Threats to the economic security of the Republic of Mari El in the field of countering the legalization (laundering) of proceeds from crime in the market for the sale of real estate

Shemyakina Marina Sergeevna ORCID: 0000-0003-3515-2680 PhD in Economics Associate Professor, Department of Accounting, Taxes and Economic Security, Volga State Technological University 424000, Russia, Yoshkar-Ola, Lenin Square, 3 sh.marina.s@gmail.com Other publications by this author

Introduction

   In the 2018 Report on the sectoral assessment of the risks of money laundering and terrorist financing using organizations and individual entrepreneurs providing intermediary services in the implementation of real estate purchase and sale transactions, the real estate sector is characterized by an increased level of criminalization ^[1]. Numerous cases from Russian practice confirm this provision ^[2,3,4,5], in 2022 alone, 7,500 objects of property ^[6], including real estate, were seized in favor of the state from persons who committed crimes, mainly of a corruption orientation. The acquisition of such objects is the giving of a legal form to funds obtained by criminal means. In this regard, the relevance of the research topic is beyond doubt.

  The purpose of this study is to develop theoretical provisions in terms of ensuring economic security in the field of countering the legalization (laundering) of proceeds from crime in the real estate purchase and sale market on the example of the Republic of Mari El. To achieve this goal, the following tasks are defined in the work: to verify compliance by realtors and real estate agencies of the Republic of Mari El with legislation in the field of countering the legalization (laundering) of proceeds from crime; identify threats to economic security; make recommendations on expanding the subject composition of persons exercising mandatory control of real estate purchase and sale transactions worth more than 5 million rubles.

     Literature review

    In the foreign literature, the issues of the risks of money laundering and terrorist financing with the use of organizations and individual entrepreneurs providing intermediary services in the implementation of real estate purchase and sale transactions are studied in detail. Most of them reflect the specifics of the legislation of the country under study: Malawi ^[17], Austria, Germany, Liechtenstein and Switzerland ^[18], Colombia ^[19], the United Arab Emirates ^[20], Italy ^[21], Malaysia ^[22], Canada and Great Britain ^[23]. They are united by one common conclusion: "systems of laws, rules and institutions designed to counter money laundering provide powerful tools to fight corruption" ^[24].

  During the analysis of publications in journals recommended by the Higher Attestation Commission, more than 150 studies were identified on the keywords "laundering of income", "countering the legalization (laundering) of income", "legalization of income", "FZ 115" and other derivatives of them. However, most of them consider the issues of the activities of the internal affairs bodies to solve crimes, various aspects of the typology of money laundering. Issues related to financial monitoring and the problems of its organization are disclosed in numerous works, since 2006 more than 300 articles on this topic have been published. It should be noted that financial monitoring is considered as a tool for countering threats to economic security ^[7,8], as a condition for ensuring financial security ^[9], as a method of control in the management of economic security ^[10]. At the same time, countering the legalization (laundering) of proceeds from crime is directly, according to some authors, one of the elements of economic security ^[11,12,13].

  Despite this, there are practically no fundamental studies that would address the issue of income legalization in the Russian real estate purchase and sale market. The exception is a study conducted by Transparency International on compliance by Russian real estate organizations with anti–laundering legislation ^[14].

   The research methodology is based on general methods of scientific cognition: comparison, collection and study of data, statistical research, synthesis of theoretical and practical material – and is based on the developments of Russian and foreign scientists on the problems of economic security in the field of countering the legalization (laundering) of proceeds from crime.

  Analysis of legislation on registration of organizations and individual entrepreneurs engaged in transactions with cash or other property

    The Decree of the Government of the Russian Federation of 27.01.2014 N 58 (ed. of 10.04.2023) "On approval of the Regulations on registration with the Federal Financial Monitoring Service of organizations engaged in transactions with cash or other property, and individual entrepreneurs in whose field of activity there are no control (supervisory) bodies" defines the accounting rules. According to subclauses d and subclauses d of clause 2, organizations and individual entrepreneurs providing intermediary services in the implementation of real estate purchase and sale transactions are subject to registration with the territorial body of the Federal Financial Monitoring Service in accordance with the place of state registration of the organization and the place of residence of the individual entrepreneur. Registration is carried out no later than the working day preceding the day of the conclusion of the first contract for the provision of relevant services.

   It should be noted that neither the law, nor the government decree, nor the information letters contain a provision that the self-employed who carry out intermediary services in the implementation of real estate purchase and sale transactions are subject to registration. At the same time, due to the introduction of a tax on professional income throughout the country at the end of 2020, these services can also be provided by the self–employed - individuals who do not have the status of an individual entrepreneur. In this regard, it is necessary to amend the current legislation by adding these persons to the number of persons exercising mandatory control.

  Thus, realtors – individual entrepreneurs, as well as real estate agencies, in accordance with current legislation, must:

— register with Rosfinmonitoring;

— develop rules and methodology of internal control;

— appoint a special official;

—receive training in financial monitoring (targeted instruction);

— submit reports to Rosfinmonitoring.

   In accordance with Article 15.27 of the Administrative Code of the Russian Federation "failure to comply with the requirements of legislation on countering the legalization (laundering) of proceeds from crime and the financing of terrorism", persons who do not comply with the legislation may be brought to administrative responsibility in the form of a warning or imposition of an administrative fine on officials in the amount of ten thousand to thirty thousand rubles; on legal entities persons — from fifty thousand to one hundred thousand rubles. Also, criminal liability is provided for violation of the law under Articles 174 and 174.1 of the Criminal Code of the Russian Federation.

    Research results

The check was carried out only for realtors / real estate agencies that conducted more than 1 transaction through the domclick service. In total, there are 281 such registered users operating on the territory of Yoshkar-Ola and Medvedevsky municipal district; on the territory of Zvenigovo -2, on the territory of Volzhsk and Volzhsky municipal district – 34, on the territory of Kozmodemyansk and Kozmodemyansky municipal district – 1. Verification was carried out according to the following algorithm developed by the author: on the domklik website in in the realtors section (Figure 1), a selection was made according to the location criterion, then from the open data on the realtor's personal page, his TIN (or the INN of a real estate agency) was taken and through the official Rosfinmonitoring database – the register of registered sole proprietors and organizations https://portal .fedsfm.ru/check-inn – reconciliation was carried out: whether this organization or individual entrepreneur is registered with Rosfinmonitoring.

Figure 1. The interface of the database that is the basis for the verification.

Source: https://domclick.ru/

The category of participants "independent real estate experts" was excluded from the study due to the absence of a prop (TIN) for verification in open sources. This is a category of persons who are not members of existing real estate agencies and are self-employed. The total number of such persons carrying out their activities on the territory of the Republic of Mari El through the domclick service is 13 people (they have conducted 196 transactions over the past 12 months). Most likely, none of them is registered with Rosfinmnitoring due to the absence of a binding direct rule of law.

Due to the fact that the data are open, and the Rosfinmonitoring database is mobile – the agency can register with Rosfinmonitoring at any time, table 1 shows "truncated data":  only by the number of employees with a non-zero indicator of transactions and the total number of transactions on the domclick website for 12 months as of July 20, 2023.

Table 1. Identified real estate agencies that are not registered with Rosfinmonitoring and have not restricted the viewing of information about their activities on the domclick website ^[1].

Source: compiled by the author on the basis of data analysis of the Domclick service https://domclick.ru / and Rosfinmonitoring databases https://portal .fedsfm.ru/check-inn

8 real estate agencies have restricted access to personal information on the domclick portal, on the official website of these agencies or on their pages on the Vkontakte social network, there is also no information about the TIN and other details of the organization, which served as a restriction in checking their activities for compliance with the law.

Two individual entrepreneurs also limited the information. However, we carried out a search for entrepreneurs' data through the FTS database containing EGRNIP information https://egrul.nalog.ru/index.html . After searching for the INN, a check was carried out on the Rosfinmonitoring website, which showed that the IP data are not registered with Rosfinmonitoring (the number of transactions over the past 12 months is 2 and 12, respectively).

Table 2 shows real estate agencies (LLC and IP) operating in the Republic of Mari El and registered with Rosfinmonitoring.

 Table 2. Real estate agencies (LLC and IP) operating in the Republic of Mari El and registered with Rosfinmonitoring

 Source: compiled by the author on the basis of data analysis of the Domclick service https://domclick.ru / and Rosfinmonitoring databases https://portal .fedsfm.ru/check-inn 

The analysis of Table 2 shows that the number of realtors in the Republic of Mari El who comply with the "anti–laundering" legislation is 218, and the number of transactions made with their participation on the domclick portal over the past 12 months is 2935. At the same time, 20% of agencies of the Volzhsky municipal district and the city of Volzhsk, as well as 50% of agencies of the Medvedevsky municipal district and the city of Yoshkar-Ola are not registered with Rosfinmonitoring. Due to the large number of transactions (30% of the total number) made by these persons over the past 12 months in the Republic of Mari El when using the Domclick service, a change in the system of registration/re-registration of users is required. The author sees the following solution to this problem: when adding new realtors/realtor agencies to work with the system, the Domclick service should check each of these persons for registration with Rosfinmonitoring, and send a message to already registered users asking them to upload a notification of registration with Rosfinmonitoring to the Domclick system. In case of refusal to provide information, it is necessary to restrict the activities of these persons in the Domclick service. This proposal will reduce the risk of real estate purchase and sale transactions worth more than 5 million rubles without mandatory control.

Conclusions

According to the Territorial Body of the Federal State Statistics Service for the Republic of Mari El, a square meter of housing in the Republic of Mari El in the 1st quarter of 2023 cost an average of 65,498 rubles in the primary market, 63914 rubles in the secondary market ^[15]. Based on the calculation of the minimum limit of the transaction amount, which must be reported to Rosfinmonitoring in case of doubt, the area of housing under such a transaction should exceed 76.5 square meters. The analysis of the unified information system of housing construction ^[16] according to the indicator "housing construction quartergraphy" (in terms of new buildings), reflected in Figure 2, allows us to conclude that almost 30% of apartments sold on the primary market fall under this quadrature.  At the same time, such a calculation can be considered minimal, in fact, the indicator is much higher. This conclusion was made by us based on the analysis of the three main developers of the Republic of Mari El: SZ Spektr-m; SZ Kazansky Posad + and Rusagrostroy. These developers account for more than 50% of the square meters of housing sold in the Republic of Mari El, and the price per square meter in most of the objects sold exceeds 75,000 rubles.

Unfortunately, due to the lack of such open data for the secondary housing market, it will not be possible to conduct a study in this aspect.

Figure 2. Distribution of apartments sold in the Republic of Mari El by area, m2

Source: UIS ZhS data as of 07/20/2023 ^[2]

Summarizing the data presented in the study , the following conclusions can be drawn:

1. 30% of real estate purchase and sale transactions through the Domclick service are carried out by 43% of real estate agencies that are not registered with Rosfinmonitoring and do not exercise control over transactions, which is mandatory in accordance with the legislation.

2. More than 30% of transactions in the primary real estate purchase and sale market are subject to mandatory control.

It should be noted that the 115 FZ establishes the obligation to register only persons providing intermediary services for the purchase and sale of real estate. In the information letter of Rosfinmonitoring dated May 12, 2021 No. 62 "On clarification of certain issues of the application of legislation on countering the legalization (laundering) of proceeds from crime and the financing of terrorism, organizations and individual entrepreneurs providing intermediary services in the implementation of real estate purchase and sale transactions", it is explained that such persons include realtors, real estate agencies, as well as agents between the developer and potential buyers of real estate - individuals. At the same time, the developers themselves are not classified as persons who are obliged to exercise internal control and register with Rosfinmonitoring. It should be noted that the limits on cash transactions are set only for settlements between legal entities and individual entrepreneurs, they do not apply to settlements with individuals. This makes it possible to apply the scheme bypassing the "anti-laundering legislation", when realtors do not participate in the real estate purchase and sale transaction, and settlements are made in cash. In this regard, it is necessary to change the legislation on these points. For example, assigning responsibilities to developers who sell real estate independently, without the involvement of agencies and realtors, to organize internal control in accordance with 115 FZ and mandatory registration with Rosfinmonitoring.

The results obtained contain practical recommendations for changing the current legislation, develop theoretical provisions regarding the economic security of public legal entities and the identification of a scheme for the legalization of criminal proceeds in the real estate market with the participation of developers, and also determine the identification of one of the threats to the economic security of the Republic of Mari El: the threat of legalization (laundering) of proceeds from crime, on the the real estate purchase and sale market.

^[1] Compiled by the author on the basis of open information on the domclick portal and the official website of Rosfinmonitoring as of July 20, 2023.

^[2] 1-room apartments are indicated in green, 2-room apartments in blue, 3–room apartments in gray