The real estate sector, as well as professionals who proceed with real estate purchases, are placed under the supervision of the Tax Department, as part of an effort to remove any "grey areas" that may favour money laundering in this activity.
The findings of the European Commission and Moneyval, the uncontrolled sale of real estate to foreigners, as well as the experience of the Cypriot authorities, led to the need to strengthen the legal framework, with the aim of effective risk management and a smooth transition to the new legal regime of the European Union.
These decisions are in line with the state's strategic policy to strengthen measures against financial crime and to upgrade the Republic of Cyprus as a reliable international financial centre.
It is noted that the existing European Directive on Money Laundering provides that Member States must ensure, based on the risks they face, that the scope of the Directive is extended to sectors and businesses that are particularly exposed to risks of money laundering or terrorist financing.
What changes
In detail, the draft of the bill that was put to public consultation provides that the supervision of real estate agents for money laundering purposes is transferred from the Council for the Registration of Real Estate Agents to the Tax Commissioner.
At the same time, all professionals in the real estate sector who are not supervised by another competent authority will also be placed under the supervision of the Registrar.
For example, credit institutions and credit acquiring companies, which are already supervised by the Central Bank of Cyprus, will continue to be supervised by the Central Bank of Cyprus for money laundering purposes, in relation to transactions carried out in real estate in the course of their professional activities.
Why the Tax Department was chosen
According to an explanatory note from the Ministry of Finance, four key factors contributed to the selection of the Tax Department as the competent supervisor. These are related to the relevance of the department to the subject, as it is already involved in real estate transactions and has a specialized real estate department, with significant synergies in this area.
Another factor is the existing responsibilities of the Tax Department in supervising cases of money laundering in persons who trade or act as intermediaries in the trade in works of art. At the same time, the lower implementation costs were taken into account, as the existing structures of the department are utilized, without the creation of a new supervisory authority.
In addition, practices of other European countries are being adopted, where the prudential supervision of money laundering issues is undertaken by public authorities. Indicatively, England, Luxembourg, Greece, the Netherlands and Latvia are mentioned, where the supervision of possible money laundering in the real estate sector is exercised by the respective tax authorities.
The findings of the reports
The report of the European Commission's Pan-European Risk Assessment highlights the increased risks of money laundering in the real estate sector, with this sector being characterized as particularly exposed to money laundering risks and vulnerable to tax crimes.
To this end, the Ministry of Finance, in the context of shielding the Republic, has prepared the draft bill, which provides that prudential supervision in the real estate sector will be entrusted to the Department of Taxation. The entities controlled by it will include all professionals who buy or sell real estate or represent buyers or sellers of real estate on a professional basis and do not fall into another category of obliged entity.
It is worth noting that by July 2027, the European regulation on the prevention of the use of the financial system for money laundering, which concerns real estate agents and other professionals in the real estate sector, should be implemented. These provisions are also in line with the international standards of the Financial Action Task Force (FATF), the global watchdog for money laundering.
The relevant protocols must be implemented by the states and evaluated by both the FATF and Moneyval. It is recalled that, according to the FATF guidelines, all professionals in the real estate sector should be subject to preventive controls, a position that is also reinforced by the relevant European directive, which provides that the supervision of obliged entities is exercised by a public body or public authority.
