Money Laundering Through Property

What is money laundering, and why is property used for this criminal activity? Wherever there’s dirty money, someone’s got to wash it and circulate it around the economy so that the authorities don’t catch on.

Real estate provides an attractive avenue for money laundering due to the potential for large transactions, complex ownership structures, and the ability to hide the trustworthy source of funds.

Perhaps that’s why money laundering through real estate is a trillion-dollar industry, not only because it’s easy to wash the money but also because it offers some very lucrative returns.

Plus, it’s not just hardened lawbreakers using the real estate sector to make money illegally.

Crimes in real estate and money laundering through property transactions are difficult to detect.  Governments and regulatory bodies in many countries have implemented measures to address money laundering in the real estate sector, such as enhanced due diligence requirements and increased transparency. However, the effectiveness of these measures can vary, and loopholes may still exist.

Time and resources are needed to bring offenders to justice and secure a conviction. Financial criminals are getting smarter, too.  The longer they stay active and hone their methods, the harder they are to catch.

UK Real Estate Money Laundering

The UK is one of the many countries struggling to prevent the “McMafia-style” money laundering through real estate.

An estimated £90bn is laundered illegally through the UK every year, which also affects all law-abiding citizens as this action contributes to the inflation of the property market.

Buying homes for inflated prices is locking out legitimate homeowners, and this activity is prevalent in the UK, particularly in the high end of the market.

Today, many homes in affluent areas are bought and left unoccupied, making some of London’s wealthier parts seem barren and empty. The country’s mansions are also a target; many remain open, but we wouldn’t know or take much notice.

The inactivity of streets full of empty homes in the wealthy postcodes of inner London like Chelsea and Paddington is a concern. Opportunistic and well-orchestrated home break-ins and general public safety while walking at dusk and nighttime rise when fewer people are around.

If you thought money laundering in the UK was a thing of the past – think again. There are some 52,000 homes owned by shell companies, not the actual owners, despite the transparency law.

However, while bustling urban life may be diminishing in wealthier neighbourhoods, lawmakers are more focused on legislating change to halt the laundering activity, which is the proceeds of other criminal activities like the sale of drugs.

Today, there is regulation that enforces compliance with AML checks. For example, when you buy property, rigorous checks are undertaken by conveyancing solicitors to verify identity, proof of address and the source of wealth and funds to ensure that they are not the proceeds of crime.

Smaller Countries Also Suffer

Even smaller countries such as New Zealand suffer from money laundering horrors, with an estimated $1B laundered through property sales every year. Even in such a small country, a vast amount of money is exchanged through the illicit purchase of property.

So What Can Be Done?

This year, the UK Treasury proposed adopting the EU’s Fifth Money Laundering Directive (5AMLD) into national law. This resulted in new duties imposed on landlords to conduct due diligence on their tenants. Do landlords need the extra workload pushed onto them? However, the directive would complicate money laundering through property purchases and sales.

EU Report

The EPRS (European Parliamentary Research Service) has put out a report on real estate used to hide and clean funds from ill-gotten gains in this report. There is a lot to be done, and the report says by 2021, there will be “a public register requiring overseas companies that own or buy property in the UK to provide details of their ultimate owners.” to halt the corruption and bring to justice offenders.

Fraudulent Activities In Real Estate

It’s not just the big syndicates targeting real estate – more minor criminal activity is also occurring.  Homeowners can also get caught up in illegal real estate transactions, so it pays to beware of activities that attract fraudsters.

Our recent article details where you and your money may soon be parted through no error on your behalf. From real estate listings to misrepresentations by the seller or buyer – you need to know what to look out for to stay within the law and keep your assets in your ownership.

Update

This article shares alarming statistics on suspect real estate purchases in the UK. In 2022, £1.5 billion in property sales was linked to Russians accused of illegal activity, including corruption. Since the Ukrainian War and many Russians on sanctions lists, money laundering through the property is more complex, with anti-money laundering rules and compliance requirements for all businesses associated with property sales transactions.