The attraction of foreign direct investment in Costa Rica reached more than 3.5 miilion dollars (according to a study by ECLAC, year 2022), much of it due to the excellent management that PROCOMER of the Ministry of Foreign Trade has been carrying out, together with CINDE (Costa Rican Coalition of Development Initiatives). This, because it has invited many multinationals that produce goods and services to settle in the country, this in exchange for some tax benefit, skilled labor, energy and telematic services, port infrastructure, airport, roads and mainly to enjoy an environment of peace, democracy and security suitable for business “nearshoring” 3 hours from any city in the middle east of the United States. Not for nothing, of the Republic’s budget, up to 8.00% of the Gross Domestic Product (according to the specialized website datosmacro.com, Costa Rica’s annual GDP for 2022 was 64,889 Million Euros), which is why the country invests in its population, who enjoy high level Education and Health services. This has also attracted many foreigners to settle in the country, infected by the culture of “Pura Vida”, the climate and the exotic beaches of the Costa Rican Pacific, who have come to invest in land, houses and retirement communities in the central valley under the concept of “wellness”; and in coastal areas -among others- taking advantage of the proximity of airports, such as the Juan Santamaria International Airport, or the one in Liberia, and for having an adequate infrastructure of quality goods and services; as well as for having special laws, such as the “Digital Nomads”. The above, makes for a dynamic interaction between Sellers (land owners) and Buyers (foreigners), which helps to
and Buyers (foreigners), assisted by their lawyers and brokers; as well as by Banks, Accountants, Escrow Agents, among other participants.
The possible scenario.
We were saying that in a real estate transaction involving foreigners, it is most likely that Lawyers, Real Estate Brokers, Banks, Accountants, and Escrow Agents are involved, which makes us suppose that all of them perform a “Compliance” of their clients and the transactions they perform.
So the Client and the money of the real estate transaction goes through several filters that deal with the same thing (there are five or more participants). In many cases, it starts with the foreign Bank (which would be the Client’s Local Bank that has access to the Client’s Form.W8-IRS information), which also uses the correspondent services of the Bank of First Order of a Plaza such as New York, New York, New York, New York, New York, New York, New York, New York, New York, New York, New York and New York.
Place such as New York, Miami, San Francisco, London, to transfer the money from bank account to bank account. Undoubtedly, in all of these, due diligence, or “Compliance”, is duly satisfied to ensure that the funds are clean.
In addition to this, the Real Estate Broker, the lawyer(s) of the real estate transaction, the Accountant; as well as the Escrow Agent, who are the usual participants in this type of business. Being that in all these cases, there must be a due diligence, or the “Compliance” of the Client on the one hand and of the Transaction on the other hand, despite the fact that they all deal with the same thing.
even though they all deal with the same thing.
Given the above, the Client and the Real Estate Transaction are duly identified by means of a Know Your Client Form and Client Transaction Profile; Utility Bills, Account Statements, Financial Projections, Financial Statements, Bank Account Statements, Contracts, among other reliable means.
As a background of this new “real estate boom”, more than 10 years ago, Americans mortgaged their first residences, with the intention of investing those resources in places like the Guanacaste Pacific in Costa Rica, with the justification of obtaining a high return on their investment and thus be able to pay the bank loan, or agency loan obtained with their first residence and generate a profit.
Nowadays, due to the COVID-19 pandemic, we see a group of foreigners who want to stay relatively far away from the crowds and enjoy a great quality of life, under the concept of “wellness”; yes, being able to work from anywhere, in a comfortable and pleasant way, counting on the resources of electric energy and telematics.
The effort to make the right effort to work from anywhere, comfortably and pleasantly, but with the electric and telematic energy resources to support its virtuality and the possibility of taking a plane at any time to attend any work and/or business meeting anywhere in the United States of America, through presence.
Now, the effort of due diligence, or the “Compliance” of the Client and the Transaction should be done in such a way that all the parties involved in the business contribute or contribute with something in a single file controlled by the regulatory entity of the country (in this case the Article 15 Department of SUGEF), discharging the risk from one party to the other, confirming origins of funds, activities, identifications, among others, without being repetitive or exhaustive in the control and verification processes.
To understand this, the regulator (SUGEF) should promote having a single digital file (which we will call digital file). 15 digital (which we will call single file), in which information is provided and validated, being this fed by all the intervening parties, and that in turn serves for all, avoiding inconveniences, delays in transaction times, excessive and unnecessary costs for all parties and the subjectivisms of desk employees who are sometimes extremely disciplined and rigorous with their resolutions, generally alien to the pace of business and with permanent suspicion in their requirements.
The Law and the Regulations of the matter.
With respect to the law, we must say briefly that the Republic of Costa Rica has a “Money Laundering Law”, which in Articles 15 and 15 bis, obliges – as far as we are concerned – Real Estate Brokers to register and comply with the requirements concerning registration, identification of their clients, provision of information and permanent controls.
Law on Narcotics, Psychotropic Substances, Drugs for Unauthorized Use, Related Activities, Money Laundering and Financing of Terrorism”, which – as far as we are concerned – establishes the requirements that must be complied with:
“Article 15.- for purposes of combating money laundering, financing of terrorism and proliferation of weapons of mass destruction, those who carry out the following activities shall be subject to this law: (…/…) and must comply with the following obligations, in addition to those established by Conassif by means of prudential regulation
- a) The identification of clients and due diligence of the client when establishing commercial relations with the latter. b) The identification of clients and due diligence of the client when establishing commercial relations with the latter. c) The identification of clients and due diligence of the client when
- b) The maintenance and availability of information on the records of transactions with the client. c) The maintenance and availability of information on the records of transactions with the client.
- b) The maintenance and availability of information on the records of transactions with the client.
- d) Controls over the risks of money laundering or financing of terrorism that may arise with respect to the emergence of new technologies in new products and new commercial practices. e) Controls when there is delegation to third parties to identify the client, the identification of the final beneficiary and the purpose of the commercial relationship.
- f) Controls against money laundering and financing of terrorism when there are foreign branches and subsidiaries. g) Controls when there are commercial relations and transactions with individuals or legal entities and financial institutions with countries classified as risk countries by international organizations.
- h) Establish mechanisms for reporting suspicious operations without delay, confidentially to the Financial Intelligence Unit of the Costa Rican Drug Institute (ICD), including attempts to carry them out.
- i) Implement and ensure confidentiality procedures when a suspicious transaction report or related information is being submitted to the Financial Intelligence Unit of the Costa Rican Drug Institute (ICD). Such provisions shall apply on a mandatory basis and according to the scope that is compatible with the regulated entities according to their respective nature, under a risk-based approach, which shall be established by prudential regulations issued by the Costa Rican Institute on Drugs (ICD).
established by the prudential regulations issued by Conassif. The municipalities of the country may not issue new patents or renew the current ones for this type of activities if they have not complied with the registration requirement indicated, and likewise the institutions indicated in article 14 of this law may not maintain commercial relations when this measure is not complied with, and in the same way the institutions indicated in article 14 of this law may not maintain commercial relations when this measure is not complied with.
commercial relations when this measure is not complied with, considering the risk that may be generated by the non-compliance with the established provisions (…/…).
Regarding the above, bearing in mind that we are in the presence of a Law, I believe that a reform could be made to this Law, which would allow several things: 1) Simplified Procedure; 2) The definition of regularity; and 3) The creation of a Single File, for those SME companies, which habitually participate in any of the activities in which the individuals and legal entities are located, in order to avoid the risk of non-compliance with the provisions of this Law.
and legal entities mentioned in article 15 and article 15 of the Law, are located.
“Article 15 bis. Individuals or legal entities engaged in the following activities shall comply with the same obligations set forth in paragraphs a) to i) of the preceding article, according to the scope that is compatible with their respective nature, including the duty to register with the General Superintendency of Financial Institutions (Sugef), without being construed as authorized to operate, and must be subject to the supervision of this Superintendence, with respect to the prevention of money laundering, financing of terrorism and financing of the proliferation of weapons of mass destruction, under a risk-based approach established by the National Council of Supervision of the Financial System (Conassif) through prudential regulations, including the sanctioning regime established in Article 81 of the present law. This regulation must be previously consulted with the regulated sectors. Only by means of a reasoned resolution may Conassif deviate from the criteria of the regulated sectors. The following activities shall be subject to this obligation:
- b) Individuals or legal entities engaged professionally and habitually in the purchase and sale of real estate.
(…/….) These regulated entities must keep their registration information updated before the General Superintendence of Financial Institutions.
The regulated entities under this article shall contribute according to their structure, the number and amount of their transactions to the financing of the actual expenses incurred by the Superintendency in its supervisory work, in accordance with the parameters set forth in Articles 174 and 175 of Law No. 7732, Securities Market Regulatory Law of December 17, 1997, as amended. Liberal professionals are exempted from the above,
whether they act individually or corporately.
For the purposes of this law and the provisions of paragraph e) of this article 15 bis, individually registered professionals may not be charged any amount for supervision or oversight.
The General Superintendency of Financial Institutions shall ensure that natural or juridical persons, regardless of their legal domicile or place of operation, who habitually and by any title, carry out without authorization activities such as those indicated in this article, do not operate in Costa Rican territory, and shall have, with respect to the alleged offenders, the same powers as those of the Superintendency of Financial Institutions.
The same powers of inspection that correspond to it according to this law, regarding the prevention and control of money laundering, financing of terrorism and proliferation of weapons of mass destruction, shall apply to the alleged offenders. Likewise, it must file a complaint before the corresponding authorities.
The regulated entities mentioned in the previous paragraphs must comply with all binding provisions issued by the Financial Intelligence Unit of the Costa Rican Narcotics Institute (ICD) with respect to the prevention and control of money laundering, financing of terrorism and proliferation of weapons of mass destruction.
The Superintendency General of Financial Institutions shall consider the conditions and characteristics of the regulated entity, in accordance with its size, structure, number of operations, number of employees, volume of production and factors of exposure to the risk of money laundering, financing of terrorism and proliferation of weapons of mass destruction, in order to demand that it comply with the requirements of the Superintendency General of Financial Institutions.
of weapons of mass destruction, in order to require the incorporation of a compliance officer within the organizational structure or, failing that, to authorize a differentiated structure. This structure will be defined
This structure will be defined by regulation, after mandatory consultation with the regulated sectors. (Thus added by article 2, point 2, paragraph a) of the Law for the Strengthening of Legislation against Terrorism, No. 8719 of March 4, 2009, and corrected by means of an erratum and published in La Ley de Fortalecimiento de la Legislación contra el Terrorismo, No. 8719 of March 4, 2009, published in La Ley de Fortalecimiento de la Legislación contra el Terrorismo, No. 8719 of March 4, 2009.
de Erratas and published in La Gaceta N° 63 of March 31, 2009) (Thus amended by the sole article of Law N° 9449 of May 10, 2017).
From the above, two regulations are derived, respectively Regulation for the Registration and De-registration before SUGEF of the regulated entities that carry out any or some of the activities described in articles 15 and 15 bis “Law on Money Laundering”; and the Regulation for the contribution of the entities that carry out activities described in articles 15 and 15 bis “Law on Money Laundering”.
The need to submit to “Compliance” and a viable solution for all.
Now, once the regulatory framework has been established and based on the “real estate boom” that is currently being experienced in Costa Rica with this real estate boom, the FATF recommendations and the intensified monitoring and technical compliance reports for Costa Rica as of December 2022 have been taken as a reference, in order to suggest and avoid the eventual sanctions that could be applied.
In this sense, it is necessary to keep in mind the sanctions provided in the referred law and that are applicable to legal institutions as well as to their directors and top management, for the tolerance before presumed money laundering crimes that may be eventually configured, since there is some reluctance of the Real Estate Brokerage Sector not to submit to such norms, registries and controls, which also does not discriminate between one and
others. Here we wanted to arrive, since then we are before a crossroads, the not application of all the arranged norms, which would be a clear message of tolerance before the crimes of money laundering in the country, which is not convenient for us and affects us before the International Community; or we comply, which provokes the dissuasion of the people to the execution of certain crimes or questionable practices in the Real Estate Brokerage.
But as we will do, the proposal should be among other things, defining aspects of the nature of the transaction, characteristics, amount, simplification, applied technology, institutional support and parameters such as frequency, volume, periodicity, gradualness, to determine the regularity of the transactions.
An interesting fact (source: Costa Rican Chamber of Real Estate Brokers) is that 99.9% of the associates are individuals who operate with small organizational structures, which fit within what is known as Small and Medium Enterprises (SMEs), in most cases exercising their professional activity themselves, and in some cases with an assistant/associate.
some cases with an assistant/associate. Nowadays, since the statutory reform of the year 2020, there are some franchises associated to this Chamber that break the traditional unipersonal or individual scheme. From our point of view, it makes no sense to burden the professional activity of Real Estate Brokerage with processes and expenses that could be unnecessary, burdensome and cumbersome for a regulated individual professional or SME.
Likewise, in many of these cases, there is no regularity in the exercise of the activity, since not every day, week, month, quarter, semester, or in the same year, this Real Estate Brokerage professional carries out real estate transactions. In many cases, 1 per month, 1 per quarter, 1 per semester, or even 1 per year.
1 a year, never fulfilling the criterion of frequent repetition linked to the concept of habituality.
If we refer to the Usual Dictionary of the Judiciary (Republic of Costa Rica), it defines habituality as: “Quality and permanence of what is done by custom or frequent repetition. Habit. Nature of what is done habitually or normally. Custom, frequency, repetition. In criminal law, category that refers to the customary or prolonged practice over time of an unlawful conduct. Habituality may “imply a greater intensity in the affectation of the protected legal right”.
Here is where we propose a solution or measure more adjusted to these realities, to comply with the provisions of the referred Art. 15 bis, to submit to the norm, to the registers and controls but in a more agile, concrete (reduced) way, easy to comply with and that invites this Sector of Real Estate Brokerage, to its full compliance, being the same
the following alternatives:
Utility Bills, Account Statements, Financial Projections, Financial Statements, Bank Statements, Contracts, among other reliable means.
6) That as part of a POSSIBLE SOLUTION, a reform to this legal framework could be provoked, which would allow several things:
- To comply with a Simplified Procedure,
- a. To comply with a Simplified Procedure, b. To define the regularity of the activity (in order to remove from the parameter those who do not
those who do not qualify), and
- Define aspects specific to the nature of the transaction, characteristics, amount, simplification, applied technology, institutional support and parameters,
amount, simplification, technology applied, institutional support and parameters such as frequency, volume, periodicity
such as frequency, volume, periodicity, gradualness, in order to determine the regularity of the transactions.
habituality of the transactions.
- The creation and management of a Single File, for those Individual Professionals, or of the PPP companies.
- The creation and management of a Single File, for those Individual Professionals, or SME’s, who habitually participate in
any of the activities in which the natural persons and legal entities indicated in the
legal entities indicated in article 15 and article 15 bis.
7) That it should be kept in mind, that all those Individual Professionals, or SME companies, who do not habitually participate in the exercise of the activity, could be below the parameter of real estate transactions to be provided for, should be left out of the control.
8) In this sense, we suggest that those who do not carry out 3 transactions per month, never complying with the criterion of frequent repetition linked to the concept of habituality, could be disqualified – or released from this requirement.
We propose a solution or measure more adjusted to the enunciated realities, in order to comply with the provisions of the referred Art. 15 bis, submitting to the norm in an effective way, and that invites this Real Estate Brokerage Sector, to its full compliance, being the following recommendations:
1) TO PUT THE PARTIES TO TALK. – It is necessary to put the SUGEF and the Chamber of Real Estate Brokers to talk, in order to reach agreements that will allow compliance with the legal/regulatory framework in accordance to the Individual Professional or SMEs, which of course is the only way to achieve compliance.
Individuals or SMEs, which of course usually participate in the activity.
2) LEGAL REFORM – To jointly search for the legal reform that will allow it, since some changes will have to be introduced to the Law to achieve it. Work on a draft, with the technical and political support of the Legislative Assembly.
3) CREATION OF A SINGLE FILE – Creation of a Single File in SUGEF: The due diligence, or “Compliance” of the Client and of the Transaction should be carried out in such a way that all the parties involved in the business contribute or contribute with something.
The due diligence, or “Compliance” of the Client and the Transaction should be done in such a way, that all parties involved in the business contribute to a single file controlled by the country’s regulatory entity (in this case the Article 15 Department of SUGEF), offloading risk from one party to the other, confirming
The origins of funds, activities, identifications, among others, without being repetitive or exhaustive in the control and verification processes and that for all of them it is valid.
4) COMPUTER APPLICATION. – That, taking into account the new technologies, a single digital Client/Transactional file should be kept in art. 15 bis, as mentioned above, which, for cases such as these, where Real Estate Brokers participate, who are individuals, or small and medium-sized companies, should be able to keep a single digital file.
that are individual, or SMEs, that is fed by all the participants of the process and that also perform a regulatory “Compliance” and must be subject to the norm.
5) SUPPORT: That the Chamber of Real Estate Brokers provides the Due Diligence service to its associates for the Compliance work, providing them with a digital Client/Transaction file.
6) CLARITY IN THINGS. – That aspects of the nature of the transaction, characteristics, amount, simplification are defined; as well as parameters such as frequency, volume, periodicity, gradualness, to determine the habituality of real estate transactions.
to determine the habituality of the real estate transactions of these Individual Professionals, or Pymes.
7) SIMPLIFICATION. – The idea is to facilitate the process/task of “Compliance”, due to which, the Manuals/Codes of Compliance, Ethics, Governance, Information Capture Forms for KYC, Transactional Profile of the Client, PEPs, others, can be simplified.
Client Transaction Profile, PEPs, others, can be elaborated and provided by the Real Estate Brokerage Department (since here there may be a barrier to compliance).
8) CONTINUOUS TRAINING AND DISCLOSURE PROGRAM. –
Continuous and permanent training of the Chamber of Real Estate Brokers in these basic topics of Due Diligence for the work of “Compliance”.
We do not intend to be exhaustive on the subject, but rather to bring to the table a situation that deserves a solution. The one offered is one of many that may exist for it.
We believe that it is convenient to start with something; and above all by building bridges of negotiation between those involved.