R DIRTY DEALS Uncovering Money Laundering in Real Estate By Terri Luttrell, CAMS-Audit, CFCS, Compliance & Engagement Director, Abrigo 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. 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 globally, it is more important than ever to understand the typologies associated with money laundering through real estate and to be prepared to detect this activity within your 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 Geographic Targeting Orders and Real Estate Many countries have enhanced laws to prevent real estate money laundering, also known as REML. However, the U.S. has lagged in passing laws and regulations preventing criminal proceeds from flowing into real estate. Since 2016, the Financial Crimes Enforcement Network (FinCEN), as authorized under the Bank Secrecy Act (BSA), has issued Geographic Targeting Orders (GTOs) to detect money laundering and other illicit activity through real estate purchases. GTOs require U.S. title insurance companies, their subsidiaries, and agents to determine the beneficial owners (i.e., the individual human beings) behind certain entities involved in “covered” residential real estate transactions. The GTOs cover numerous types of real estate transactions, including those using cashier’s checks, certified checks, traveler’s checks, personal checks, business checks, money orders, funds transfers, or virtual currency. Previous GTOs have provided valuable information to law enforcement by following the funds used for various criminal activities, including foreign corruption, organized crime, and drug trafficking. However, GTOs have been insufficient in stopping these transactions from occurring. Colorado Banker 14
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