Real estate can be an attractive channel for criminals wishing to launder illicit funds.

Criminals can purchase a property using illicit funds, live in the property purchased with illicit funds, renovate the property (using illicit funds) to improve its value and sell the property later for a capital gain.

The ultimate beneficial ownership of real estate can also be easily concealed, making it an attractive asset class for criminals.

The Money Laundering and Terrorist Financing (ML/TF) risks associated with the real estate sector include:

• The use of third parties to buy and sell properties
• The use of loans and mortgages (for example, criminals take out a mortgage to buy a property and pay back the mortgage using lump sum cash payments)
• Manipulating property values (that is, criminals buy and sell real estate at a price above or below market value)
• Structuring cash deposits to buy real estate
• The use of complex company structures and multiple accounts to disguise the real purpose of a property transaction and disguise its’ true ownership
• Buying and leasing properties, but providing the tenant with illicit funds to pay the rents
• Buying a property using illicit funds with the intention of conducting further criminal activity at the property
• Using illicit funds to renovate properties

Businesses within the real estate industry captured by the AML/CTF obligations must ensure their organisation conducts a comprehensive ML/TF risk assessment to identify, assess, mitigate and manage ML/TF risk exposures. This is a critical first step in complying with the AML/CTF Act and Rules.

These are the services offered by the real estate industry that may be included as designated services under the AML/CTF Act.

• Managing client funds (other than sums paid as fees for professional services), accounts, securities, or other assets
• Engaging in or giving instructions on behalf of a customer to another person for any conveyancing to affect the grant, sale, or purchase or any other disposal or acquisition of real estate or an interest in land
• The transfer of a beneficial interest in land or other real property

If you offer or provide one or more of the above services, your business will be subject to AML/CTF obligations.

The AML/CTF regime is risk-based, which means that your responses to the AML/CTF obligations placed upon you should be risk-based. 

A risk-based AML/CTF regime requires that you understand and address the Money Laundering and Terrorism Financing (ML/TF) risks associated with the services you offer.

You must then design, implement and maintain systems, procedures and controls that appropriately manage and mitigate your ML/TF risks.

Initialism are the AML/CTF experts, so you don’t have to be.

With over 50 years of expert knowledge and real world experience our AML/CTF compliance solutions will help you to navigate your legal and regulatory requirements so that your business complies with its AML/CTF obligations in the fastest and most cost-effective way.

Initialism has a range of AML/CTF solutions to support your business in becoming AML/CTF compliant and maintaining compliance.