LEGAL
Money laundering in real estate – SIGNS AND PREVENTION TOOLS Chris Caigou, Co-Founder & Chief Customer Office, First AML
Money laundering involves filtering income from illegal activities through legitimate transactions, disguising its source and preventing detection by the authorities. Property purchases can be an effective way to launder funds, as they tend to involve large sums of money changing hands, complex transactions and little oversight.
That’s one of the reasons New Zealand’s Anti-Money-Laundering (AML) regulations were expanded in 2018. For real estate agents, compliance with the new laws is a given, but it’s also essential to have a good grasp on the issue – how money laundering works, red flags to spot and effective prevention strategies.
Money laundering methods in real estate Criminals use real estate transactions to launder money in several ways, including using third parties to buy property, filtering cash through a mortgage or renters, or simply buying and reselling quickly to legitimise funds.
Third-party purchases In this scenario, people with a criminal record use a third-party – like a friend or family member – to purchase property on their behalf. This keeps the criminal off the title and other documents, reducing the risk of authorities flagging the purchase for investigation. A third-party might purchase the property using illicit funds transferred by the actual purchaser, or the criminal party may pay the deposit, but keep their name off the documentation.
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The Real Estate Institute of New Zealand
Once the purchase has gone through, the money launderer can either pay the mortgage by filtering money through the lender, or on-sell the property quickly to recoup the investment.
Laundering through loans Sometimes, money laundering doesn’t start until after a purchase is complete. Criminals buy property using legitimate funds for the deposit, then take out a mortgage on the remainder – as with a normal purchase. The mortgage is then paid with funds from criminal activity. Because mortgage payments are rarely over the $10,000 threshold which triggers a laundering investigation, this lets people sift money through the bank without being detected. When the house is sold, the money from the sale is legitimate and far less likely to be traced back to its source.
Property price manipulation Paying a different price for a property than the market can be another way to launder money through real estate. There are two ways to manipulate prices for gain. Undervaluing occurs when a buyer pays
