SOME PROVISIONS REGARDING ANTI-MONEY LAUNDERING IN REAL ESTATE TRADING ACTIVITIES

1. WHAT IS MONEY LAUNDERING?

 

Money laundering refers to the act by an individual or organization of attempting to convert profits or other assets obtained from criminal activities or corruption into assets that are considered "legitimate."[1]

 

Criminal organizations and corrupt individuals always have the need to conceal the origins of funds obtained from illegal activities without arousing suspicion from law enforcement agencies. Therefore, substantial time and effort are essential to devise strategies that allow the safe use of such funds without raising suspicion. The execution of such strategies is commonly referred to as money laundering. Once the money has been laundered or "cleaned," it can be used in the mainstream economy to accumulate assets, such as acquiring real estate, or for other expenditures. Law enforcement agencies in many countries have established sophisticated systems to detect suspicious transactions or activities, and many nations have set up international organizations to assist each other in these efforts.

 

Money laundering can be carried out in the following stages:

 

(i) Placement stage: Criminals attempt to introduce funds derived from illegal activities into the financial system in preparation for the next steps. This stage is the most vulnerable to detection in the money laundering process.

 

(ii) Layering stage: The funds that have been introduced into the financial system are transferred between various bank accounts, countries, investments, and transactions in order to obscure the origin of the assets.

 

(iii) Integration stage: The funds are officially integrated into the legitimate economy and can be used for any lawful purposes.[2]

 

In some legal systems and frameworks, the term money laundering has been combined with other forms of financial and business crimes, and is sometimes used in a broader sense to include the abuse of the financial system (including instruments such as securities, cryptocurrencies, credit cards, and traditional cash), as well as terrorism financing and the evasion of international sanctions.[3] Most anti-money laundering (AML) laws integrate money laundering prevention (focusing on the source of the money) with counter-terrorism financing (CTF) (focusing on the destination of the money) in regulating the financial system.

 

Some countries treat the concealment of the origins of funds as constituting money laundering, whether done intentionally or by merely using financial systems or services that cannot identify or trace the sources or destinations of the funds. Other countries define money laundering in such a way that it includes funds obtained from activities that would be considered a crime in that country, even if the activity itself would be legal where it actually occurred.

 

According to Vietnamese law, certain concepts related to money laundering are defined in Article 3 of the Law Anti-money laundering 2022 as follows:

 

Money laundering refers to the act that a natural or legal person performs to legalize the origin of the property derived from any offence(s).

 

Property derived from any offence(s) refers to the property obtained directly or indirectly from criminal activity; part of the income, proceeds, gain or profits generated from the property obtained from any illegal act(s).

 

Must-be-reported high-value transaction refers to the transaction in domestic or foreign cash that is performed one or several times a day, and total value of which equals or exceeds the prescribed amount.

 

Originator refers to the account holder who allows the wire transfer from that account, or where there is no account, the natural or legal person that places the order with a financial institution to perform the wire transfer.

 

Wire transfer refers to any transaction carried out on behalf of an originator through a financial institution by electronic means with a view to making an amount of funds available to a beneficiary person at a beneficiary financial institution, irrespective of whether the originator and the beneficiary are the same person.

 

Customer refers to a natural or legal person that is using or intends to use any service or product supplied by a financial institution or a relevant non-financial business or profession.

 

Beneficial owner refers to the natural person(s) who ultimately owns one or several asset(s), or controls a customer on whose behalf a transaction relating to asset(s). It also includes those persons who exercise control over a legal person or arrangement.

 

Correspondent banking relationship refers to the relationship created by the provision of banking, payment and other services by one bank in a country or territory to another bank in other country or territory.

 

Blacklist comprises the list of natural or legal persons involved in acts of terrorism or terrorist financing that is compiled under the control of the Ministry of Public Security, and the list of natural or legal persons charged with being involved in proliferation and financing of proliferation of weapons of mass destruction that is compiled under the control of the Ministry of National Defence in accordance with law.

 

Greylist refers to the list of natural or legal persons compiled by the State Bank of Vietnam with a view to warn them of being exposed to high risk of money laundering.

 

Financial Action Task Force on Money Laundering refers to an inter-governmental body serving the objectives of setting standards, promoting effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing, financing of proliferation of weapons of mass destruction and other related threats to the integrity of the global financial system.

 

Legal arrangement refers to a trust or any other similar legal arrangement recognized and established by foreign laws, under which the trustee is allowed to acquire the legal ownership and control of the property through the transfer process from the settlor/grantor to conduct the operation, management and supervision of such property for the benefit of the beneficiary or for the agreed purposes.

 

Shell bank refers to the bank that has no physical presence in the country or territory in which it is incorporated and licensed, and which is unaffiliated with any regulated financial institution that is subject to effective consolidated supervision.

 

Non-profit organization refers to a legal person or institution that engages in activities not because of profits, including social associations or funds; charitable funds; religious organizations; foreign non-governmental organizations incorporated, licensed and operated under national law of Vietnam.

 

Foreign politically exposed person refers to someone who holds a prominent public position or role in a foreign body or institution or international organization.

 

2. MONEY LAUNDERING IN THE REAL ESTATE TRADING AND ANTI-MONEY LAUNDERING REGULATIONS

 

According to Vietnam's National Risk Assessment (NRA), real estate trading attracts significant investment funds, transactions involving the purchase and transfer of real estate can be conducted in cash or via bank transfers without going through real estate exchanges, making it challenging for authorities to verify and trace the source of the funds. Additionally, in recent high-profile cases of corruption and violations of state management regarding public assets, as well as the ongoing investigation into a multi-billion dong gambling case related to money laundering, many of the assets obtained from these cases are connected to real estate. To launder money, offenders often enlist family members to purchase, transfer, or gift real estate. Based on the analyses provided, it has been concluded that the risk of money laundering in real estate trading is HIGH.

 

Some issues regarding the risks of money laundering activities in the real estate trading include:

 

(i) The use of cash payments for real estate transactions in Vietnam is currently quite common, and spontaneous transactions conducted outside of exchanges are substantial, making it difficult to monitor the flow of funds in real estate business activities;

 

(ii) The high volume of transactions and the substantial value of these transactions are due to the nature of real estate assets, which always carry significant value;

 

(iii) The system for updating customer information and verifying customer identification, especially for real estate transactions outside of exchanges, has many shortcomings due to the lack of synchronization and connectivity with other information management systems;

 

(iv) The database system for housing and the real estate market is being developed in accordance with Decree No 94/2024/NĐ-CP; however, current regulations do not have a specific information system for individuals who are potential money laundering risks, such as politicians.

 

In practice, money laundering activities through real estate can be one of the investment channels that money launderers can easily exploit, as compared to other markets, real estate investment is relatively straightforward and does not involve excessive procedural constraints when participating in the market.

 

According to Article 48 of Law on Real Estate Trading 2023, the receipt of payments in real estate business by project developers, real estate enterprises, and real estate service companies is regulated as follows:

 

“1. Payment for a transaction involving a piece of real estate or a real estate project shall be agreed upon by the parties in the contract and comply with regulations of law.

 

2. Real estate project investors, real estate enterprises, and real estate service enterprises shall receive payments for real estate business contracts or real estate service contracts from clients through their accounts opened at Vietnamese credit institutions or foreign bank branches lawfully operating in Vietnam.

 

3. Penalties and compensation for damage caused by late payment by the buyer, transferee, lessee or tenant-buyer or late handover of the real estate by the seller, transferor, lessor or landlord shall be agreed upon by the parties and specified in the contract.”

 

According to point b, c clause 1, Article 117 and point c, clause 2, Article 21 of the Law on Housing 2023, foreign-invested economic organizations, branches and representative offices of foreign enterprises, foreign investment funds, and foreign banks operating in Vietnam, as well as foreign individuals permitted to enter Vietnam, are required to: make payments for the purchase or lease of housing through credit institutions or foreign bank branches operating in Vietnam.

 

These regulations gradually establish control over the flow of funds in real estate business, thereby impacting the prevention and combating of money laundering activities concerning certain entities. However, for Vietnamese individuals conducting real estate transactions among themselves, it is currently very difficult to monitor the flow of funds.

 

According to point b, clause 2, Article 4 of the Law Anti-Money Laundering 2022, the field of "Real estate business, except leasing or subleasing of real property and real estate consulting" is an area in which organizations and individuals engaged in business are required to report transactions of significant value.

 

Article 8 Law Anti-Money Laundering 2022  stipulates the prohibited acts in the prevention and combating of money laundering as follows:

 

1. Organize, participate in or facilitate, assist in the conduct of money laundering.

 

2. Create, maintain anonymous accounts or accounts using fake names.

 

3. Create, maintain business relationships with shell banks.

 

4. Illegally provide services that involve the acceptance of cash, cheques, other monetary instruments and other stores of value and the payment to a beneficiary.

 

5. Abuse public positions and power over anti-money laundering activities to prejudice the legitimate rights and interests of a natural or legal person.

 

6. Hinder the provision of information necessary for anti-money laundering purposes.

 

7. Intimidate and take revenge on the persons detecting and reporting money laundering offenses.

 

Article 25 of Law Anti-Money Laundering 2022, as guided by Decision No. 11/2023/QD-TTg, stipulates that Reporting of should-be-reporting large transactions.

 

Accordingly,  reporting entities shall be responsible for reporting to the State Bank of Vietnam when conducting transactions valued from 400.000.000 VND (four hundred million) or higher.

 

Article 26 of Law Anti-Money Laundering 2022 stipulates that Reporting of Suspicious Transactions as follows:

 

1. A reporting entity shall be responsible for reporting any suspicious transaction to the State Bank of Vietnam where:

 

a) It has known that such a transaction is conducted at the request of a suspect, defendant or convictee, and has had reasonable grounds to suspect that the property involved in that transaction is owned, or stems from the one owned or controlled by that suspect, defendant or convictee. Determining whether a person is a suspect, defendant or convictee shall be subject to the notices of competent state authorities;

 

b) There is no plausible ground to suspect that the property involved in a transaction is related to the money laundering offence determined after examining, collecting and analyzing information when the customer or transaction show one or more signs of suspicious activity specified in Article 27, 28, 29, 30, 31, 32 and 33 of the Law Anti-Money Laundering 2022, or otherwise determined by the reporting entity.

 

2. When detecting any sign of suspicious activity other than those specified in Article 27, 28, 29, 30, 31, 32 and 33 of the Law Anti-Money Laundering 2022, reporting entities, relevant Ministries and central authorities shall be required to notify it to the State Bank of Vietnam.

 

Article 33 of the Law Anti-Money Laundering 2022 stipulates that Signs of Suspicious Activity in Real Estate Trading Sector as follows:

 

1. Real estate transactions are the authorized transactions performed without reference to any legal basis.

 

2. A customer does not care about the price of the real property or transaction fees payable.

 

3. A customer fails to provide information relating to the real property in question or does not wish to provide further information about his/her personal background.

 

4. The price involved in a transaction between parties does not match the market price.

 

Article 37 of the Law Anti-Money Laundering 2022 stipulates that Reporting Deadlines or Time Limits as follows:

 

1. Reporting entities shall report the should-be-reported large transactions specified in Article 25 and the wire transfer transaction specified in Article 34 herein within 01 working day following the date on which each transaction occurs with respect to electronic reports; within 02 working days following the date on which each transaction occurs with respect to physical reports.

 

2. Reporting entities shall report the suspicious transactions specified in Article 26 herein within 03 working days following the date on which each transaction occurs, or within 01 working day following the date on which the reporting entity detects the suspicious transaction.

 

3. Where it is discovered that a suspicious transaction requested by a customer is associated with a criminal act, the reporting entity shall be required to report it to the competent state authority and the State Bank of Vietnam within 24 hours following the date of such discovery.

 

According to the guidance in Article 7 of Circular No. 09/2023/TT-NHNN, the reporting of suspicious transactions is carried out as follows:

 

1. Reporting entities are responsible for reporting suspicious transactions to anti-money laundering authority in accordance with Article 26 of the Law on Anti-money Laundering. Reports shall be produced via physical means in accordance with Appendix II attached Circular No. 09/2023/TT-NHNN or electronic means once compatible information technology system has been established to facilitate electronic reporting in accordance with Clause 1 Article 10 hereof except for cases where reports are sent to other competent state authorities in accordance with Clause 3 Article 37 of the Law on Anti-money Laundering.

 

2. Reporting of suspicious transactions under Article 26 of the Law on Anti-money Laundering does not depend on the value of the transactions nor whether the transactions have completed or not.

 

3. Anti-money laundering authority are responsible for verifying that they have received reports on suspicious transactions sent to personal or unit email address in accordance with Point b Clause 9 Article 5 Circular No. 09/2023/TT-NHNN or that they have received reports on suspicious transactions sent physically within 5 working days from the date on which they receive the reports; discussing arising issues with reporting entities (if any).

 

4. Organizations and individuals providing accounting service; notary service; legal service of lawyers, lawyer organizations must review, collect, and analyze information in order to report suspicious transactions when providing accounting service; implementing notary procedures, acting on behalf of the customers to prepare for transactions or acting on the behalf of the customers to transfer land use right, transfer ownership of house and other property attached to land; managing money, securities, or other assets of customers; managing accounts of customers at banks, securities companies; operating, managing companies; engaging in merger and acquisition activities on behalf of customers.

 

Article 46 of the Law Anti-money Laundering 2022 is stipulated that entities and persons committing violations against law on anti-money laundering shall be subject to administrative sanctions or penalties or criminal prosecution, depending on the nature and degree of violation; if such violation causes any damage or loss, compensation shall be paid in accordance with law.

 

Currently, regarding criminal liability, Article 324 of Criminal Code 2015 (amended and supplemented in 2017) provides as follows:

 

“Article 324. Money laundering

 

1. A person who commits any of the following acts shall face a penalty of 01 - 05 years' imprisonment:

 

a) Directly or indirectly participating in finance transactions, banking transactions, or other transactions to conceal the illegal origin of the money or property obtained through his/her commission of a crime, or obtained through another person's commission of a crime to his/her knowledge;

 

b) Using money or property obtained through his/her commission of a crime or obtained through another person's commission of a crime to his/her knowledge for doing business or other activities;

 

c) Concealing information about the true origin, nature, location, movement, or ownership of money or property obtained through his/her or commission of a crime or obtained through another person's commission of a crime to his/her knowledge, or obstructing the verification of such information;

 

d) Committing any of the offences specified in Point a, b and c of this Clause while knowing that the money or property is obtained through transfer, conversion of money or property obtained through another person's commission of a crime.

 

2. This offence committed in any of the following circumstances carries a penalty of 05 - 10 years' imprisonment: a) The offence is committed by an organized group; b) The offender misuses his/her position or power to commit the offence; c) The offence has been committed more than once; d) The offence is committed in a professional manner; dd) The offence involves deceitful methods; e) The illegal money or property is assessed at from VND 200,000,000 to under VND 500,000,000; g) The illegal profit earned is from VND 50,000,000 to under VND 100,000,000; h) Dangerous recidivism.

 

3. This offence committed in any of the following circumstances carries a penalty of 10 - 15 years' imprisonment: a) The illegal money or property is assessed at ≥ VND 500,000,000; b) The illegal profit earned is ≥ VND 100,000,000; c) The offence has a negative impact on security of the national currency or finance system.

 

4. A person that prepares for the commission of this offence shall face a penalty of 01 - 05 years' imprisonment.

 

5. The offender might also be liable to a fine of from VND 20,000,000 to VND 100,000,000 or prohibited from holding certain positions or doing certain jobs for 01 - 05 years or have part or all of his/her property confiscated.

 

6. Punishments incurred by a corporate legal entity that commits any of the offences specified in this Article:

 

a) A corporate legal entity that commits this offence in any of the circumstances specified in Clause 1 of this Article shall be liable to a fine of from VND 1,000,000,000 to VND 5,000,000,000;

 

b) A corporate legal entity that commits this offence in any of the circumstances specified in Point a, c, d, dd, e, g, h Clause 2 of this Article shall be liable to fine of from VND 5,000,000,000 to VND 10,000,000,000;

 

c) A corporate legal entity that commits this offence in any of the circumstances specified in Clause 3 of this Article shall be liable to a fine of from VND 10,000,000,000 to VND 20,000,000,000 or has its operation suspended for 01 - 03 years;

 

d) A corporate legal entity that commits this offence in the circumstance specified in Article 79 hereof shall be permanently shut down;

 

dd) The violating corporate legal entity might also be liable to a fine of from VND 1,000,000,000 to VND 5,000,000,000, be banned from operating in certain fields or raising capital for 01 - 03 years.”