Anti-money laundering (AML) regulations mean regulated businesses such as estate agents, law firms, and financial institutions, or any business within the financial sector must perform AML checks on new clients. AML checks for estate agents are essential as real estate transactions are a widespread form of money laundering; this puts something called black funds into the legal economy while giving criminals safe investments and making their funds look clean. Because of this, anti-money laundering checks are necessary and a legal requirement in the fight against organised crime and terrorist financing.
Several techniques that are most common when purchasing properties are cash or opaque financing, paying much more or much less than the listed property price. Or complicated and hidden trusts, companies and third parties that are difficult to identify.
To truly identify any money laundering risks, the buyer or seller must have their financial situation reviewed and have any indicators or red flags reported immediately as part of the aml regulations. This can be achieved using KYC and AML checks which proof of funds would fall under. Following the due diligence process is necessary to identify and prevent money laundering.
The property market provides a very attractive opportunity for criminals and organised crime to invest money from illegitimate sources and translate them into real estate investments that often appreciate over time and offer a practical investment, as these properties can be lived in and rented.
The real estate sector has been called one of the oldest ways to launder money. This is not only limited to residential property but also commercial property, not only laundering money but offering a profitable strategy for criminals.
Large real estate transactions are subject to higher levels of scrutiny than other sectors; this means that it's more likely that criminals will be caught, but it also means that the methods organised crimes take to hide their source of funds are becoming more and more sophisticated. This means that the way anti-money laundering checks are performed must become more sophisticated too. You can find out more about AML checks when buying a property here.
These purchases give the impression of legitimacy and often a return on investment. For these reasons, criminals view property investment as one of the most successful. And efficient ways to launder money.
There are three stages of the money laundering cycle, the Placement phase; is the stage where the illegally gained money enters the financial system. This is done by breaking up large amounts of cash into smaller purchases such as money orders and deposits.
Secondly is the Layering phase; and probably the most complex part, here the funds are distanced as far as possible from the original source using many forms of financial transactions. This hides the trail and prevents pursuits. Third and lastly is the Integration / Extraction phase, in this instance, the successful purchase of a property.
When it comes to identifying money laundering within the property sector, it is mainly any form of property which is classed as immovable, particularly houses and buildings. However, this extends to things such as agricultural land and also vineyards. This is a global issue, with many examples worldwide to call on for reference. There are, however, some "textbook" indicators to be vigilant of when dealing with clients who are purchasing a property.
The difficulty here is nothing to do with the property being purchased but with identifying any money laundering suspicion with the money used for the purchase. There will be high levels of due diligence and risk assessments to follow when performing AML checks, as well as global guidelines to follow (Anti-money-laundering framework) such as those set by the FATF. They are the global money laundering and terrorist financing watchdog with the aim to prevent criminal activity and the harm they cause.
As well as this, there are advancements in digital tools, and software specifically designed to detect more sophisticated and subtle attempts to conceal illegal money laundering.
Gone are the days of manually checking each and every statement with a highlighter. With software like the one we at Valdient offer, we automate all our checks to the highest levels of due diligence, screening individuals against national databases and highlighting any concerns, transaction risks or red flags for you.
We verify your client's identities using open banking, and we can name match account holders, gather statements and determine the source of funds for you. Not only does this save time and money for your business, but our software is accurate and compliant, delivering the highest levels of due diligence possible, and allowing you to make informed decisions.
The real estate and property sector offer a haven for criminals to turn money gained from illicit means into purchases that appear legitimate while providing returns on their investments. Although the market is heavily regulated and money laundering screened more than any other sector, money laundering is still prevalent. While guidelines provide the best information and know-how to prevent it from happening, at best, it reduces it.
In order to fully combat the sophistication of organised crime, and their attempts to conceal the true source of funds, the adoption of technology and software is needed. A software that can scan statements, highlight risks and red flags and advise when individuals or organisations need reporting at international standards levels. We discuss more technology as a defence against money laundering here.