The real estate industry has become a safe haven for global money launderers over the past few years. It is facilitating criminals in turning their ill-gotten funds into clean money while bringing them back into the legal economy. As it involves high-value investments, fraudsters easily launder high sums of funds and by selling the property camouflage their proceeds of crimes.
High-risk transactions performed by shell companies, trusts, and individual criminals are other aspects adding to the increase in money laundering. This noticeable rise is driving regulatory scrutiny for real estate companies. The legal watchdogs are strengthening AML compliance for agents as well as firms in order to combat the illicit flow of funds. This blog provides insights into payment transaction monitoring that helps combat criminal activities.
Prevailing Forms and Red Flags of High-Risk Transactions
With over $2 trillion worth of money laundered per annum, it has become crucial for real estate companies to safeguard their operations against the illicit flow of cash. There are several reasons why criminals prefer this industry over every other sector. Real estate firms offer instant sale/purchase of properties that help fraudsters escape payment transaction monitoring. Similarly, the lack of identity verification, UBOs validation, and risk assessment check further pave the way for criminals.
Due to manual AML transaction monitoring systems in use, real estate firms are more likely to become a safe haven for global criminals. Moreover, this industry involves a fairly quick succession of properties which makes re-selling easier. Criminals engaging in money laundering readily take advantage of this process and create less suspicious patterns, making it challenging for real estate firms to identify their intentions. Furthermore, money laundering takes the following forms within this sector:
The first stage in money laundering, placement involves criminals putting their illicit funds into legitimate real estate deals. These can be income from corruption, bribery, smuggling, theft, or other such sources. The lack of payment transaction monitoring systems enables fraudsters to relive holding and guarding funds while making their laundering easier.
Layering refers to the concealing of illicit money and its true origin by making multiple high-risk transactions. Criminals purchase properties in bulk and sell them likewise to pace up the flow of their ill-gotten funds. This process helps them convert and blend their proceeds of crimes into real estate dealings more easily while making their original source disappear. This makes payment transaction monitoring a liability for firms providing property sale/purchase.
During this stage, the proceeds of crime enter the legitimate financial systems as trustable funds. Fraudsters bypass payment transaction monitoring by using paperwork, investing in large real estate projects, and re-selling properties to make their ill-gotten funds look acceptable.
Along with these stages of money laundering, there are several red flags that account for identifying risky customers and investments. These include:
These involve anonymous owners, entities belonging to high-risk countries, shell companies, and others. Criminals often use intermediaries that do not come under the monitoring bank transaction scrutiny. Furthermore, they can be Politically Exposed Persons (PEPs) as well looking for easy property trading to conceal their ill-gotten funds. By hiding their true identities and source of money, these criminals easily bypass payment transaction monitoring.
Geographic or Country-Based Risks
Regions failing to establish AML compliance controls and combat money laundering end up on the FATF’s grey list. Making corporate deals or providing real estate trading to customers or companies belonging to these countries can bring adverse effects for respective companies. Moreover, criminals often target these regions to launder money as they can easily escape payment transaction monitoring, risk assessments, due diligence, and other AML/CFT controls.
This is another red flag for money laundering which highlights malicious transactions. Real estate companies provide instant deals that attract criminals for converting their illicit funds. Furthermore, due to inadequate transaction screening software, dealers fail to identify traces of these purchases.
Criminals perform multiple under-value funds transfers that help them escape suspicious detection. Fraudsters often use complex loans or obscure means of finance to buy high-value properties. This requires real estate firms to bring in efficient payment transaction monitoring solutions to identify malicious payments in time.
AML Transaction Monitoring Systems for Legitimate Real Estate Dealings
As per requirements by FATF, FinCEN, EU, and other such regulatory watchdogs, risk-based transaction monitoring is a legal obligation. Real estate firms dealing with huge investments are subject to these regulations in order to prevent money laundering.
While using manual methods to record and keep track of payments, real estate agencies are facing backlash in identifying customers. Therefore, firms need to bring in more efficient payment transaction monitoring mechanisms to validate payments as well as mitigate the flow of illicit funds.
In the End
The real estate industry is more likely to serve as a safe haven for criminals. Due to the increase in high-risk investments, firms as well as individual agents need to validate customers’ source of income prior to making a deal. AI-powered payment transaction monitoring enables real estate companies to perform due diligence, assess risk, and secure their trading process against criminal threats.