Anti-Money Laundering News and Information

Money Laundering Through Real Estate 

There are many methods of money laundering, and criminals are discovering new ways every day. One of the most used methods is real estate. As is known, money laundering takes place with large amounts of money. Criminals try to launder large amounts of money that they cannot buy cash. Real estate is one of the sectors where large amounts of money are used the most.

In Germany alone, $ 30 billion of uncertain origins entered the real estate market in 2017. In Canada, at least $ 20 billion seems to have entered the Greater Toronto Area’s housing market in the last ten years without the oversight of anti-money laundering authorities. There are many money methods used in selling and buying real estate. Criminals can purchase real estate using cash, and real property can be hidden. There are many other methods criminals use to launder money in the real estate industry.

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Money Laundering Methods in Real Estate 

  • Use of third parties: Criminals can make the title deed on someone else while buying real estate. This third person is usually a family member with no criminal record. The property is purchased on their behalf, and the proceeds of crime are deposited into third parties’ accounts. In this way, the criminals will not be directly mentioned in the incident.
  • Use of credit and mortgage: Credit and mortgage can be used as collateral for laundering crime proceeds. Refunds can be used to mix illegal funds with legitimate funds.
  • Manipulation of property values: Criminals may cooperate with third parties such as real estate agents to underestimate or exaggerate a property’s value. Evaluating the property value with a sales contract lower than the actual purchase price is called undervaluation. Criminals may overestimate real estate in an attempt to get the largest possible loan from a lender. The larger the loan, the more illegal funds that can be laundered to service the debt.
  • Configuring cash deposits to purchase real estate: Criminals deposit cash below the reporting threshold between different banks to avoid triggering transaction reports. The funds are then used to obtain bank checks to purchase real estate.
  • Rental income legitimizes illegal funds: Criminals rent their property by providing illegal funds to cover rent payments to tenants to legitimize illegal funds. They can also buy property on behalf of a third party and pay rent to that person using illegal funds.
  • Real estate purchase facilitates other criminal activities:Criminals can purchase property using illegal funds to engage in criminal activities such as drug production. The revenue obtained is used to hide the source of the funds. Property renovations and improvements Criminals use illegal funds to pay for the renovation costs and thus increase the value of the property. The property is sold at a higher price.
  • Use of front companies: Property owned in the name of shell companies established overseas allows criminals to move away from property.

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Red Flags in Real Estate Transactions

Red Flag 1: Someone offers you money or some other observed benefit so they can use your credit to get a mortgage. In this money laundering scenario, the person known as the buyer buys a property using his credit rating. However, it pays the down payment, closing cost, and mortgage payments with the criminals’ money. The purpose of the purchase is to place the proceeds of crime into the system by using real estate purchases on behalf of the person. This scenario is not only money laundering but also mortgage fraud. By using a straw receiver, they hide the real beneficial owner of the property, and the identities of the criminals are protected.

Red Flag 2: Someone offers to pay you substantial cast payments – often beyond market rates – for your property as part of a lease to own agreement. In this type of scenario, the purchase price is too good to be true. Criminals often cause some damage to property. For example, they are using the property for illegal purposes.

Red Flag 3: You own a business property, and someone offers to enter into a lease to hold the commercial space, and as part of the deal, they offer to. It is clear that in this money laundering scenario, the person making the rent payments has access to large cash resources. The goal is to put as much money as possible from criminal activities back into the system through rent payments.
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Overcome Money Laundering Through Real Estate 

Asset Declaration: Asset Declarations mean public officials must declare their wealth before and after their time in government. To make sure this works: senior public officials should declare all their assets, not just some. They shouldn’t be able to hide wealth under the names of family or friends. An independent body should make sure that what they say is true. And all declarations should be public. 

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Regulation Gatekeepers: Gatekeepers should know who is behind their corporate clients. Access to a beneficial ownership register will help them to verify their identity. They should report suspicious transactions to authorities. And the authorities should make regular checks and sanction negligent and complicit behavior by gatekeepers.

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Land Registers: Includes the name of the real beneficiaries of the properties, with an online central proof system showing who owns which property. This creates greater accountability over the origins of money in the market.

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January 2021, published on Sanctions Scanner

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