Money Laundering through Real Estate

The real estate market has long provided an effective way for criminals to launder the proceeds of crime, confusing the audit trail and hiding the true nature of the source of the funds.

In a recent report, Transparency International posits that the ease with which money can be laundered through real estate relates to insufficient rules and enforcement practices in attractive markets such as Australia, Canada, the United Kingdom and the United States.

 

Key Recommendations

In the report, Transparency International recommends a set of reforms and measures to establish an effective system to detect and prevent money laundering through real estate and to comply with international commitments such as recommendations by the Financial Action Task Force and the G20 High Level Principles on Beneficial Ownership Transparency:

 

Coverage of anti-money laundering provisions should be adequate

All entities involved in real estate transactions (e.g. real estate agents, lawyers, accountants and mortgage lenders) should be required by Governments to conduct due diligence on customers.

 

Beneficial ownership identification should become the norm

Governments should require that real estate agents and other entities engaging in property transactions keep records on the beneficial owners of customers before proceeding with the sale or purchase.

 

Checks on foreign and domestic politically exposed persons (PEPs) should be enhanced

Governments should require all reporting entities who engage in the buying and selling of real estate to identify whether a customer is a PEP, a family member or an associate of a PEP – and conduct enhanced due diligence. Foreign PEPs and their associates should be treated as high-risk clients.

 

Foreign companies should only gain access to the real estate market upon providing information on their real owners

Governments should require that companies provide beneficial ownership information which is available to law enforcement, and preferably also in a public registry. This information should include name, nationality, date of birth, address, and how control is exercised.

 

Suspicious transaction report (STR) rules should be adequate and implemented

Governments should require all parties involved in real estate transactions to report suspicious transactions to the financial intelligence unit, and these reports should be accessible by law enforcement agencies.  Supervisory bodies should provide guidance on identifying ‘red flags’ and on effectively submitting STRs.

 

Professionals who can engage in real estate transactions should be registered and submit to “fit and proper” tests

All relevant parties should be required to register with a designated public authority, and undergo anti-money laundering training.

 

Money laundering risks in the sector should be understood and fully acted upon

Both governments and reporting entities should conduct risk assessments and use the findings to improve enforcement and compliance, respectively.

 

Supervision of the sector should be consistent and effective

Governments should determine a single independent supervisory body to oversee reporting entities’ compliance with anti-money laundering legislation.

Supervisory bodies and the country’s financial intelligence unit should be independent, and should have powers to request information and conduct on-site checks.

 

Sanctions in the sector should be effective and dissuasive

Administrative and criminal sanctions should be enforced against individuals and companies to punish non-compliance with anti-money laundering legislation.

Nyman Gibson Miralis provide expert defence in complex money laundering cases investigated by multiple international law enforcement agencies. 

Contact us if you require assistance.