MONEY LAUNDERING SCHEMES IN REAL ESTATE
Real estate is an established method of money laundering internationally; the Financial Action Task Force (FATF) has recognized that the real estate sector is a high-risk sector for money laundering, and it frequently attracts criminals who want to launder their dirty money. So why it is easier to launder money through real estate than the banks?
It’s simpler to launder money through real estate than other avenues because the relatedregulations are not robust in many jurisdictions. Here are 3 main examples of significant regulatory weaknesses in three major countries:
Compared to other methods, money laundering through real estate – both residential and commercial – can be relatively uncomplicated, requiring little planning or expertise. Large sums of illicit funds can be concealed and integrated into the legitimate economy through real estate.
HOW BIG OF A PROBLEM IS THIS IN THE REAL ESTATE SECTOR?
The Global Illicit Financial Flows Report estimates that China, Russia and India are the top three countries receiving ill-gotten money moving out of the U.S. Chinese nationals are on the top of foreign buyers of the Australian real estate, with nearly $6 billion in 2013. Indians and Russians are among the largest non-Arab investors of real estate in Dubai. Between 2012 to 2014, Indians only invested more than 44 billion dirhams in the Dubai real estate market (more than US$12 billion).
HOW DOES THE ILL-GOTTEN MONEY SEEP INTO THE REAL ESTATE SECTOR?
There are various methods and schemes launderers use to clean up money through real estate. Let’s summarize the most important methods:
I’ll cover red flags in a forthcoming article.
Criminals are likely to continue to use real estate to launder illicit funds due to the lack of regulatory reporting requirements in the industry. However, many governments (especially UK and Australia) are moving toward strengthening their regulatory reporting requirements and ensuring better governance over the real estate monitoring system.
FATF report: Money Laundering & Terrorist Financing through the Real Estate Sector.