sanctions).
A control may be triggered following :
- of a notification to TRACFIN,
- of a default established during another administrative procedure (e.g.: tax or customs control),
- or randomly, within the framework of a sector-specific verification campaign.
To effectively anticipate this type of inspection, it is essential to :
- to have up-to-date risk mapping , specific to the agency’s activities ;
- to formalize adapted vigilance policy , particularly concerning clients, operations, and financial circuits ;
- documenting the internal reporting procedures of suspicion , with the designation of a representative TRACFIN ;
- maintain the records evidence of training activities of personnel (programs, certificates, educational materials) ; ( Ongoing LCB/FT training is crucial for raising awareness among teams)
- establish a register of due diligence , listing the actions undertaken (identification, analysis, internal alerts, decisions made).
A preventative audit, carried out by an external or internal advisory board, may allow for the detection of vulnerabilities, the updating of obsolete documents, and the guarantee that the entire processing chain (from client reception to the signing of the deed) properly incorporates the LCB/FT obligations.
In case of non-compliance, the sanctions may range from a simple warning to a temporary prohibition of practice , including financial sanctions and naming and shaming.
Real estate professionals: Secure your LCB/FT compliance today
Given the intensification of controls and the increase in sanctions in the real estate sector, it is essential to have a robust, tailored and compliant LCB/FT framework, in accordance with the requirements of the Financial Market Code. The firm accompanies you at every stage: setting up the risk mapping, drafting internal procedures, preparing for a control or managing a TRACFIN report…
