Real Estate Money Laundering
Money laundering is a crime that is pervasive throughout many economic avenues in the United States, and the real estate industry is no exception. Real estate is particularly vulnerable to money laundering schemes.
Real Estate Money Laundering
According to a 2015 New York Times article, nearly half of the most expensive residential properties in the United States were anonymously purchased through shell companies, a type of company that is inactive and only exists on paper and primarily used as a vehicle for financial maneuvers. The reason for this is because, prior to 2016, it was not a legal requirement for the real estate industry to look into the backgrounds or identities of buyers. This, along with it being legal for shell companies to purchase property, has made real estate particularly attractive for money laundering.
As such, many types of individuals from world leaders attempting to hide money stolen from their countries to human traffickers and other criminals have purchased property in the United States using shell companies to legitimize their funds. Between 2003 and 2014, the percentage of condos bought from shell companies in a single building rose from 33% to over 80%.
What is Money Laundering?
As summarized by the National Association of Realtors, money laundering is the process by which individuals use to hide or disguise the (usually illegal) origin of their funds. It is a multi-step process in which money is “cleaned” by funneling it through legitimate business transactions.
Why Real Estate?
- Ease of cash conversion – Since it is not uncommon for real estate deals to be made entirely in cash, large amounts of money can be funneled and laundered in one transaction without the involvement of many parties beyond an agent and lawyer.
- Potential for appreciation of property – purchasing a high-value property in a desirable location means that the buyer could sell it later for a profit. The property could also be used for legal rental income.
- Legislation – since 2002, the US Department of the Treasury has exempted real estate agents from conducting due diligence or reporting of suspicious transactions.
Anti-Money Laundering Initiatives in Real Estate
In 2016, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) launched a program, called a geographic targeting order, to monitor, identify, and track secret buyers of high-end properties. It wouldn’t be until 2018 that FinCEN would expand this program to require U.S. title insurance companies to report the identity of the beneficial owners of limited liability companies (LLCs) and other shell companies who only use cash of $300,000 or more to buy property. However, this requirement is only applicable to 12 metropolitan areas in the country and leaves the rest of the nation lacking in ways to identify potential money laundering schemes.
Real Estate Money Laundering Red Flags
- Using large amounts of cash.
- If the buyer seems uninterested in negotiating better prices.
- The title of the property is put in the name of a third party to hide the identity of the real owner like a shell company.
- A political official using the names of their family to make purchases.
- Buyer’s country of origin has US sanctions against it, an unstable government, or known for political corruption. Contacting the Office of Foreign Assets Control (OFAC) in such cases would be prudent.
Enhanced Due Diligence and AML Screening with Truth Technologies
Another way that can help assist with streamlining the identification of potentially suspicious individuals and entities is Truth Technologies’ Enhanced Due Diligence reports and Anti-Money Laundering (AML) Screening technology.
Truth Technologies, Inc. (TTI) is a premier provider of worldwide anti-money laundering, anti-fraud, customer identification, and compliance products and services. Formed by a small group of dedicated individuals from the financial and information technology industries, TTI is focused on combating the unchecked and disturbing growth of financial fraud. Our enhanced due diligence technology is designed to provide your business with everything it needs to identify potential risks, mitigate damaging relationships, and foster valuable opportunities with prospective business partners. The specific benefits that come with our enhanced due diligence solution AML screening include:
- Maintained compliance – You’ll be able to stay in compliance with all US, Canadian, and EU privacy and AML rules. Easily configure accounts using non-editable and comprehensive audit logs for due diligence verification and reporting.
- Ease of use – User-friendly and quick remediation screens, CTR and SAR reporting, real-time APIs, workflow, and Batch Screening give you the ability to review thousands of customers without ever requiring manual data entry.
- Simple integration and maintenance – Our enhanced due diligence technology also features automatic updating to ensure that all of your systems, software, and databases remain up-to-date, with batch processing and integration completed within a day.
- Ability to manage international operations – Our enhanced due diligence and AML screening solutions are available in multiple languages including English, French, and Spanish, with global watch list support for all names and addresses.
Get Started with an Enhanced Due Diligence Solution or AML Screening from Truth Technologies
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