As I wrote in 2018, a longtime favorite vehicle for money launderers, real estate as a means of hiding illicit proceeds has gained the renewed attention of regulators and legislators throughout the world.
The primary money laundering risk for the real estate industry is lack of transparency, specifically with regards to cash transactions and purchases by ever-problematic shell companies. Residual effects of real property purchased with illegal funds include artificial real estate market inflation and higher costs of living, especially in dense urban areas.
The basic AML principles of KYC, identifying legitimate business purpose, and conducting due diligence before the transaction don’t just apply to banks anymore.
As regulatory and legal initiatives grow to incorporate more facets of the financial crimes process, solid compliance programs will continue to become a critical concern for developers, realtors and facilitating companies.
Specifically, knowing your buyer will eventually mean more than some basic paperwork and the proverbial bag of cash.
Canada’s financial watchdog found that many real-estate companies are violating money laundering rules as they are neither checking the identities of their clients, nor are they reporting large cash deals to the government. The OCCRP obtained the 2017-2018 assessment of the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) that was just handed to the Finance Minister Bill Morneau. FinTRAC audited 500 companies but “due to sector-wide vulnerabilities to money laundering,” 172 of them were real-estate developers, brokers and sales representatives. At half of the targeted companies, real estate agents were not trained properly to detect money laundering and to verify their clients identities.