Introduction
The real estate sector is a prime target for organised criminals looking to launder the proceeds of their crimes. High-value transactions, complex ownership structures, and a lack of transparency in some jurisdictions make real estate an attractive avenue for money laundering. Criminal organisations can exploit businesses operating in the sector – including real estate agencies and property developers – by disguising illicit funds as legitimate investments.
To combat this threat, real estate professionals must understand the methods criminals use to infiltrate the industry and implement robust Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) measures. This article examines how organised crime exploits real estate businesses and outlines key steps to prevent these activities.
How do organised criminals exploit the real estate sector?
Organised criminals exploit the real estate sector in numerous ways, including:
1. Purchasing Properties with Illicit Funds
One of the most common ways criminals launder money is by purchasing real estate using proceeds from illegal activities. Since property is a valuable asset that appreciates over time, it provides a safe and long-term way to store illicit wealth.
What methods are used?
- All-Cash Transactions – Criminals avoid financial scrutiny by bypassing banks and purchasing properties outright with cash
- Third-Party Purchases – Associates, family members, or shell companies buy property on behalf of the criminal
- Property “Flipping” – Buying and quickly reselling properties at manipulated prices to make illicit money appear legitimate.
2. Using Shell Companies and Complex Ownership Structures
Criminals frequently use shell companies, offshore accounts, and trusts to obscure the true ownership of a property. This makes it difficult for law enforcement and financial institutions to trace the source of funds.
What methods are used?
- Layering Transactions – Transferring ownership between multiple companies or individuals to obscure financial trails
- Beneficial Ownership Concealment – Registering properties under corporations or trusts instead of individuals to hide the real owner
3. Manipulating Property Values
Organised criminals use price manipulation schemes to move money without attracting attention.
What methods are used?
- Overvaluation and Mortgage Fraud – Criminals purchase properties at artificially inflated prices and secure loans based on fake valuations, allowing them to extract illicit funds
- Undervaluation for Quick Resale – Criminals buy properties below market value, then resell them at normal prices, turning dirty money into seemingly legitimate profits
4. Renting or Leasing Properties for Money Laundering
Criminal organisations use real estate businesses to funnel illicit funds through rental and leasing agreements.
What methods are used?
- Fake Tenants – Properties are “rented” to individuals who pay with illicit funds, creating a false record of legitimate income
- Short-Term Rentals and Airbnb-style Schemes – Frequent cash-based rental transactions obscure the true nature of financial movements
5. Corrupting Real Estate Professionals
Criminal organisations may seek to coerce or bribe real estate agents, lawyers, or notaries to help facilitate illegal transactions.
What methods are used?
- Bribing Agents – Paying real estate professionals to ignore red flags or manipulate records
- Forged Documentation – Using fake IDs, tax documents, or bank statements to justify transactions
- Collusion with Appraisers and Mortgage Brokers – Working with insiders to falsify property values and loan approvals
What can real estate businesses do to minimise the risk of facilitating money laundering?
1. Implement Robust Customer Due Diligence (CDD) Procedures
Real estate professionals must verify the identities of their clients and ensure that they understand the true source of funds used in transactions.
Best Practices:
- Know Your Customer (KYC) Compliance – Verify government-issued IDs, proof of address, and financial records
- Source of Funds Verification – Require legitimate documentation proving the origin of investment capital
- Enhanced Due Diligence (EDD) for High-Risk Clients – Conduct deeper investigations for clients from high-risk jurisdictions or politically exposed persons (PEPs)
2. Monitor and Report Suspicious Transactions
Real estate businesses should actively monitor transactions for red flags and report any suspicious activity to the relevant financial authorities.
Key Red Flags:
- Clients who refuse to provide clear information about their income or business activities
- Transactions involving complex ownership structures or offshore entities
- Unusual payment methods, such as multiple smaller payments from different accounts
- Properties bought and resold quickly at inflated or deflated prices.
3. Train Employees on AML Risks and Compliance
Education is a critical tool in preventing real estate money laundering. Staff should be trained regularly to recognise and respond to suspicious activities.
Training Focus Areas:
- Recognising red flags in transactions.
- Understanding legal reporting requirements and compliance obligations
- How to handle high-risk clients and politically exposed persons (PEPs).
4. Establish Strong Internal AML Policies and Compliance Programs
Every real estate business should have a structured AML compliance framework in place.
Essential Components:
- Appointing an AML Compliance Officer – A dedicated professional responsible for overseeing AML procedures
- Regular Internal Audits – Conduct routine checks to ensure compliance with AML laws
- Maintaining Transaction Records – Keeping detailed documentation of all property transactions for regulatory review.
5. Cooperate with Law Enforcement and Regulatory Agencies
Real estate businesses must work with government agencies and financial regulators to combat money laundering effectively.
Steps to Take:
- File Suspicious Matter Reports (SMRs) (also known as Suspicious Activity Reports, or SARs) – Report potential money laundering cases to relevant financial authorities
- Participate in Industry-Wide AML Initiatives – Engage with regulatory bodies to improve sector-wide AML measures
- Stay Informed on Legislative Changes – Monitor updates to AML laws and adapt business practices accordingly.
Closing Remarks
Organised criminals exploit the real estate sector as a tool for laundering illicit funds, using methods such as cash transactions, shell companies, price manipulation, and corrupt practices. Real estate businesses must take proactive measures to prevent their industry from being used as a money laundering channel.
By implementing strict due diligence procedures, monitoring transactions, training employees, and cooperating with regulatory authorities, businesses can protect themselves from legal risks and contribute to the global fight against financial crime.
In an era of increasing regulatory scrutiny, compliance is not just an option—it is a necessity. Strengthening AML defenses will not only help protect the real estate industry but also reinforce trust in the sector as a legitimate and transparent market for investment.
