Although real estate agents, lawyers, accountants, valuers and property managers are not currently reporting entities under the AML/CTF Act, regulated entities are increasingly engaging with their professional advisers to manage the risk of money laundering through real estate. Real estate transactions may involve suspicious activity.
Areas of concern can be:
- fictitious buyers (introduced by third parties and not known to the adviser);
- payment of deposit directly to the seller (particularly if the deposit seems excessive for the transaction);
- purchase funds seem suspect or are coming from an unusual mix of sources or an unrelated third party;
- proposals to provide substantive amounts of cash;
- purchase of property using a corporate vehicle where there is no good commercial or other reason; and
- tax issues.
Strategies used by criminals include:
- To avoid direct involvement in the money laundering process, criminals may seek to buy property using a third party or family member as a legal owner.
- Criminals use loans or mortgages to layer and integrate illicit funds into high-value assets such as real estate. Loans or mortgages are essentially taken out as a cover for laundering criminal proceeds.
- Manipulation of property values involves criminals buying and selling real estate at a price above or below market value. Buyers, sellers and/or third parties (for example, real estate agents) could collude to under or overestimate the value of a property. The difference between the actual and stated values is settled with undisclosed cash payments.
- the buying of property partially financed through a series of structured cash deposits.
- Criminals may also buy property in a third party’s name and pay that third party rent using illicit funds. By ‘renting’ their own property via a third party, criminals can disguise illicit funds and ownership.
- Criminals may buy property using illicit funds with the intention of conducting criminal activity at the property.
- Criminals use illicit funds to pay for renovations, thereby increasing the value of property. Additionally, contractors and tradespeople may not declare cash payments received for the renovations, to evade tax.
Financial institutions should alert their real estate advisers on indicators that raise the suspicion of potential criminal activity.
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Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.