In Cyprus, real estate transactions are a known target for money laundering, making compliance with Anti-Money Laundering (AML) laws a key requirement for professionals in the sector. The real estate market often involves high-value transactions and international buyers, making it vulnerable to illicit financial activities. While real estate agents are explicitly designated as obliged entities under the Prevention and Suppression of Money Laundering and Terrorist Financing Law (L.188(I)/2007) (‘AML Law’), the question arises: do real estate developers also have AML obligations?
The AML Law mandates compliance for real estate agents when acting in relation to the purchase or sale of real estate (Section 2A(1)(i)). Developers may also fall within this category if they are directly involved in property sales. This means that if a developer markets and sells properties without an intermediary such as an estate agent, they are likely to be considered an obliged entity and must comply with AML requirements.
If a developer is deemed an obliged entity, they must conduct customer due diligence (CDD) by verifying the identity of buyers and their ultimate beneficial owners (UBOs), particularly in high-risk transactions. This includes obtaining valid identification documents, assessing the source of funds, and identifying politically exposed persons (PEPs) or individuals subject to sanctions.
Developers are also required to monitor transactions and report any suspicious activity to the Financial Intelligence Unit of Cyprus (MOKAS) through a suspicious transaction report (STR). If there are indications of money laundering, such as unexplained cash payments, frequent resales, or involvement of offshore companies with unclear ownership structures, an STR must be submitted without tipping off the client.
Additionally, developers must maintain client and transaction records for a minimum of five years, as stipulated in Section 68 of the AML Law. These records must be readily available for regulatory inspections or investigations. Failure to comply with these obligations can result in substantial fines, administrative penalties, or even criminal liability, which can have serious consequences for both the company and its directors.
If a developer exclusively builds properties and transfers them to a third-party agent for sale, they are not classified as an obliged entity under the AML Law. However, they may still be required to cooperate with due diligence processes conducted by other parties involved in the transaction. For example, a real estate agent handling the sale may request documentation from the developer regarding the origin of the property or the legitimacy of the transaction. Developers should be prepared to provide this information as part of broader compliance efforts.
Additionally, developers who receive large payments from buyers, even if processed through an agent, should remain vigilant about potential money laundering risks. Accepting large cash payments or dealing with complex corporate structures designed to obscure ownership may expose developers to legal and reputational risks. Following the recent amendment to the AML Law, strict limits on cash transactions in real estate have been introduced. As a result, businesses involved in the purchase and sale of real estate may only accept or make cash payments up to €10,000 (or the equivalent in another currency) regardless of whether the transaction is carried out by a single act or by more than one act that appears to be linked to each other. Any transaction exceeding this threshold must be conducted through traceable financial methods such as bank transfers. Violating this restriction constitutes a criminal offence, punishable by a fine of up to 10% of the cash amount received and/or imprisonment of up to five years. Developers must ensure compliance with this regulation to avoid severe penalties
Cyprus real estate developers must assess whether their role extends beyond construction and includes direct sales to buyers. If so, they must comply with AML obligations to mitigate financial crime risks. Implementing strong AML measures not only ensures legal compliance but also protects businesses from being exploited for illicit activities. Given the regulatory complexity, developers should seek expert compliance guidance to ensure full adherence to AML laws and avoid potential penalties.
MK Compliance Limited provides tailored support to real estate professionals in meeting their AML compliance obligations. Our services include drafting AML manuals and procedures, conducting transaction reviews, performing customer due diligence assessments, and carrying out in-depth background checks on clients and entities, including verification of the source of funds.
For professional assistance with AML regulatory requirements, contact us at info@compliancemk.com.
