Why Real Estate is the Choice for Laundering Money
Title companies, in adherence to anti-money laundering laws want to know where the buyer got his money for the down payment. Three things are for sure; Wages are documented and easy to prove. Appreciated securities have a paper trial and gifts are subject to laws. On the other hand, appreciated assets like real estate are less likely to have a paper trail. When it comes to sales, the buyer and seller agree upon a price, making the sales price higher or in some cases lower. Who is to say your renovated home is not worth upwards of $2 million dollars or even more.
The simplest way to launder money is to buy property with dirty money and then resell it. The proceeds would be “laundered.” The longer you wait to sell, the more it looks legit. If you sell several times amongst shell companies, adding on appreciation and fees each time, you can launder even more money. Remember, you are selling it to yourself, but in the guise of a separate entity—the corporation or LLC.
The real estate sector is frequently used in money laundering activities due to the following reasons:
Real estate can be bought using cash.
True ownership can be disguised.
Property is a secure investment with good potential to increase in value.
Moreover, the above actions could easily be facilitated by the:
Use of front companies (e.g. shell corporations, trusts, etc.) to hide beneficial ownership and links to criminal activity.
Use of third parties or family members with no criminal record as the legal owner to avoid direct involvement in the money laundering process.
Use of professional facilitators (e.g. real estate agents, lawyers, accountants, etc.) to complicate the money laundering process.
Keeping it simple. A borrower can:
Buy a million-dollar house. Get a $800,000 mortgage and pay $8,000 in cash toward the mortgage each month.
Buy a million-dollar condo for a price of $700,000 and slip $350,000 cash to the seller off the record. The seller is more than happy to pocket the extra $50K.
Sell a million-dollar condo ($200K over the asking price) for $1,200,000 and slip the buyer $250,000 in cash.
Other ways money laundering is accomplished through real estate include:
Buying property in the name of a family member with no criminal record.
Cooperating with the real estate agents to underestimate or overestimate a property's value.
Taking loans and mortgages to cover the laundered money during repayment of loans.
Depositing the illicit cash in different banks to avoid triggering the reporting threshold. Funds will then be used to buy properties through bank checks.
Rent out properties and then use black or illicit money to cover the rent payments.
As fraud and AML professionals, it is our duty not only to detect an act of money laundering but to understand how the problem was first created and what methods are currently being used to detect and prove the crime. Knowing these factors will only make us better at what we do.
Material for this post was sourced from Quora.com where the question was asked “How is Money Laundering Done Through Real Estate?”