Feb 3, 2022

Real Estate & Money Laundering

Criminal activity in both residential and commercial real estate is going strong. The U.S. has become a “safe haven” for money laundering with real estate investments leading the way. 

The figures are “staggering” according to a recent report from Global Financial Integrity (GFI), a Washington-based research institute that studies the movement of illicit finances. They report that billions of dollars were laundered through U.S. real estate between 2015 and 2020.

Drug dealers, arms traders, terrorists, and other criminals typically acquire these funds from illegal activities and seek to hide their source. These are not small-time crooks. Some are anonymous shell companies or complexly structured corporations.

Most cases concerning real estate and money laundering involve money from abroad. Some come from political figures who have “plundered, looted, and laundered the assets of their home countries,” according to the GFI report. The report cites cases of millions laundered by investors from Russia, the Ukraine, Venezuela, and Equatorial Guinea. In one example, a Beverly Hills property was purchased with $100 million embezzled from Kuwait’s Department of Defense. 

The GFI report states that real estate money laundering problems expand outside of luxury markets and big cities. They also occur in remote towns, suburbs, and rural areas. Residential properties are popular with money launderers, but commercial properties are an easy target as well. Income-producing commercial properties often carry a higher value and include hotels, offices, condominium developments, and retail centers.  

An assortment of professionals such as attorneys, real estate agents, and title agents assist these criminals “either through willful blindness or direct complicity” reports the GFI. Monitoring and enforcement of this type of illegal activity “nose-dived” during the previous government’s administration.

The report reveals that the current U.S. approach to residential real estate money laundering — using geographic targeting of certain counties — is inadequate. Currently, commercial real estate is not subject to any federal disclosure requirements to discourage money laundering.

What are the Feds doing about it?

As a core national security issue, the current White House administration issued a National Security Study Memorandum earlier this year to counter these criminal efforts. The purpose is to make it more difficult for money launderers and criminals to conceal their activities.  Directed at criminal organizations and individuals, the aim is to bolster the government’s ability to combat corruption and to freeze and recover stolen assets. 

The Treasury Department is under pressure from the president to repeal the regulatory exemption for real estate agents, who are not required to identify their clients or to report suspicious activity at this time. The U.S. is the only major member of the G7 that does not require real estate professionals to adhere to money laundering rules.

The Justice Department will continue to review evidence of financial crimes and expects to increase both the number and scope of monitoring activities. These enforcement actions should put significant impediments on these financial criminals.

What are title companies doing to help?

Title insurance companies are required to report suspicious activity, but the details for doing that are vague. In certain areas (including Dallas and Tarrant Counties), title companies must file reports to the Financial Crimes Enforcement Network (FinCEN). This organization is part of the U.S. Department of Treasury and aims at reducing criminal purchases.

Currently, title companies must identify and report persons purchasing residential properties over $300,000 with cash and under the name of a business, LLC, or other legal entity.

The Texas Department of Insurance prohibits title companies from accepting certain forms of payment for the purchase of real estate to help protect against crime and fraud. Funds must be delivered by wire transfer, cashier’s check, certified check, money order, or personal check.

All title companies are legally required to report any cash or personal checks for a purchase that total more than $10,000 to the IRS. This is designed to discourage money laundering, tax evasion, and other illegal activities. Seems like it hasn’t slowed down the big criminals.

Hopefully, change is on the way
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