Author: Nyman Gibson Miralis
Subject: Money Laundering
Keywords: money laundering through real estate, AUSTRAC, professional facilitators,
The laundering of illicit funds through real estate is an established money laundering method in Australia. Criminals may be drawn to money laundering through real estate due to the fact that it is relatively uncomplicated and requires little expertise. Furthermore real estate can be bought using cash, true ownership can be disguised, and property is a secure investment with good potential to increase in value.
In the report ‘Money laundering through real estate’, AUSTRAC identifies some common methods in which criminals launder illicit funds through real estate.
Method 1 – use of third parties
Criminals may buy real estate using a third party or family member (often someone with no criminal record) as the legal owner. Property is either purchased on their behalf, or proceeds of crime are deposited into their bank account to make the purchase. This method allows criminals to avoid direct involvement in the money laundering process.
Method 2 – Use of loans and mortgages
Loans and mortgages can be used as a cover for laundering proceeds of crime, and their repayment can be used to mix illicit with legitimate funds.
Method 3 – Manipulation of property values
Criminals can collude with third parties such as real estate agents to under or overestimate the value of a property.
Under-valuation involves recording the property value on a contract of sale which is less than the actual purchase price. The difference between the contract price of the property and its true worth is paid secretly by the purchaser to the vendor using illicit funds. The criminal (purchaser) is able to claim that the amount disclosed in the contract as having been paid is within their legitimate financial means. If the property were sold at the market or higher value, the apparent profits would serve to legitimise the illicit funds. This method is also used to pay less stamp duty.
Criminals may overvalue real estate with the aim of obtaining the largest possible loan from a lender. The larger the loan, the greater the amount of illicit funds that can be laundered to service the debt.
Successive sales at higher values
Criminals may further confuse the audit trail by reselling property in quick succession. The property is sold at a higher value, either to related or acquainted third parties, or to companies or trusts controlled by the criminal. This gives an appearance of seemingly legitimate profits while the criminal maintains ultimate control over the property.
Method 4 – Structuring of cash deposits to buy real estate
Criminals deposit cash below the $10,000 reporting threshold across different banks/branches to avoid triggering threshold transaction reports to AUSTRAC. The funds are then used to obtain bank cheques to buy real estate.
Method 5 – Rental income to legitimise illicit funds
Criminals lease out their properties, providing tenants with illicit funds to cover the rental payments, in order to legitimise the illicit funds.
Criminals may also buy property in a third party’s name and pay that third party rent using illicit funds. By ‘renting’ their own property via a third party, criminals can disguise illicit funds and ownership.
Method 6 – Purchase of real estate to facilitate other criminal activity
Criminals may buy property using illicit funds to conduct criminal activity at the property, such as the production of drugs. The revenue generated may then be used to buy additional properties in an effort to disguise the original source of the funds.
Method 7 – Renovations and improvements to property
Criminals use illicit funds to pay for renovations, thereby increasing the value of property. The property is then sold at a higher price.
Method 8 – Use of front companies, shell companies, trust and company structures
Front companies, shell companies, trusts and company structures established in Australia or overseas can be used to launder money through real estate. Property held in the name of one of these companies allows criminal to distance themselves from ownership.
Method 9 – Use of professional facilitators
Professionals such as lawyers, accountants, real estate agents, financial advisers and trust and company service providers may assist criminals to launder money through real estate by:
- establishing and maintaining domestic or offshore legal entity structures – for example, trusts or companies
- facilitating or conducting transactions on behalf of the criminal
- receiving and transferring large amounts of cash
- establishing complex loans and other credit arrangements
- introducing criminals to financial institutions
- facilitating the transfer of ownership of property to third parties.
Criminals may use multiple professionals to further complicate the money laundering process in an effort to avoid detection. The use of a professional also provides a veneer of legitimacy to criminal activity and a buffer between criminals and their financial activities and assets.
Method 10 – Overseas-based criminals investing in Australian real estate
Overseas-based crime groups and individuals may buy real estate in Australia using illicit funds to conceal assets from authorities in their home jurisdiction. Criminals may seek to integrate their funds into Australian assets in an attempt to avoid confiscation in their home jurisdiction. Purchases may be funded through overseas-based personal, company or trust accounts. Criminals may also use third parties to buy and sell property to further conceal ownership.
As an established money laundering method, criminals are likely to continue to use real estate to launder illicit funds. Money laundering through real estate may be identified where transactions intersect with the regulated AML/CTF sector. This provides AUSTRAC with a degree of visibility over possible money laundering through real estate.
Nyman Gibson Miralis are experts in transnational money laundering investigations, assisting companies and individuals who are the subject of investigations by AUSTRAC, the AFP, ATO and ACIC. If you require assistance, contact one of our expert criminal defence lawyers