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  • Writer's pictureJerry Ipsen, CFE, MBA

Additional Red Flags for Money Laundering in Real Estate

Sanction Scanner offers additional red flags to consider in real estate and money laundering transactions:

Red Flag 1: Unusual Cash Offers or Third-Party Financing: If someone offers you a significant amount of cash to purchase a property or suggests third-party financing without a legitimate explanation, it could be a sign of money laundering. Criminals may use cash transactions to obscure the origin of funds or involve third parties to distance themselves from the illicit activity.

Red Flag 2: Rapid Flipping of Properties: Multiple property transactions involving the same individuals or entities within a short period, often at inflated prices, may indicate money laundering. Criminals may artificially inflate property values through coordinated sales to legitimize their illicit funds.

Red Flag 3: Complex Ownership Structures: Transactions involving complex ownership structures, such as offshore companies or trusts, can be an indication of money laundering. These structures may be used to obscure the true ownership and control of assets, making it challenging to trace the funds' origin.

Red Flag 4: Unjustified Over- or Under-Valuation: Suspicion arises when a property is significantly over- or undervalued without a valid explanation. Overvaluation may indicate an attempt to obtain larger loans or inflate the purchase price to launder money. Conversely, undervaluation could be a method to transfer assets or avoid tax liabilities.

Red Flag 5: Unusual Rental Arrangements: Unusual rental agreements, such as excessive rent payments or the use of rental income to cover unrelated expenses, may be indicative of money laundering. Criminals may use rental properties to generate "clean" funds by receiving excessive rents or disguising illicit funds through rental payments.

Red Flag 6: Inconsistent or Suspicious Documentation: Incomplete, inconsistent, or forged documentation within a real estate transaction can be a sign of money laundering. Pay attention to discrepancies in identities, addresses, or financial information of the parties involved, as well as missing or altered documents.

Red Flag 7: Lack of Personal or Business Justification: If there is no plausible reason for a person or business entity to engage in a particular real estate transaction, it could raise suspicion. For instance, an individual with no prior real estate experience suddenly engaging in high-value transactions without a legitimate explanation may indicate illicit activity.

Red Flag 8: Involvement of High-Risk Jurisdictions: Transactions involving properties located in high-risk jurisdictions known for money laundering or weak regulatory oversight should be closely scrutinized. Criminals often exploit these jurisdictions to facilitate their illicit activities and hide the true origin of funds.

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