Large drug operations and human trafficking rings are all cash businesses – and that means their operators have to find a way to disguise the origins of that money before they can use any of it without attracting a lot of attention from the authorities.
That’s where “money laundering” comes in – and the real estate industry, like other major financial sectors, is particularly vulnerable to this kind of abuse. That’s why banks and real estate companies are both expected to adhere to anti-money laundering laws and counter-terrorism regulations under the Bank Secrecy Act (BSA).
What are some potential signs of trouble?
Whether you’re a lender dealing in mortgages or you operate a real estate firm, it’s important to be aware of any “red flags” that could indicate someone is trying to involve your company in illicit activity. Some of them include:
- Cash transactions: Although “cash is king” when it comes to buying power in a tight real estate market, the excessive use of cash in real estate purchases, especially for high-value properties, can also be a sign of money laundering – particularly if it doesn’t make sense for a buyer with that particular profile to have large amounts of cash on hand.
- Offshore buyers and transactions: The involvement of offshore entities, transactions and buyers (especially those in high-risk geographical locations as specified by The Office of Foreign Assets Control (OFAC) from countries with weak anti-money laundering regulations should be treated with caution.
- Unusually fast purchases and sales: Sometimes a buyer or seller has a reasonable explanation for wanting to speed a transaction along – and sometimes they don’t. When a buyer is willing to take a very expensive property “sight unseen” or immediately wants to resell a property they just bought, you need to look carefully at what’s happening.
Because money laundering is so complex, it’s important to establish strong internal controls and procedures within your business that comply with anti-money laundering (AML) regulations. Experienced legal guidance can help.