Real estate can be an attractive channel for criminals wanting to launder illicit funds for a number of reasons.
Criminals can purchase a property using large sums of cash, live in the property, renovate the property (using illicit cash) to improve its value and sell the property at a later date for a capital gain.
The ultimate beneficial ownership of real estate can also be easily concealed.
The Money Laundering and Terrorist Financing (ML/TF) risks associated with real estate include:
- The ultimate beneficial ownership of real estate can be easily concealed;
- The use of third parties to buy and sell properties;
- The use of loans and mortgage (for example, criminals take out a mortgage to buy a property and pay back the mortgage using lump sum cash payments);
- Manipulating property values (that is, criminals buy and sell real estate at a price above or below market value);
- Structuring cash deposits to buy real estate;
- The use of complex company structures and multiple accounts to disguise the real purpose of a property transaction and disguise its true ownership;
- Buying and leasing properties, but providing the tenant with illicit funds to pay the rents; and
- Buying a property using illicit funds with the intention of conducting further criminal activity at the property, and using illicit funds to renovate properties.
Real estate agents must ensure the organisation conducts a comprehensive ML/TF risk assessment to identify, assess, mitigate and manage ML/TF risk exposures as a critical first step in complying with AML/CFT laws.