Real Estate Red Flags/ How Do Criminals Launder Through Real Estate?

Money laundering involves filtering income from illegal activities through legitimate transactions, disguising its source and preventing detection by the authorities. Property purchases can be an effective way to launder funds, as they tend to involve large sums of money changing hands, complex transactions and little oversight. Criminals use a wide variety of techniques to exploit the real estate sector for money laundering and financing of terrorism. The methods used keeps on evolving and, in many cases, such methods are specific to the characteristics of a given real estate market. AML Compliance Officer can observe a set of common AML red flags before elevating a suspicious case to the UAE Financial Intelligent Unit (UAE FIU) and enhance an organisation’s due diligence process and compliance framework.

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:

Credit and mortgage can be used as collateral for laundering crime proceeds. Refunds can be used to mix illegal funds with legitimate funds.

METHOD 3- 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.

METHOD 4- STRUCTURING OF CASH DEPOSITS TO BUY 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.

METHOD 5- 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.

METHOD 6- PURCHASE OF REAL ESTATE TO FACILITATE OTHER CRIMINAL ACTIVITY:

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.

METHOD 7- 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 8 – 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.

KEY TAKEAWAYS:

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.
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