Countries around the globe are starting to crack down on money laundering schemes within the luxury real estate realm. Money laundering through real estate is a worldwide problem that is growing.
These schemes are estimated to reach $1.6 trillion a year worldwide, according to a report from Accuity, which is a global risk and compliance company.
How does it work? Typically, criminals will purchase real estate in a city where the housing market has consistently high values, and then hide behind a shell company. They can rent the property, or remodel it using their criminal funds and then sell for a profit.
What are some governments around the world doing to help combat money laundering through real estate?
The United States
To help combat these schemes in the U.S., an investigative arm of the Treasury Department, FinCEN, has started to require title companies to identify all parties behind shell companies in cash purchases above $300,000, or transactions involving cryptocurrency.
However, this order only applies to title companies in Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York, San Antonio, San Diego, San Francisco, and Seattle. FinCEN says that since this was enacted in 2016, it has seen cash purchases plunge by 70 percent.
Other security experts say that criminals are just seeking other markets outside of those to continue to use real estate to launder money, where they can still hide behind shell companies.
They are also avoiding using a title insurance company or taking out a small loan so that it’s not a cash purchase.
The United Kingdom
In the U.K., legislation has been introduced in Parliament that requires foreign owners to identify themselves, but it has not yet been passed. Regulations enacted in 2017 requires real estate agents to perform due diligence on their customers before doing business with them.
They also enacted the Criminal Finances Act, that allows enforcement agencies to investigate individuals who may have obtained property through connections to organized crime.
Transparency International released a report that found €30 billion was used to purchase property in Germany with little knowledge of who was purchasing or how the money was generated.
Germany introduced the Transparency Register of True Beneficial Owners in 2017, in which all shell companies must list the real owner of any property, otherwise, they’ll be fined for not doing so. However, experts are saying that there are still too many loopholes.
British Columbia, Canada
Vancouver has seen a flood of Chinese organized crime networks purchasing properties, which may be linked to the huge rise in housing prices in recent years.
While Canada requires brokers to report all cash transactions over a certain amount to the Financial Transactions and Reports Analysis Centre of Canada, Canada does not have anything in place about reporting suspicious transactions involving shell companies and identifying parties behind them.