Anti-Money Laundering Schemes And The Real Estate Market

Last updated: 04.01.2023

It’s no secret that money laundering is a major issue for the global economy. In fact, it’s been estimated that up to $2 trillion is lost each year to fraudulent schemes and other illicit activities. While there are many different facets to money laundering, one of the most common methods is through real estate transactions. So, what can be done to combat this type of crime? And how does it impact the real estate market? Read on to find out.

How Do Criminals Use Real Estate To Launder Money

There are many ways that criminals can use real estate to launder money. One common method is to set up shell companies or front companies in countries with weak regulations. This allows them to conceal their identity and makes it harder for authorities to track the purchase of a property. This may include individuals who are part of criminal organizations or so-called “politically exposed persons” (PEPs) who have been charged with corruption or other crimes and are looking to avoid sanctions.

Professionals associated with this market can often knowingly or unknowingly help criminals. Lawyers, notaries, attorneys, and real estate agents that go along with fraudulent behavior in exchange for money enable crooks to purchase property easily.


anti-money laundering


Regulations In the Real Estate Market

Like most property buyers, you may have been saving up all your life to finally buy your first one-bedroom apartment. And now that you are about to fulfill your dream, your real estate agent is asking several questions: how you managed to put that sum together, what your job is, whether you inherited any money, whether you have multiple jobs, etc.

You may wonder why they are asking all the questions you would expect your bank to ask. The simple answer to this question is that estate agents are subject to the same Anti-Money Laundering and Funding of Terrorism (AML / FT) regulation that a bank is subject to.

Real estate agents facilitate transactions involving the transfer of high-value items (in this case, properties) between parties and the resulting movement of money. These high-value transactions are susceptible to money laundering because the movement of a large amount of money could be used to turn funds that were earned illicitly into clean funds. How is this possible?

Money Laundering Schemes: A Case Study

Let’s consider the following scenario:

Mr. X has made a large sum of money by acting as a middleman in a large transaction involving the trafficking of illegal substances. Now Mr. X is sitting on €500,000, which he would like to spend, hopefully without attracting the attention of the tax authorities. So let’s say that Mr. X really wants to buy the latest Maserati. If he tries to do this with the income he declares from his sales through his portable hot dog stand, then he may raise the attention of the Tax Compliance Unit, which would ask how he could afford a luxury car. As always, Mr. X has a devious plan to launder some money, and he does it in the following manner:

The above requires some tact and manipulation. However, when it comes to the extent that criminals are willing to go to launder the proceeds of their illegal activities, it is definitely not far-fetched.

This case explains why authorities require real estate agents and other businesses selling valuable goods to perform Customer Due Diligence (CDD) / Know Your Customer (KYC) checks on their clients.

Red Flags In Real Estate Transactions

Red Flag 1: If someone offers to pay you in exchange for using your name to purchase a property or get a mortgage, they are more than likely attempting money laundering. Moreover, this act is not only financially criminal, but it also constitutes mortgage fraud.

Red Flag 2: If someone offers you monthly payments higher than the market rate for your property as part of a lease-to-own agreement, be wary. This could be because criminals use such agreements to launder money and often cause property damage.

Red Flag 3: If someone approaches you about leasing a commercial space in your property for business purposes, be aware that this person likely has access to large sums of cash. They may try to launder money by making rent payments.


money laundering in real estate


The Responsibility Of Real Estate Agents

Now you should be able to understand why when purchasing a one-car garage for your commercial catering company, the estate agent will ask you to provide all the documents to prove that your company exists and to confirm who the actual owners are, as well as the identifying documentation of all owners and directors.

In addition, due to the risk of facing devious people like Mr. X, the real estate agent has to invest in systems to be able to perform additional checks – such as those to ensure that clients are not politically exposed (PEPs) or sanctioned individuals (PEP and Sanction checks). In this manner, if Mr. X had already been sanctioned or was mentioned in any adverse media due to his dark past, the real estate agent would have been alerted. As a result, the transaction would not have been completed, and the funds would not have been laundered.

Dhalia Real Estate Takes This Responsibility Seriously

The objective of performing such checks is to try to make it as hard as possible for criminals to launder the funds they would have earned through illegal activities and decrease the volume of crime committed. 

Dhalia has implemented several processes and checks and invested in various systems, such as StartKYC. This way, we can ensure that our clients are not attempting to launder illegally earned funds. When we ask you certain questions or request documentation, you are helping in the fight against money laundering and funding terrorism.

Melanie Ciantar