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  • Writer's pictureJerry Ipsen, CFE, MBA

Money Laundering through Real Estate

Sanction Scanner points out that criminals employ various methods to launder money through real estate transactions, exploiting loopholes and utilizing third parties to conceal their involvement. Understanding these techniques is crucial for combating money laundering effectively. Here are some common methods employed by criminals:

Use of Third Parties: Criminals often rely on individuals they know, typically family members with clean records, to purchase real estate on their behalf. By conducting the transaction through the third party's account, the criminal's name is kept out of the purchase documents, making it harder to trace the illicit funds.

Utilizing Credit and Mortgage: Credit and mortgage can serve as collateral for laundering criminal proceeds. Criminals may secure loans against the property, and the resulting funds are mixed with legitimate funds, making it difficult to distinguish between legal and illegal funds.

Manipulation of Property Values: Collaborating with real estate agents or appraisers, criminals manipulate property valuations. This can involve either undervaluing or overvaluing the property. Undervaluation allows criminals to acquire loans while overvaluation maximizes the amount that can be laundered by obtaining larger loans based on inflated property values.

Structuring Cash Deposits: Criminals may deposit cash across multiple banks to avoid triggering the reporting threshold, which would require the bank to report the transaction. These funds are then used to obtain bank checks or other legitimate forms of payment to purchase real estate.

Rental Income as Legitimization: Criminals generate rental income from their properties and use illicit funds to cover the rent payments. Alternatively, they may purchase properties on behalf of third parties, rent them out themselves, and utilize illegal funds to meet the rental obligations, thereby legitimizing the origin of the money.

Real Estate Transactions as Facilitators: Criminals purchase properties, invest black money in renovations, and subsequently sell the properties at higher prices. This process allows them to legitimize their illegal funds and create the appearance of legitimate transactions while laundering money in the process.

Use of Front Companies: Criminals establish shell companies in foreign jurisdictions to own real estate, enabling them to move black money across borders. These front companies provide a veil of secrecy and make it challenging for authorities to trace the flow of funds.

Excerpts for this post have been resourced through the SanctionScanner website.

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