20 September 2021, 11:31
20 September 2021, 11:31
The real estate sector can provide an environment to safely turn money earned illicitly into clean funds and back into the legal economy. It allows the criminals to enjoy the asset by successfully camouflaging illicitly earned funds. Money laundering can be done by using cash, shell companies and trusts to cover their identities when they purchase properties.
There are many reasons why real estate laundering is chosen over other ways of laundering money. It provides a façade of respectability, legitimacy and normality and the asset of land or property is likely to appreciate over time. Transactions through real estate are usually high-value, allowing illicit actors to launder large sums in one transaction.
As regulations adapt to criminal activity, the criminals continually evolve to find new ways around these. Real estate is frequently sold and re-sold in fairly quick succession, so this could make it less suspicious when a criminal engages in similar behaviours in order to layer laundered funds. However, money laundering can occur at any of these stages:
-Placement: A criminal may use illicit cash funds in the real estate sector.
-Layering: A criminal may conceal the true origin of illicit funds by selling and purchasing a number of properties.
-Integration: A criminal may sell a property and invest the funds in stocks, using the paperwork from the sale to demonstrate an apparently acceptable source of funds.
Common Red Flags:
-location of the property in relation to the buyer
-regions which do not have robust regulation in place
– an anonymous owner, such as through companies and trusts
-cash intensive businesses
-the use of intermediaries who are not subject to AML regulations or supervision
-politically exposed persons
-the speed of the transaction, where it is expedited without explainable reason
-under- or over-valued transactions
-property value not in the profile of the customer
-Use of complex loans, or other obscure means of finance
-purchase with large amounts of cash
Money laundering happens across the globe, but it is more likely to occur in the real estate industry if the region does not have robust regulation in place. This Economist article outlines how this can occur, set in Dubai, where there is a relaxed attitude towards dirty money. The UAE scored poorly on the index of money laundering created by Basel Institute on Governance.
Since then the UAE have implemented AML regulations. Real estate companies, brokers, agents and other professionals involved in the transaction of property must follow these regulations to ensure AML compliance, such as the registering with GoAML, the software to standardise and digitise reports of money laundering risks.
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