The emerging market of high value real estate has attracted much skepticism from authorities around the world for their vulnerability of being used as a vehicle for money laundering. Money laundering through real-estate can take various forms: large cash deposits to buy properties, criminals using clean third parties to buy on behalf of them, under and over-valuation of properties with the complicity of a real estate agent, unwarranted renovations of properties and, lastly making use of shell companies to disguise identity of the owners.
As banks and financial institutions are looking to increase their controls to combat financial crimes, money launderers are seeking for new avenues to launder their illicit funds. Money laundering through real estate has long been described as one of the oldest tricks in the book to launder illicit funds since the sector is known to have notoriously lax controls around money laundering. The real estate sector has, since long, became an attractive target for those wanting to hide the proceeds of crime as it allows a massive amount of cash to be laundered in a single transaction. Real estate also tends to provide a veneer of respectability, legitimacy and normality are key elements that prompts criminals to launder their funds.
A Worldwide Problem
Money laundering through real estate is alarmingly increasing and was estimated to have reached US$1.6 trillion in 2019 as per a report by Accuity, representing about 3% of the world’s GDP.
Over the past two years, a laundry list of suspects ranging from Chinese gambling rings, a Venezuelan television executive, and a banking official from Azerbaijan have been accused of using their ill-gained financial proceeds to purchase property at some of the most exclusive addresses in the world.
Chen Shui-bian, the former President of Taiwan, was sentenced to 19 years in prison in 2009 after being convicted of money laundering and bribery charges. It was alleged that some of the money accepted as bribes by his family was used to purchase real estate overseas, including a £1.6 million apartment in New York.
In 2016, Spanish police, working with Europol, dismantled a money laundering syndicate of Russian and Ukranian criminals. The investigation, known as Operation Usura, found that at least €62 million had been laundered through real estate investments in Spain by the gang. 191 properties were seized as part of the investigation into the criminal ring, who typically used offshore shell companies to launder money through real estate.
In 2017, Prevezon Holdings, a real-estate company incorporated in Cyprus, was accused by US authorities of laundering the proceeds of a $230 million Russian tax fraud scheme through US real estate, after a four-year investigation. The case was settled for $5.9 million.
Regulating the Real Estate Sector
In the fight against financial crime, the focus of Regulators on real estate is ever rising. The willingness of governments in key jurisdictions, combined with concerns over rising property prices and the possible link with money laundering, is creating a perfect environment for regulatory action. Authorities and regulators are now developing new anti-money laundering (AML) and Counter-terrorism financing (CFT) legislations that shall include the real estate sector. New AML/CFT compliance obligations will require real estate firms and professionals to carry out detailed and thorough due diligence on customers, put in place robust compliance processes and report on their compliance processes to regulators.
Mauritius
Mauritius has taken significant steps to ensure that it has a robust AML-CFT legal framework which is aligned with international standards. In August 2020, the Financial Intelligence Unit (FIU) issued Guidelines On The Measures For The Prevention Of Money Laundering And Countering The Financing Of Terrorism For The Real Estate Sector pursuant to section 10(2)(ba) of the Financial Intelligence and Anti-Money Laundering Act (FIAMLA) 2002.
The guidelines aim to assist the key players in the real estate sector in Mauritius to comply with their obligations in relation to the prevention, detection and reporting of money laundering, financing of terrorism and proliferation.
Some of the key highlights of the guidelines involve the real estate sector having the duties to establish a risk-based approach, conduct risk assessment exercises, customer due diligence exercises, identifying beneficial owners, appointment of a Compliance Officer (CO) and a Money Laundering Reporting Officer (MLRO) and transactions monitoring including reporting of any suspicious transactions and providing information to the FIU as and when requested.
How can Temple Consulting Ltd help?
Temple Consulting Ltd (‘TCL’) established in 2007, has been assisting real estate firms and brokers, property developers and real estate management entities in meeting their regulatory and legal requirements. The FIU has, in 2020, issued a guideline for the real estate sector, tabling the sector’s compliance framework. Twinned with the FSC Handbook and Code, players in the real estate have the following compliance requirements to meet:
- Detailed and intensive customer due diligence, including customer due checks and Politically Exposed Persons (PEP) screenings.
- Transaction monitoring and identification of suspicious activity.
- Establishing ownership of companies involved in real-estate transactions [refer to our upcoming article on Identification of Beneficial Ownership].
- Identification and verification of the source of funds being used in the transactions.
- Preparation of regular AML compliance reports and keep documentation for the relevant authorities.
- Be able to demonstrate to regulators that they have robust AML screening and compliance procedures in place.
In this respect, with its vast experience in compliance consultancy in various sectors, TCL can provide you with tailor-made packages including on-going compliance support to help you meet the regulatory requirements while also ensuring that your business is well protected from criminals and money launderers.
For more details, kindly contact us on +230 210 35 88 or templeconsulting@templegroup.mu
Sources:
https://www.reca.ca/consumers/financial-considerations/money-laundering-real-estate/
https://www.riskscreen.com/kyc360/news/three-ways-to-stop-money-laundering-through-real-estate/
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