Real estate money laundering is a serious issue that has become increasingly prevalent in recent years. It is no secret that criminals use real estate to clean money derived from illegal proceeds; it’s one of the oldest forms of money laundering. The subjective nature of real estate pricing makes for easily manipulated transactions that run through financial institutions.
According to a Global Financial Integrity (GFI) study, an estimated $2.3 billion was laundered between 2015 and 2020 through the U.S. real estate market alone. With heightened Russian sanctions compliance expectations globally, it is more important than ever for FinCrime professionals in banks, credit unions, and non-bank financial institutions to understand the typologies associated with money laundering through real estate and be prepared to detect this activity in transactions at the financial institution.
Criminals use real estate, usually higher-end residential or commercial property, to hide and launder their illegally gained money by purchasing properties directly or through shell companies. Once the illicit funds have been placed into a real estate purchase, money can be laundered in a variety of ways, such as:
- Renovating a property and reselling, with exaggerated construction costs
- Selling at a higher price from appreciated value over time
- Renting a recently purchased property for a “clean” stream of income
- Obtaining a loan against the real estate to have access to clean funds