Fintech

  .  

6 min read

  .  

September 5, 2022

Money Laundering In Real Estate - Methods, Signs And Prevention Tools

Real estate money Laundering is a common method used by criminals to clean their money. Click to know examples & best ways to prevent money laundering through real estate!

Money laundering is a process that involves hiding sources of illegally obtained money. You can convert dirty money into legal funds through a series of transactions.

However, when you think of money laundering, your mind immediately shifts to the drug and arms trafficking trade. What if we told you that money laundering in real estate is also a thing and is rather huge? 

It may sound a bit far-fetched but stay with us for a minute. 

Real estate and money laundering are no strangers to each other. According to estimates, $1.6 trillion is laundered through the real estate industry annually.

This post will explain money laundering in real estate and how to comply with and detect money laundering in real estate for better understanding.

Why Is The Real Estate Sector Vulnerable To Money Laundering?

The real estate sector is a popular field for money laundering because it is easy to disguise and hard to trace. The industry has been a popular place for money laundering over the years. The reasons behind this are twofold: it is easy to disguise cash transactions as legitimate ones, and it isn't easy to trace the money back to its source. While there are laws in place that govern such illegal financial transactions, they can circumvent you easily.

A criminal wishing to launder his money does not need much more than some basic knowledge of the law and the ability to find an agent willing to participate in this illegal activity. The law states that transactions over $10,000 must be reported by both parties involved. 

But if these agents collude with criminals, they can keep track of their earnings and report fictitious amounts on their tax forms instead of writing them as income from money launder real estate activities.

The following are some of the reasons why real estate attracts money laundering:

  1. It's easy to hide income from tax authorities. The most common way of doing this is by underreporting income or using different methods to conceal profits, such as offshore accounts or shell companies.

  2. Real estate offers anonymity and privacy, making it possible to conceal ownership and control over assets. Money launder real estate examples include transactions without records being kept on paper, making it hard for law enforcement agencies to track down criminals if they want to sell their property later.

  3. Real estate is an attractive investment option for criminals. It offers high returns compared to other investment vehicles like stocks and bonds, which carry high risks but low returns compared with real estate investments with lower risks and higher rates of return on investments over time.

How Is Money Laundered Through Real Estate?

Real estate is a popular money laundering tool. The ease with which you can buy property in the United States, combined with lax regulations and an opaque real estate market, makes it easy for criminals to hide their ill-gotten gains in US-based real estate.

Money laundering in real estate is done in two primary ways:

  • Undervaluation of property
  • Overvaluation of property

Undervaluation involves buying property below market rates, usually through shell companies or business entities that don't disclose their actual owners. It can happen when a foreign criminal buys property in the name of someone who appears to be the owner but is a proxy or front for the criminal. 

For example, criminals might use shell companies or nominees to purchase property for them, claiming they're paying fair market value even though they're not.

Overvaluation involves inflating the value of your home by exaggerating its size or amenities or lying about how much it will appreciate over time - all things that make it easier for criminals to sell their properties at higher prices than they paid.

Why Do Real Estate Businesses need To Adopt AML Procedures?

Anti-money laundering in real estate procedures are becoming more and more stringent. AML is a series of policies and procedures to prevent criminals from using money gained through illegal activities, such as money laundering.

The risks associated with money laundering in real estate are pretty severe; it can lead to financial institutions being charged with aiding and abetting criminal activity. The only way to avoid these charges is to implement effective AML policies and procedures in your company.

So why do real estate businesses need to adopt AML procedures? Here are a few reasons:

  1. To avoid fines and penalties from the IRS
  2. To protect the reputation of your business
  3. To protect your employees from being accused of fraud

How To Comply With Anti-Money Laundering Standards?

Money laundering regulations are designed to prevent criminals from disguising the trustworthy source of their money.

However, it is not uncommon for businesses to inadvertently break the law by failing to comply with these regulations.

Here are some steps you can take to reduce the risk of falling foul of money laundering regulations:

  • Know what you're doing: If you're in any doubt about how to comply with money laundering regulations, talk to your accountant or lawyer. They can advise you on how best to abide by the rules and avoid breaking them.
  • Know your customers: Make sure you know who is behind each transaction and where the funds come from. It will help to ensure that you do not accept suspicious transactions or accounts which may link to criminal activity.
  • Keep records: Keep detailed records of every transaction made by your business so that you have evidence if there is ever an investigation by authorities into your business activities.

How To Spot Money Laundering In Real Estate

Only 0.1% of illegal funds recovered through anti-money laundering efforts are ultimately returned to victims. However, the crucial step in detecting money launder real estate is to be aware of common warning signs.

The following list of symptoms of money laundering in real estate may help you to identify suspicious activity:

  • The property owner has no visible means of income or legitimate reason for owning such a valuable property.
  • There is no mortgage on the property.
  • The owner(s) are not the registered owner(s) on title or lease documents.
  • The property is purchased with cash or by a company that appears to have little or no substance, i.e.; it is registered with very little information. It could also include offshore companies, which are more challenging to track than domestic ones.
  • The sale price is significantly below market value or above what would typically be expected for the location and type of property sold.

How Hyperverge Can Help You Prevent Money Launder Real Estate

The Hyperverge platform has made it easier for businesses to prevent money laundering.

For example, Hyperverge will now be able to monitor in real-time and flag if any irregularities are detected. It will allow us to take action before a problem becomes severe. Hyperverge has an in-house AI engine and can offer KYC and AML solutions to minimise risks and enable seamless customer identification procedures.

There are various factors to look out for when trying to spot a money-laundering property, and the real estate market can be a handy tool for criminals looking to make a profit. It's often best to ensure AML compliance until investigating the background and its sellers. If you're an enterprise that needs help adhering to AML real estate compliance, talk to us today!


FAQs

  1. What is money laundering?

Money laundering is when someone takes the money they have earned through illegal means and converts it into a legal source of income. They do this by using the money to buy something legitimate.

  1. What is money laundering with examples?

An example of money laundering would be if you received $10,000 in cash from any illegal activity and then deposited this cash into your bank account by way of a check made out to yourself. If you do not report this income on your tax return, you are guilty of tax evasion o deliberately concealing income, which is also a crime.

  1. What are the three steps in money laundering?

The three steps to money laundering are:

  • Placement
  • Layering
  • Integration

FAQs

No items found.
Related Articles
Curve lines for BG