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Digital KYC
By SARMAD ALI 1,119 views

Digital KYC in Real Estate – To Prevent Financial Crimes

The real estate market is a vital part of the international economy. Interestingly, in 2021, it was worth $3.7 Trillion globally and is expected to hit $6.13 Trillion by 2030. When such large amounts of money are involved, scammers and other thieves are often involved in money laundering or funding terrorists. Digital KYC plays a notable role in stopping illicit financing in real estate and protecting the business.

The KYC regulations are made to ensure that money spent can be traced back to its source and doesn’t come from illegal means. Furthermore, multiple Intelligent Document Processing (IDP) options have been made to make KYC and AML processes more safe and effective.

IDP systems can handle data extraction, document verification, scam detection, and data hiding, which helps save time and money. This blog will explain how capital is moved through real estate and how digital KYC can safeguard businesses from financial theft.

Money Laundering in the Real Estate Sector

The problem of money laundering plagues the real estate industry at present. Since money laundering is an illegal activity, quantifying it is challenging. However, the Financial Action Task Force (FATF) predicted that $1.6 trillion was laundered via real estate in 2021. So, almost half of its overall worth resulted from illegal activity.

In real estate, many avenues are open to money laundering. These three are by far the most typical:

  • Manipulation of Real Estate Markets
  • Confusing Ownership Structure
  • Cash Payments

Manipulation of Real Estate Markets

Manipulating the value of real estate is yet another approach to conceal illicit funds. Typically, this is achieved by making certain upgrades to the property. As a result, the property’s value is inflated so that the borrower may qualify for a larger mortgage. 

Furthermore, the manipulation works in mysterious ways. A request for a mortgage loan is made, and the manipulators inflate the cost of the renovations so that they may get a larger loan and launder more cash.

Moreover, they may do this by tampering with an existing invoice or by collaborating with fake businesses to generate corrupted invoices. Real estate fraud actually profits the perpetrators by artificially boosting the property’s market value.

Confusing Ownership Structure

The ownership structure of a corporation is a valuable resource in any scenario when questions or investigations into the organization are being considered. Fraudsters typically create a murky, convoluted ownership structure to conceal their identities and deflect suspicion away from themselves.

Furthermore, there is by no means a complete list of instances of money laundering. Strengthening digital KYC procedures and Anti-Money Laundering policies will help authorities both identify and avoid this kind of fraud.

Cash Payments

It is essential to ensure that cash transactions are not fraudulent. However, keep in mind that monetary transactions are one of the most prevalent ways of laundering money because criminals can conceal themselves behind a legitimate payment method. In addition, it is difficult to trace the source of cash remittances and deposits. In this practice, fraudsters make multiple modest deposits of currency at multiple banks.

Typically, the quantity is tiny to avoid attracting attention to its source. Once the funds are deposited into a legitimate bank account, they become part of the financial system and are, therefore, “clean” and “laundered.” Once the money enters the financial system, the fraudster can use it in a variety of ways. For instance, to purchase a home, an apartment, or, more generally, to invest in real estate.

Role of Digital KYC in the Real Estate Sector

There are more and more perks for real estate companies that use KYC. Using KYC protects companies and customers from scams and identity theft and ensures that the estate business stays in line with all the rules.

Real estate companies can enhance their safety and that of their clients by using strong digital KYC practices, identifying customers involved in their deals, and implementing focused checks with the help of a KYC Analyst. As a result, digital KYC verification is a very useful tool for making the real estate business safer and keeping partners’ trust.

The adoption of digital KYC in Real Estate has the potential to streamline techniques, increase protection, reduce fees, and improve the general client enjoyment While guidelines preserve to adapt, virtual KYC continues to be key to ensuring compliance and reducing the danger of fraudulent activities in real estate fieldwork.

Final Remarks

Real estate business owners must set up a smooth digital KYC verification process to determine if an applicant is a good fit. It can create an efficient system that meets the needs of both the real estate business and the candidates.

When onboarding customers, real estate businesses should also look at the source of income, confirm the name and address of their customers, check their watchlists, and take other compliance measures. However, with some attention to detail and a thorough policy in place, real estate companies can be fully equipped with digital KYC  to prevent financial crimes.

Sarmad Ali