Real estate is a highly efficient method of money laundering, and the Financial Action Task Force (FATF) has recognized that the real estate sector is specifically high-risk. It frequently attracts criminals who want to launder their dirty money... especially in jurisdictions with lax reporting requirements. In the U.S., real estate brokers and agents are exempted from performing due diligence on the buyers performing transactions without the use of external financing unless they are within an area covered by the Geographic Targeting Order (GTO).
However, the GTO is limited in scope, and per FinCEN, covers real property only for the following areas and cash instrument (in part or whole) limits:
1. For a total purchase price of $500,000 or more in the Texas county of Bexar;
2. For a total purchase price of $1,000,000 or more in the Florida county of Miami-Dade, Broward, or Palm Beach;
3. For a total purchase price of $1,500,000 or more in the Borough of Brooklyn, Queens, Bronx, or Staten Island in New York City, New York;
4. For a total purchase price of $2,000,000 or more in the California county of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara;
5. For a total purchase price of $3,000,000 or more in the Borough of Manhattan in New York City, New York; or
6. For a total purchase price of $3,000,000 or more in the City and County of Honolulu in Hawaii
This limited scope of regulations leaves potential for risk in other markets, especially where foreign cash real estate purchases are frequent and reporting requirements are minimal.
The UK has taken positive steps toward curbing this trend through reporting of real estate beneficial ownership initiatives, and it may not be long before US regulators follow suit.
Not taking on debt from a regulated lender, in short, can remove an entire layer of scrutiny from the acquisition process. (Banks have to abide by so-called customer due diligence regulations, which were put in place as part of the USA PATRIOT Act.) There are other reasons property has become a popular money-laundering vessel: It’s easier to find a condo than to find a front. At least in the U.S., real estate tends to be a good investment in and of itself. It has been immune from regulatory attention paid to “front” businesses. Finally, the increasing globalization of real estate has made these purchases both easier to make and less likely to stand out.