A Loophole for Money Launderers: Real Estate

Real estate is often used to aid money launderers in the Integration stage of a money laundering scheme.  Criminals are able to invest their illicit gains into property, which provides stability in prices that usually appreciate over time and functionality that allows launderers to use the property as a second home or rent it out in order to build additional income.  Additionally, the reporting requirements on real estate regarding suspicious activity are very minimal as opposed to the high anti-money laundering (AML) compliance regulations that financial institutions must adhere to, leaving launderers with little risk of getting caught.

In real estate transactions, large sums of money are able to be moved in a single transaction especially when purchasing real estate in expensive markets such as New York or Miami.  Moreover, lawyers wouldn’t necessarily be quick to raise a red flag towards transactions where the buyer has significant funds in a shell company with a hidden beneficial owner because legally earned money is often used to purchase real estate in entirely-cash transactions by buyers who simply wish to keep their business dealings private.  Some lawyers may raise an alert for due diligence purposes, but many don’t see it as an ancillary task.

Due to the lack of oversight in real estate within the United States, money laundering is difficult to catch and leaves room for criminals to scheme a way around the system.  However, if a case implicates an offshore account or company, the US government can ask international officials to probe into the behavior. Unfortunately, foreign officials may not respond in a timely manner or even at all.  Without due diligence of governments and officials, the illicit activity will persist and allow criminals to sneak through the cracks of the AML regulatory structure.


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