International Money Laundering and Real Estate

Money laundering through real estate allows criminals to integrate proceeds of crime into the legitimate economy, and continue their illegal activities.

In its briefing document Understanding money laundering through real estate transactions, the Financial Action Task Force (FATF) highlights some of the key considerations and recommendations to combat this practice.

 

Why is real estate attractive to criminals?

Real estate is attractive to criminals for much the same reasons as it is attractive to the average person: it is a relatively stable investment, it is functional (can be lived in or rented out), and the value is likely to increase over time.

Furthermore, real estate can provide a veneer of legitimacy, and transactions are subject to less scrutiny than financial sector transactions.

 

How may ‘suspicious’ real estate transactions be identified?

Through the analysis of various cases of money laundering through real estate, some common features have been identified, for example:

  • Discrepancy between the recorded wealth of the owner and value of the property
  • The owner is anonymous
  • The indication by a country that there is a risk of money laundering by its citizens in another country
  • The use of complex loans or credit finance

Furthermore, there exist a number of common methods of laundering money through real estate. The presence of these elements may also give rise to suspicion; for example the use of third parties, mortgage schemes and property renovations.

 

What are the key risks, and how can they be mitigated?

Unusual or suspicious patterns can be identified relating to a number of key areas: customer risk, transaction risk and geographical risk.

Spotting the money laundering risk behind the real estate transaction can help to perform a risk-based assessment and address the matter.

 

Customer risk

This relates to the ability to identify the real purchaser and ascertain any third party involvement that may be obscuring the true beneficial ownership.

Customer risk also covers purchases involving high-ranking foreign officials or their families, who require specific attention either as politically exposed persons (PEPs) or because of specific international provisions, such as sanctions.

 

Transaction risk

This relates to elements such as a mismatch between the buyer and property, the use of complex loans, or anything which does not appear to make professional or commercial sense. An example of the latter may be a purchaser who is not interested in obtaining a better price or has not viewed the property prior to purchase.

 

Geographical risk

This can relate to both the property and the buyer. A number of questions to be asked include:

  • Does the location of the property match the location of the buyer and seller?
  • Are the buyer and/or seller located in a country with a weak AML regime or a high degree of corruption?

In a recent report, Transparency International recommends a set of reforms and measures to establish an effective system to detect and prevent money laundering through real estate.

 

What is the impact?

Money laundering through real estate can distort real estate prices, pricing legitimate buyers and even renters out of the market.

These factors can also affect decisions about where to live, resulting in a change of neighbourhood and the related displacement of less affluent households.

Nyman Gibson Miralis provide expert defence in complex money laundering cases. Contact us if you require assistance.