Money Laundering Through Real Estate

Blog / Money Laundering Through Real Estate

There are many different money laundering methods, and criminals discover a new one now and then. One of the most used methods is money laundering through real estate. Criminals often launder money through goods that they can use for large amounts of money. Real estate is one of the sectors in which large amounts of money are changed hands the most.

$30 Billion of uncertain origins entered the real estate market in Germany in 2017. $20 Billion seems to have entered the Greater Toronto area's real estate market in Canada in the last ten years without the oversight of the anti-money laundering authorities. Criminals can purchase real estate using cash and hidden real property. There are many other methods criminals use to wash money in the real estate industry.

How Do Criminals Launder Through Real Estate?

 Use of third parties: Criminals can purchase real estate through one of the people they know. The third person is usually a family member with no criminal record. The criminal won't be mentioned in the purchase since the transaction is transferred from the third party's account.

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 overestimate a property's value. Underestimating a property's value is called undervaluation, and overestimating a property's value is called overvaluation. Criminals may use overvaluation to get the largest possible loan from a lender. The larger the loan, the more money can be laundered.

 Configuring cash deposits to purchase real estate: Criminals might deposit cash using multiple banks not to trigger the reporting threshold. The funds are later used to obtain banks checks to purchase real estate.

Rental income legitimizes illegal funds:  Rental income legitimizes illegal funds: Criminals rent their property and use black money to cover the rent payments. They can also buy property on behalf of a third party, rent the property themselves, and use illegal funds to cover the payments.

 Real estate purchase facilitates other criminal activities: Real estate purchase facilitates other criminal activities: Criminals purchase property, renovate it and increase its value using black money. Later, the property will be sold at a higher price, resulting in laundering money.

Use of front companies: Property owned by shell companies established overseas allows criminals to move black money between countries.

Increased AML Risks In The Real Estate Sector

What are Red Flags in Real Estate Transactions?

Red Flag 1: Someone offers you money to make you purchase a property or get a mortgage in your name. In this scenario, the person who offers money is most likely trying to launder money or have a criminal record. It is not only a financial crime but also mortgage fraud.

Red Flag 2: Someone offers you beyond the market rate payments for your property as a part of a lease-to-own agreement. Monthly payments make criminals cover themselves easier. In addition to laundering money, criminals often cause some property damage too.

Red Flag 3Someone offers to enter into a lease to hold a commercial space in your business property. It is most likely that the person making the rent payments has access to large cash resources, and they might launder money through rent payments.  

How To Detect Money Laundering Through Real Estate?

Asset Declaration:  Public officials must declare their wealth before and after their service. Senior public official and their close circle should report all of their assets. All declarations should be public, and an independent official should check if the statements are true.  

Regulation Gatekeepers: Gatekeepers should know who is behind the corporate they work with. Access to a beneficial ownership list will help them verify their identity and check if there are any suspicious transactions to authorities or beneficial owners. An independent official should check to see if beneficial owners or authorities break any sanction bans.    

Land Registers: An online central proof system should show who owns which property to create greater accountability over the origins of money in the market.

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