What to Do if You Suspect Money Laundering Through a Real Estate Sale

Money laundering is a growing concern in America. Criminals are getting smarter at finding ways to launder their proceeds of crime, and the real estate industry has become a major target. 

Have you suspected money laundering or suspicious activity in the course of your business? It’s important to be aware that it can happen and to know what you should do if faced with this situation. 

How Money Laundering Can Happen in the Real Estate Industry

Real estate transactions are high value and can provide criminals with an opportunity to successfully cover their financial tracks. Real estate transactions are also subject to less scrutiny than some other means of money laundering, such as stocks and bonds. 

Real estate can also be a valuable asset, in that it mostly appreciates in value over time, and purchased properties can be rented out to obtain an ongoing income. 

All of these factors make the real estate industry an attractive option for criminals as a means of laundering illegal funds. Through real estate, organized criminals try to create the illusion of legitimacy and disguise the origin of their money. 

Money laundering can happen in a real estate transaction in a number of ways:

  • A purchaser may use criminally-obtained funds to put a deposit on a property
  • A purchaser may pay for a property using cash funds only 
  • The true ownership of a real estate asset may be disguised to avoid detection through trusts and shell companies
  • Third-party purchases may be enacted to avoid links between criminals and the purchased property
  • In the case of rentals, a tenant may use criminally-obtained funds to pay rent — often at amounts much higher than market rates. 
  • Under-valuing properties and “off the books” deals may involve an amount being paid officially, and another amount paid directly to the seller in cash
  • Over-valuing properties to allow criminals to launder greater volumes of cash

This is not an exhaustive list, and criminals are finding loopholes and new methods to launder money all the time. 

Risks to Your Business With Money Laundering

As a real estate agent or broker, you need to be alert and aware of the signs of money laundering activity. There are grave risks to yourself and your real estate business if you accidentally get caught up in a money laundering scheme.

  •  Whether you’re innocent or not, you may face criminal charges, lawsuits from sellers or buyers associated with the transactions, and potentially, financial ruin. 

According to US law, anyone who engages in a “monetary transaction in criminally-derived property of a value greater than $10,000 and is derived from specified unlawful activity”, shall be punished under the law. 

In 2015, a Phoenix real estate agent was jailed for 4 years for her part in a money laundering scheme. However, she was a willing participant in the scheme. The real estate agent willfully accepted money from criminals, put a property in her name and leased the property to the money launderers. 

To find out more about how you can spot the signs of money laundering activity in your real estate business, check out “Money Laundering in Real Estate.”.

What You Should Do If You Suspect Money Laundering

If you suspect illegal activity, you should ask for further information, including identification of the owners.  Find out more about their circumstances, and discuss any concerns and risks with your superiors or with a legal expert. 

As a real estate agent, if you identify money laundering activity, you have an obligation to report it to the authorities. The Bank Secrecy Act — also known as the Anti-Money Laundering law — governs how money laundering will be dealt with by banks and financial institutions. But, the real estate industry is also subject to these regulations because the Act defines “financial institution” as including people involved in real estate closings and settlements.

The main requirement you need to be aware of is the need to complete a Suspicious Activity Report within 30 calendar days of initial detection of facts. These reports can be submitted via the US Treasury’s BSA E-Filing System.

There are also regulatory requirements which all businesses, including real estate agents, need to comply with, in regards to large cash transactions. All transactions greater than $10,000, using cash or cash instruments (money orders, cashier’s checks, etc), need to be reported. Reports can be filed via a Form 8300, which can be found here.

Protect Your Business

To protect your real estate business, ensure you have an effective risk management plan and due diligence systems set up. Know what to do in case of suspicious activity.

If you work with a team, ensure your team is aware of the signs of money laundering activity.  Finally, ensure you have sufficient E&O insurance coverage, should unexpected issues arise. Insurance coverage is an important part of any real estate business.

CRES Errors and Omissions (E&O) + ClaimPrevent® policies come complete with access to legal assistance 7 days a week. You can obtain professional legal advice from qualified attorneys if you suspect money laundering in one of your transactions.

Want to know more? Contact CRES on 800-880-2747 for a confidential discussion today. 

This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.

Originally Published September 4, 2019

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