Real estate is identified as a sector that is highly exposed to the risk of money laundering. The vulnerability of the real estate sector is explained by the fact that high value properties are often acquired through complex structures or third-party nominees, and/or involve the risk of value manipulation.
As in other countries, the sale and purchase of immovable properties in Mauritius is facilitated through real estate agents. Until recently, the agency sector was wholly unsupervised and the absence of regulation in that sector exposed the financial system to the risk of suspicious transactions involving money laundering and tax evasion.
Enter the Real Estate Agent Authority Act 2020 (the “Act”) in September 2020.
The Act aims to respond to some of the concerns raised in relation to Mauritius’ monitoring of suspicious transactions, which led to the country being placed on the EU’s list of countries with strategic deficiencies in their regimes for Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT) regimes.
1. The supervision of “real estate agents”
The Act establishes a Real Estate Agent Authority (the “Authority”), whose objectives include the regulation and control of the business activities of real estate agents, the promotion of transparency, accountability and integrity in the real estate sector, and the protection and assistance of any person engaged in real estate transactions with real estate agents.
It is interesting to note that the definition of “real estate agent” in the Act is wider than the category of agents who typically introduce, advise and/or negotiate on behalf of parties. It includes a person who, or a partnership in which he is a member which, carries out a real estate transaction by:
- negotiating the sale, exchange, purchase or lease of real estate;
- directing or assisting in the procuring of prospects, or the negotiation or closing of transactions which result in the sale, exchange, purchase or lease of real estate;
- taking part in the procuring of vendors, purchasers, lessors, lessees, landlords or tenants of real estate;
- engaging in real estate management, either as a consultant or as an agent;
- advertising or holding himself out as being engaged in the business of negotiating the sale, exchange, purchase or lease of real estate; and
- receiving payment for a real estate transaction, either by himself, his partner, his employee or his agent.
In particular, land promoters and property developers are included in that definition, except to the extent that they own the whole or part of the real estate.
Among the other categories excluded from the definition of “real estate agent” are insolvency practitioners who carry out a real estate transaction in the discharge of their functions.
Any person who falls under the definition of “real estate agent” must be registered as such with the Authority.
The criteria of eligibility for such registration in respect of an individual are:
- minimum age of 21 years; and
- either holder of diploma in real estate or such other equivalent as the Board of the Authority may approve; or minimum of 5 years’ experience in the business of real estate transactions.
In the case of a company carrying out the activity of a real estate agent, at least one of its directors must be registered as a real estate agent under the Act.
2. Requirement for a written contract and record keeping obligation
The Act requires a real estate agent to enter into a written contract with their client before carrying out any real estate transaction on their behalf. That contract must specifically provide the following:
- the real estate subject of the transaction;
- the transaction to be carried out;
- validity period of the contract;
- whether the agent has an exclusivity for that transaction.
That requirement for a written contract of agency is in line with the record-keeping obligation imposed by the Financial Intelligence and Anti-Money Laundering Act 2002 (FIAMLA) and the Financial Intelligence and Anti-Money Laundering Regulations 2018.
Pursuant to the “Guidelines on the measures for the prevention of money laundering and countering the financing of terrorism for the real estate sector” issued by the Financial Intelligence Unit (FIU), all agents are required to keep records of all the transactions in which they are involved and of all customers.
The following records must be kept:
- Records relating to the identification of customers and beneficial owners (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents) as well as business correspondence for at least 7 years after the business relationship has ended.
- Records concerning transactions, both domestic and international shall be kept for a period of 7 years after the completion of the transaction; and
- Copies of all Suspicious Transaction Reports (STR) filed with the FIU shall also be kept for a period of at least 7 years from the date the report was made.
3. Agency fees
The Mauritian legislator went even further insofar as the Act provides that the fees charged by a real estate agent in carrying out a real estate transaction will be a prescribed percentage of the value of the transaction.
Real estate agents will nonetheless be allowed to charge additional fees for advice given in respect of a real estate transaction or other services not specified in the Act.
A parallel may be drawn with the fees chargeable by a public notary in Mauritius that are calculated in accordance with percentages fixed by the Notaries Act.
It is apposite to note that the Notaries Act has also been amended in the context of enhancing Mauritius’ mechanism to combat money laundering and the financing of terrorism. The Anti-Money Laundering and Combatting the Financing of Terrorism (Miscellaneous Provisions) Act 2020 amended section 20 of the Notaries Act, which now provides that upon the transfer of an immovable property, “the purchase price or consideration has to be paid by bank cheque in the name of the notary, or by bank transfer in the bank account of the notary, and that any sum paid other than by bank cheque in the name of the notary or bank transfer in the bank account of the notary shall not be considered as part of the purchase price”.
4. Monitoring and reporting obligations
Real estate agents will be required to keep accounts of all their receipts and expenditure in relation to transactions, showing clearly and separately any amount received from, or on behalf of, their clients or any amount paid to their clients or to any other person. Those accounts must be maintained for a period of 7 years following the completion of a transaction.
For the purposes of AML/CFT, real estate agents fall under the supervision of the Financial Institution Unit (FIU). They will have the obligation to report any suspicious transaction to the FIU as soon as they become aware of it and not later than 5 working days of their suspicion. The failure to comply with that reporting obligation will constitute an offence, for which the real estate agent may be liable to a fine not exceeding Rs 1 million and imprisonment for a term not exceeding 5 years.
Save for certain sections of the Act that came into force on 1 November 2020, the Act is not yet operational. As at the date of this publication, the effective provisions are those that establish the Authority, its functions, powers and internal administration, as well as confer power on the Minister of Housing and Land Use Planning to prescribe the security to be furnished by real estate agents and the fees chargeable by them. However, the Minister has not yet issued any regulations to that effect.