The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Realtors were yesterday said to be facing their “biggest potential game changer” for three decades as a result of the extra burden imposed by The Bahamas’ new anti-financial crime regime.

David Morley, a past Bahamas Real Estate Association (BREA) president, told Tribune Business that the Financial Transactions Reporting Act (FTRA) 2018 represents “probably the most challenging legislation to get your head around as a realtor” that he has seen during 32 years in the business.

BREA executives are now in urgent talks with both Carl Bethel QC, the attorney general, and the Compliance Commission, which oversees adherence to anti-money laundering and counter terror financing regulation among non-financial services providers, over the Government’s insistence that realtors apply customer due diligence procedures to their clients.

Christine Wallace-Whitfield, BREA’s current president, yesterday told Tribune Business that realtors believe they should not be subjected to the Act’s Know Your Customer (KYC) provisions because they do not receive and/or hold funds from clients they are conducting real estate transactions for.

Both she and Mr Morley said this function is performed by Bahamian attorneys, who conduct the necessary due diligence before they accept deposits and purchase price payments on behalf of persons involved in a property deal.

As a result, BREA is arguing that the new KYC requirements are both unnecessary and, in effect, a duplication of effort that threatens many realtors’ business models through the imposition of extra costs and bureaucracy.

Mr Morley predicted that part-time realtors and small “Mom and Pop” type operations would feel the impact first, with some driven out of business by requirements that include hiring/naming a compliance officer for each firm.

He added that it would also likely drive market consolidation by pushing smaller realtors into mergers, while some may even opt to go “underground” and operate as unlicensed brokers/agents in the informal economy.

Given the magnitude of these concerns, and ongoing uncertainty stemming from the Financial Transactions Reporting Act reforms, Mr Morley said BREA was seeking clarity from the Government as to how, when and where its expanded KYC requirements applied to real estate brokers and developers.

He pointed to numerous areas in the Act that BREA believes need to be cleared up, adding that penalties such as the $5,000 per day fine for realtors who fail to register with the Compliance Commission are much more severe than those that can be imposed on unlicensed realtors.

Mr Morley, who was BREA president when the original Financial Transactions Reporting Act was implemented in 2001, said neither the Association nor its members had difficulty in complying with appropriate anti-financial crime laws.

Acknowledging the great pressure being placed upon The Bahamas by external bodies such as the Financial Action Task Force (FATF), he said the key was to comply through legislation that was “livable” and tailored to the needs of the country and its economy.

In particular, Mr Morley said The Bahamas must at all costs avoid putting legitimate real estate buyers “through the wringer” with excessive KYC due diligence that it undermined this nation’s competitiveness and drove foreign direct investment (FDI) elsewhere.

The Morley Realty principal described the 2018 Act as “a completely different set of legislation” to its predecessor, which only applied to realtors when they received funds from clients to settle a transaction.

“Almost every realtor stopped handling deposits. We never touched money from 2001,” Mr Morley recalled, with the industry leaving that task to the attorneys representing buyers and sellers.

“What they’re now effectively looking for real estate brokers to be is gatekeepers,” he added. “They’re expecting us, because we may be involved with a potential transaction where money can be laundered and washed clean, to be an additional set of eyes and ears in the market.

“We’re not touching the money. It’s a bit difficult for a real estate broker to say: Why are we now being asked to do KYC? In my 32 years in the industry this is possibly going to be the most challenging legislation to get your head around as a realtor. It’s the biggest potential game changer.”

Mrs Wallace-Whitfield, echoing Mr Morley, told Tribune Business: “The main thing is that real estate companies do not accept the funds. That’s where the difference is with the Government; they’re saying: ‘Yes, you do’, and we are saying: ‘No, we don’t’.

“Real estate firms do not accept the deposits; attorneys take them in and fill out the KYC forms. Ok, you want real estate firms to fill out the KYC forms? We’re not happy with that.

“It becomes a conflict when you have real estate companies doing co-broking, and you have to share information. That’s a conflict of interest; something we don’t do,” the BREA president continued.

“We’re not a bank. Between the banks and the attorneys, they deal with the funds. They’re trying to find a loophole to get the real estate sector involved.”

Mrs Wallace-Whitfield added that BREA and its members “don’t want to be bullied into something”, and said: “We want to sit down, meet and discuss what is going on in terms of what are the new regulations going to be and what they want from us.

“We’re still working on it. Both myself, David Morley and BREA’s attorney have met with the Attorney General, and myself, David Morley and a few other directors have also met with the Compliance Commission. We’re not giving up and will be trying to meet with them in the New Year.”

BREA’s concerns have their basis in the extended reach of the revised Financial Transactions Reporting Act (FTRA), overhauled and passed by Parliament earlier this year to address deficiencies in the country’s anti-financial crime laws.

It was expanded via section 4 (a) to cover “real estate agents and brokers when they are involved as real estate brokers in financial transactions for their client concerning the buying and selling of real estate, and with respect to both vendors and purchasers”.

Mr Morley yesterday pointed out that many of The Bahamas’ Caribbean rivals, especially UK overseas territories such as Turks & Caicos, the British Virgin Islands, Cayman Islands and Bermuda, had yet to apply FTRA-style legislation to its real estate industries. The UK is also in this envious position.

“We completely understand the nature of the pressure being put on sovereign countries like The Bahamas, and we’ve got no problem being compliant,” he told Tribune Business. “The difficulty we have is coming up with something that is livable.”

Reiterating that The Bahamas must remain “attractive to investors for second homes”, the Morley Realty principal added: “Why would we want to have inadvertently put a legitimate proposed buyer through the wringer of investing in our country when there are so many other competitors in the region? The Bahamas’ proximity to the US is no longer such an advantage for us.

“What BREA is trying to do is take an approach of interpreting what’s in the FTRA 2018 as it relates to brokers and developers, and try to ascertain when a broker and developer is responsible for compliance information and when they are not….

“We’re going through these points to define them, understand them and will be sending an executive summary through BREA’s attorney back to the Attorney General’s Office to see if they’re in agreement with our position and interpretation on this, and from there send it to the Compliance Commission to make sure we’re on the same page.”

Mr Morley said BREA’s attorneys, Callenders & Co, had send a draft of the document to him last night. He added that the Association was seeking a “co-operative relationship” with the Government in “trying to get it straight”.

“BREA is not trying to wriggle out of any responsibilities,” Mr Morley said. “We’re trying to completely understand what responsibilities we have and when they apply.

“It is a complex piece of legislation. There are so many different interpretations coming out from attorney to attorney, and one real estate company to the next, but one thing in there is every licensed realtor and developer has to register with the Compliance Commission or there is a $5,000 fine per day for every day they do not register.”

Mr Morley said the severity of such penalties in the FTRA Act was inconsistent with the fines levied on unlicensed real estate brokers and agents, which he described as “peanuts” in comparison.

And the FTRA applied only to BREA-licensed members, he added, which opened up the opportunity for money launderers and other financial criminals to deal with unlicensed brokers who could escape sanction.

Pointing to other inconsistencies in the Act, Mr Morley said the term “facility” was broadly defined to cover business relationships involving two or more transactions.

This seemed to mean, he added, that real estate brokers were not required to perform KYC due diligence on clients to whom they were selling/finding just one property for. And it was also unclear when the “two or more transactions” definition kicked in – whether it applied to two deals for the same client in two years, five years or even 10 years.

Mr Morley said the FTRA also only appeared to cover the sale and purchase of Bahamian real estate, not rentals or appraisal activity, raising further questions that needed to be clarified.

He added that a particular concern was the possibility that Bahamian realtors could be held liable for flawed due diligence performed on a transaction’s players by a third party, such as an attorney, even though they had no involvement themselves.

“It allows a licensed broker to rely on a law firm’s due diligence, for example,” Mr Morley said. “But if it is found at a later date that the due diligence is unreliable, the broker can be held liable.

“You have to verify the due diligence done by somebody else. You might as well do it in the first place.”

Asked about the potential consequences for Bahamian realtors if the FTRA status quo remains, Mr Morley said: “Unfortunately, I think we all know what will happen.

“You’re going to end up possibly with some going out of business as they can’t afford to hire compliance officers, bear that additional cost and take it any more. Some may go underground, and you might have some small companies merge.

“It’s a difficult situation. Right now we have about 700 licensed realtors in the country. Not all are working full-time. Those part-time and ‘Mom and Pop’ shops will be the first ones to drop out as they can’t afford to it any more.”