Navigating Spanish Property Purchases: Understanding AML/KYC for International Buyers of New Developments

1. Introduction: The Regulatory Landscape for International Property Buyers

Spain remains a highly attractive destination for international property investment, offering diverse opportunities from coastal villas to urban apartments. However, prospective buyers, particularly those acquiring newly built properties directly from developers, must navigate a stringent regulatory framework designed to protect the integrity of the Spanish financial system and other economic sectors.Central to this framework are the concepts of Anti-Money Laundering (AML) and Know Your Customer (KYC), which translate into mandatory compliance steps for international purchasers.

The cornerstone of Spain's AML regime is Ley 10/2010, de 28 de abril, de prevención del blanqueo de capitales y de la financiación del terrorismo (Law 10/2010 of April 28, on the prevention of money laundering and terrorist financing).This legislation, effective since April 2010 and periodically updated, explicitly aims to prevent the misuse of Spain's economic structure for illicit purposes, such as laundering proceeds from criminal activity or funding terrorism.Critically, the law designates various professional and business sectors as 'obligated entities' (sujetos obligados), imposing specific due diligence requirements upon them.

This report focuses specifically on the AML/KYC process encountered when an international buyer purchases a new property directly from a Spanish developer ("promotor inmobiliario"). This scenario is distinct because Ley 10/2010 explicitly includes property developers among the obligated entities.Consequently, developers themselves carry significant responsibilities for verifying their clients.While the process shares similarities with resale transactions, the direct involvement of the developer adds a specific layer of scrutiny compared to purchases from private individuals. A key characteristic of this process is the dual scrutiny involved. Both the property developer selling the new build and the Spanish bank facilitating the payments (or providing financing) are independently classified as 'obligated entities' under Ley 10/2010. This means each entity must conduct its own AML/KYC checks on the international buyer. This layered compliance system is a deliberate feature of the Spanish regulatory approach. Each obligated entity bears independent responsibility for applying due diligence measures concerning its clients and the transactions it facilitates. When a buyer engages with both the developer (for the property acquisition) and a bank (for fund transfers or potential financing), both institutions must satisfy their distinct legal obligations. This involves separate verification processes mandated by law, creating a redundancy designed to enhance the detection of potentially illicit activities. The developer's focus is primarily on the legitimacy of the property transaction itself and the buyer's profile , whereas the bank concentrates on the financial flows, ensuring the funds transferred are legitimate and their origin is verified. This dual-check mechanism underscores the perceived high risk associated with the real estate sector for potential money laundering activities.

2. The Gatekeepers: Developer and Bank Obligations under Ley 10/2010

Understanding the specific roles and responsibilities of both the developer and the bank is crucial for international buyers navigating the AML/KYC process for new builds in Spain.

Developers as Obligated Entities:

Ley 10/2010, specifically Article 2.1(l), designates "promotores inmobiliarios" (property developers) and those professionally involved in real estate agency, commission, or intermediation as obligated subjects. This status imposes several key due diligence obligations (medidas de diligencia debida) :

• Formal Identification (KYC): Developers must formally identify the buyer, verifying their identity using reliable documents. This is the fundamental "Know Your Customer" requirement.
• Beneficial Owner Identification: If the buyer is a company or appears to be acting on behalf of another individual, the developer must identify the ultimate beneficial owner (UBO).
• Purpose and Nature of Relationship: Developers need to understand the buyer's intention for the property (e.g., primary residence, second home, investment) and the nature of the business relationship.
• Verification of Source of Funds: This is arguably the most critical and often most demanding obligation. Developers must take adequate measures to understand and verify the origin of the funds the buyer intends to use for the purchase.8 Spain's AML authority, SEPBLAC, has previously highlighted inadequate verification of fund origins as a weakness within the real estate sector, emphasizing its importance.
• Ongoing Monitoring: The obligation extends throughout the business relationship, meaning developers must monitor transactions, particularly relevant for stage payments common in new development purchases.
• Internal Controls: Developers must establish internal control measures, which include adequate staff training on AML procedures and how to detect suspicious operations.Larger entities may also need formal internal control bodies and reporting channels.

Banks as Obligated Entities:

Financial institutions, including banks, are also primary obligated entities under Ley 10/2010.Their AML/KYC procedures are well-established and integral to their operations. For an international property buyer, the bank's checks typically involve:

• Account Opening Verification: Verifying the buyer's identity (using passport/ID and the mandatory Spanish NIE number) when the buyer opens the required Spanish bank account.
• Scrutiny of Incoming Funds: Examining international transfers destined for the property purchase, paying close attention to their origin and consistency with the buyer's profile. Enhanced Due Diligence for Financing: Applying stricter checks if the bank is providing a mortgage or other financing for the purchase.
• Screening: Checking the buyer's name against international sanctions lists and lists of Politically Exposed Persons (PEPs).
• Transaction Monitoring: Continuously monitoring the buyer's account activity for any transactions that appear unusual, inconsistent with their known profile, or potentially suspicious.

Collaboration and Information Flow:

While the developer and the bank conduct legally distinct and independent AML/KYC assessments, the practical reality of a property transaction necessitates a degree of alignment for the purchase to proceed smoothly. The developer requires confirmation that the buyer's funds have arrived legitimately into the Spanish banking system before finalizing the sale.Conversely, the bank, when receiving substantial international funds or processing mortgage applications, benefits from understanding the legitimate purpose of the transaction – the property purchase – to accurately assess the associated AML risk.

If the developer encounters issues with the buyer's documentation or cannot satisfactorily verify the source of funds, they may refuse to proceed, effectively halting the transaction before the final payment is made via the bank.Similarly, if the bank identifies AML concerns and blocks the incoming funds or refuses to process the payment, the developer cannot complete the sale. Although data protection regulations limit the direct sharing of comprehensive KYC files between the developer and the bank , the successful completion of the purchase implies that both entities have independently satisfied their respective AML/KYC obligations regarding the same client and transaction. This suggests an implicit interdependence, where a 'green light' from both parties is necessary. The fact that buyers are often required to submit similar documentation (proof of identity, proof of funds) to both the developer and the bank further underscores this practical overlap in the verification process.

3. The International Buyer's AML/KYC Journey: A Step-by-Step Guide

For an international buyer purchasing a new property from a developer in Spain, the AML/KYC process typically unfolds in the following stages:

Step 1: Essential Preliminaries - NIE and Spanish Bank Account

Before any property transaction can occur, international buyers must obtain a Spanish Foreigner's Identification Number (NIE - Número de Identificación de Extranjero). This unique fiscal number is mandatory for significant transactions in Spain. Depending on whether the buyer intends to reside in Spain for more than 183 days per year, they will need either a resident or non-resident NIE; the application typically requires stating the purpose, such as property purchase. The NIE can be applied for at Spanish consulates abroad or within Spain at designated police stations or foreigner's offices.

Following the NIE acquisition, the buyer must open an account with a Spanish bank. This generally requires presenting the NIE certificate and a valid passport or national ID card. This bank account is indispensable for managing all payments related to the property purchase, including deposits, stage payments, taxes, and notary fees.

Step 2: Property Reservation and Initial KYC

Once the buyer selects a property, the process usually commences with signing a reservation agreement (contrato de reserva or documento de reserva) and paying a reservation deposit, often a fixed amount like €3,000 or a small percentage, to take the property off the market.

Contemporaneously, the developer will initiate their KYC process by asking the buyer to complete a detailed "Know Your Customer" (KYC) form.This form is crucial as it collects essential information: the buyer's full personal details, residential and fiscal address, profession or economic activity, and, critically, a declaration of the source of the funds that will be used to purchase the property.

Step 3: Document Submission - Proving Identity and Source of Funds

Based on the information provided in the KYC form, the developer (often through a dedicated internal compliance department or an outsourced specialist firm ) will request a specific set of documents from the buyer. This documentation phase is often the most intensive part of the process for the buyer. Key documents typically include:

• Proof of Identity: A clear, certified copy of the buyer's valid Passport or National ID card, along with the NIE certificate.
• Proof of Address: A recent document confirming the buyer's current residential address, such as a utility bill, bank statement, or rental contract (usually dated within the last three months).
• Proof of Economic Activity: Documentation supporting the buyer's declared profession or business, such as recent payslips, employment contracts, tax returns, or company registration documents.
• Evidence of Source of Funds: This is the most critical element and requires comprehensive proof tailored to the declared origin of the money. The necessary documents vary significantly depending on whether the funds come from savings, salary, sale of assets, inheritance, a loan, a gift, company profits, etc. A detailed breakdown is provided in Section 4.

Step 4: Verification Process - Developer and Bank Scrutiny

Once the buyer submits the requested documentation, the developer's compliance team undertakes a thorough review.They verify the authenticity of identity documents, check for consistency across all provided information, and meticulously analyze the evidence supporting the declared source of funds to ensure its legitimacy and traceability

In parallel, the Spanish bank conducts its own KYC procedures. This occurs initially when the account is opened and subsequently each time significant funds, particularly international transfers, are received into the account. The bank may independently request further documentation or clarification regarding the origin of large sums before crediting them to the account or allowing onward payment.

The efficiency and speed of this verification stage are heavily influenced by the buyer's preparedness. The entire process hinges on the timely provision of complete, accurate, and verifiable documents. Missing information, inconsistencies, or documents requiring official translation can lead to significant delays as the compliance teams request clarifications or supplementary evidence. Buyers who anticipate the detailed requirements, particularly concerning the source of funds, and gather the necessary certified and potentially translated documents proactively, tend to experience a much smoother and faster process.Delays frequently arise when buyers underestimate the depth of scrutiny applied to the origin of their funds.

Step 5: Receiving the 'Green Light'

Upon successful completion of the document review and verification process, the developer's compliance function will issue an internal 'green light' or approval. This signifies that the buyer has met the developer's AML/KYC requirements. This approval is a prerequisite for proceeding to the next contractual stage, typically the signing of the private purchase contract (often a "contrato de arras" involving a larger deposit, or the main "contrato de compraventa") , and making subsequent payments towards the property price. If the buyer fails to provide satisfactory documentation or justification for their funds, the developer will not grant this approval, and the purchase process will be halted.

4. Essential Toolkit: Documents Required for AML/KYC Compliance

Assembling the correct documentation is fundamental to successfully navigating the AML/KYC process. While specific requests can vary slightly between developers and banks, the following represents the typical requirements for international buyers of new properties in Spain.

Core Identification & Personal Details:

• Valid Passport or National ID Card: A clear, legible copy is required. A certified or notarized copy might be requested.
• Spanish NIE Certificate: The official document proving the buyer's Foreigner's Identification Number.
• Proof of Current Residential Address: A recent document (typically less than 3 months old) such as a utility bill, bank statement showing the address, or a formal rental agreement.
• Proof of Tax Residency: Usually the buyer's Tax Identification Number (TIN) from their home country and potentially a recent personal income tax return filed there.
• Information on Profession / Economic Activity: Declaration and supporting evidence (e.g., employment contract summary, business registration details).

Justifying the Source of Funds (Critical Area):

This is the most scrutinized aspect of the AML/KYC check. Buyers must provide clear, verifiable evidence demonstrating the legitimate origin of the money being used for the purchase. The required documentation depends entirely on how the funds were generated. The following table provides a consolidated overview based on common scenarios:

For Legal Entities (Companies) Buying Property:

If the purchasing entity is a company, the documentation requirements expand significantly :

• Company Formation Documents: Deed of Incorporation (Escritura de constitución) and Company Statutes (Estatutos).
• Commercial Registry Certificate: Recent certificate confirming the company's registration and current standing (Certificado del Registro Mercantil).
• Company Tax Identification Number (CIF in Spain).
• Corporate Tax Returns: Recent filings (Impuesto de Sociedades).
• Ultimate Beneficial Owner (UBO) Declaration: Documentation clearly identifying the individuals who ultimately own or control the company.
• Representative's Identification: Identification documents (Passport, NIE) for the company director or legal representative signing the purchase documents, meeting the same standards as for individual buyers.
• Company's Source of Funds: Evidence justifying the origin of the company's funds used for the purchase (e.g., filed annual accounts showing profits, business bank statements).

Translation Requirements:

It is essential to note that any documents not originally in Spanish will likely require an official sworn translation ("traducción jurada") performed by a translator certified by the Spanish Ministry of Foreign Affairs. Buyers should factor in the time and cost associated with obtaining these translations.

5. Timing the Process: What to Expect for AML/KYC Checks

A common question from international buyers concerns the time required to complete the AML/KYC verification process. It is crucial to understand that there is no fixed timeframe. The duration is highly variable and depends significantly on a confluence of factors specific to each buyer and transaction.

Key Influencing Factors:

• Buyer's Preparedness and Responsiveness: This is often the most significant factor. The speed at which the buyer provides complete, accurate, well-organized, and verifiable documentation directly impacts the timeline. Delays in submission or providing incomplete/incorrect information inevitably extends the process.
• Complexity of the Source of Funds: Verifying funds derived from straightforward employment income accumulated in savings is generally quicker than tracing funds originating from multiple international asset sales, complex corporate structures, offshore accounts, or private loans involving third parties. The more complex the origin, the longer the verification takes.
• Buyer's Country of Origin/Residency and Risk Profile: Buyers residing in or holding citizenship from countries identified by the EU, FATF, or Spanish authorities as having higher risks of money laundering or terrorist financing will automatically be subject to Enhanced Due Diligence (EDD). Similarly, individuals identified as Politically Exposed Persons (PEPs), along with their family members and close associates, undergo more rigorous scrutiny. EDD inherently takes longer than standard due diligence. While EU residency might simplify some document verification aspects compared to non-EU residency, the core AML/KYC requirements apply broadly.
• Developer/Compliance Team Efficiency and Workload: The internal processes, resources, and current caseload of the developer's compliance department or the external firm they employ can influence processing times.
• Bank Processing Times: The time taken by the Spanish bank to perform its own KYC checks, verify incoming international transfers, and potentially liaise with correspondent banks also contributes to the overall timeline.General Expectation:

Given these variables, providing a precise estimate is difficult. However, international buyers should realistically factor in at least several weeks for the developer's AML/KYC checks to be fully completed after all required documents have been submitted correctly. This stage often requires patience and consistent communication.The timeline is frequently less about fixed institutional processing times and more a reflection of the buyer's individual circumstances, the complexity of their financial background, and their diligence in providing the necessary proofs. The critical path is often dictated by the buyer's ability to satisfy the documentation requirements promptly and comprehensively. Therefore, starting the document gathering process as early as possible, even before finalizing the property choice, is highly advisable.

6. Important Considerations for International Buyers

Beyond the standard steps and documentation, international buyers should be aware of several additional factors and considerations related to Spanish AML/KYC regulations.

Enhanced Due Diligence (EDD):

Certain situations automatically trigger a higher level of scrutiny known as Enhanced Due Diligence (Medidas Reforzadas de Diligencia Debida). This involves more in-depth investigation and verification. Triggers include:

• High-Risk Jurisdictions: Buyers who are resident in, citizens of, or whose funds originate from countries identified as high-risk for money laundering or terrorist financing by bodies like the Financial Action Task Force (FATF), the European Union, or specifically by Spanish authorities.
• Politically Exposed Persons (PEPs): Individuals who hold or have held prominent public functions (e.g., heads of state, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations), as well as their immediate family members and known close associates. Banks and developers use specialized databases to screen for PEP status.
• Complex or Unusual Transactions: Transactions that appear unusually large given the buyer's profile, lack a clear economic or lawful purpose, or involve overly complex or opaque ownership structures (e.g., layers of shell companies).
• Non-Face-to-Face Relationships: While modern regulations allow for remote identification procedures using technology , establishing a relationship without physical presence can sometimes trigger heightened scrutiny, depending on the methods used and other risk factors.

Transparency and Honesty are Paramount:

Buyers must provide completely accurate and truthful information throughout the process, particularly on the KYC form and when explaining the source of their funds. Any attempt to mislead, conceal information, or provide false documentation can lead to the immediate termination of the purchase process and may trigger a suspicious activity report to the authorities. While the level of financial detail requested can sometimes feel intrusive to buyers , it is essential to understand that these inquiries are driven by strict legal obligations imposed on developers and banks, not by personal curiosity.

The Value of Independent Legal Advice:

Engaging an independent Spanish lawyer who specializes in real estate transactions and has experience working with international clients is highly recommended. A knowledgeable lawyer can provide invaluable guidance through the complexities of the purchase process, including the AML/KYC requirements. They can assist in preparing and organizing the necessary documentation, liaise with the developer's compliance team and the bank, and ensure the buyer's interests are protected. However, the ultimate responsibility for providing truthful and accurate information always rests with the buyer.

Consequences of Non-Compliance or Suspicion:

If issues arise during the AML/KYC checks, the consequences can be significant:

• Transaction Halt: As previously mentioned, failure to provide satisfactory documentation or adequately justify the source of funds will prevent the developer from issuing the 'green light', thereby halting the purchase. Deposits already paid may be subject to the terms of the reservation or purchase contract.
• Reporting to SEPBLAC: If the developer or the bank detects activity or facts that present indicia or certainty of being related to money laundering or terrorist financing, they are legally obligated to report this to Spain's Financial Intelligence Unit, SEPBLAC (Servicio Ejecutivo de la Comisión de Prevención del Blanqueo de Capitales e Infracciones Monetarias). Such a report can lead to further investigation by Spanish authorities. Obligated entities must abstain from executing suspicious transactions until reporting, unless abstention is impossible or could hinder investigations.
• Potential Legal Repercussions: While the primary sanctions under Ley 10/2010 target obligated entities for failing in their duties , buyers who knowingly provide false information or documentation could face separate legal consequences under Spanish law.

Emerging Trends:

The landscape is continually evolving. For instance, purchasing property using cryptocurrencies is emerging, but presents additional complexities. Current practice generally requires converting the cryptocurrency to Euros before the transaction can be formally registered. This process still involves rigorous KYC and AML checks on the origin of the funds used to acquire the cryptocurrency, often requiring specialized assistance.

7. Conclusion: Ensuring a Smooth and Compliant Purchase

Acquiring a new property from a developer in Spain is an exciting prospect for international buyers. However, it is inextricably linked with compliance with Spain's robust Anti-Money Laundering and Counter-Terrorist Financing framework, primarily governed by Ley 10/2010. This legislation mandates thorough Know Your Customer (KYC) procedures and, critically, the verification of the legitimate origin of the funds used for the purchase.

Buyers must be prepared for the dual scrutiny inherent in this process, where both the property developer and the facilitating Spanish bank act as independent gatekeepers, each obligated by law to perform their own due diligence checks. Understanding these distinct but complementary roles is key to navigating the requirements effectively.

Ultimately, the smoothness and success of the AML/KYC process largely depend on the international buyer's proactive preparation, transparency, and cooperation. Gathering all necessary documentation early, particularly the detailed evidence required to substantiate the source of funds, is paramount. Engaging independent legal counsel can provide valuable support.

While the process demands diligence and patience, it serves the vital purpose of maintaining the integrity of the Spanish real estate market and financial system. By understanding the requirements, preparing thoroughly, and providing accurate information, international buyers can confidently and lawfully complete their property purchase in Spain, ensuring a secure and compliant transaction.