Are Regulators Can not Tackle Money Laundering?
What is the link between money laundering and the property market?
The laundering of illicit funds through property is an established money laundering method in Australia. Research indicates that criminals may be drawn to money laundering through real estate because of the fact that it is relatively uncomplicated as well as little expertise. Furthermore, property can be bought using cash, true ownership could be disguised, and property is a secure investment with good potential to increase in value.
What are some of the most typical methods of money laundering through property in Australia?
Case research has says criminals may buy property using a third party1 or family member because the legal owner. Rentals are either purchased on their behalf, or proceeds of crime are deposited into their banking account to make the purchase. This method allows criminals to prevent direct involvement in the money laundering process.
Loans and mortgages2 may also be used as a cover for laundering proceeds of crime, as well as their repayment may be used to mix illicit with legitimate funds. Money launderers often also collude with organizations for example realtors to manipulate the value of a property.
Can you explain much more about the manipulation of property values?
The key methods used are gone and under-valuation.
Under-valuation3 involves recording the property value on the contract of sale that is under the actual cost. The difference between the contract cost of the home and its value pays secretly through the purchaser towards the vendor using illicit funds. The purchaser is able to claim that the total amount disclosed in the contract as having been paid is at their legitimate financial means. When the property was sold at the market or higher value, the apparent profits would serve to legitimise the illicit funds. This method can also be accustomed to pay less stamp duty.
Criminals could also overvalue real estate with the purpose of obtaining the largest possible loan from a lender. The larger the loan, the higher the amount of illicit funds that may be laundered to service the debt.
The audit trail may be further confused by reselling property in quick succession4. The property comes in a higher value, with the idea to related or acquainted third parties, in order to companies or trusts controlled through the criminal. This gives an appearance of seemingly legitimate profits as the criminal maintains ultimate treatments for the property.
What are a few other ways that money is laundered through property that permit criminals to evade detection around australia?
Cash might be deposited below the $10,000 reporting threshold3 across different banks/branches to prevent triggering threshold transaction reports to AUSTRAC. The money is then accustomed to obtain bank cheques to purchase real estate.
Another common method is leasing out the properties, providing tenants with illicit funds to pay for the rental payments, to be able to legitimise the illicit funds.
Criminals may buy property using illicit funds with the intention of conducting criminal activity at the property5, such as drug production.
Illicit funds may also be used to pay for renovations, thereby enhancing the worth of property. The home is then sold at a higher price.
One of the very most commonly known methods is the use of front companies, shell companies, trusts and company structures2 established in Australia or overseas. Property held in the name of one of these simple companies allows criminals to distance themselves from ownership.
How is the money laundering process facilitated? Which parties are participating?
The Financial Action Task Force recently released a report6 around the international activities of professional money launderers. The report implies that professionals for example lawyers, accountants, real estate agents, financial advisers and trust and company providers may assist criminals to launder money through property. These parties also commonly conduct legitimate businesses alongside their dealings using the proceeds of crime.
How exactly do these professional facilitators help in the laundering process?
These professionals may assist criminals to launder money through real estate in a number of ways including establishing and looking after domestic or offshore legal entity structures, for example trusts or companies, facilitating or conducting transactions on behalf of the criminal, receiving and transferring considerable amounts of cash, establishing complex loans and other credit arrangements, introducing criminals to financial institutions and facilitating the transfer of ownership of property to 3rd parties.
How and where do these professional money launderers operate?
Investigations and research show they operate all over the world, and frequently it's a very sophisticated network with assorted professionals accountable for distinct portions of the money laundering process, as well as associates or contacts that coordinate with each other to facilitate money laundering. Such groups frequently conduct their activities and transactions across multiple borders and countries.
How do these professionals evade detection and keep on their normal occupation?
The complexity, global scale, and knowledge of the provision of services make combatting the activities of professional money launderers a challenging job for law enforcement.
Something that includes significantly to this is 'layering'. Layering is the process through which proceeds of crime received by professional facilitators are funnelled with an intricate and complex web of transactions, often via multiple countries, to disguise the origin from the funds, before it's returned to the criminal organisation from which they originated. This can involve cross-border cash movements and underground banking, the intermingling of funds through international bank transfers, and multiple virtual currency transfers.
Proxy networks is one layering technique that works as a prime illustration of the problem resulting from professional money launderers to police force in identifying and investigating this type of criminal conduct. A proxy network utilizes a number of international money transfers, for instance, fake trade contracts and loan agreements through shell companies 'located' in a number of jurisdictions to launder the proceeds of crime into seemingly legitimate funds. This activity is made to get rid of the traceability from the original funds.
What are the key risks relating to money laundering through property, and how can they be mitigated?
In its briefing document9, the ecu Parliamentary Research Service demonstrates that unusual or suspicious patterns could be identified associated with a number of key areas: customer risk, transaction risk and geographical risk.
Spotting the money laundering risk behind the real estate transaction can help to perform a risk-based assessment and address the matter.
Customer risk relates to the opportunity to identify the real purchaser and ascertain any 3rd party involvement that may be obscuring the real beneficial ownership.
Customer risk also covers purchases involving high-ranking foreign officials or their families, who require specific attention either as politically exposed persons or due to specific international provisions, for example sanctions.
Transaction risk relates to elements like a mismatch between the buyer and property, using complex loans, or anything which doesn't appear to make professional or commercial sense. An example of the latter can be a purchaser who is not thinking about obtaining a better price or has not viewed the home prior to purchase.
Geographical risk can connect with both the property and also the buyer. Numerous questions to be asked include:
- Does the location of the property match the location of the buyer and seller?
- Are the customer and/or seller located in a rustic having a weak AML regime or a high degree of corruption?
There is clearly a strong international element to money laundering with the Australian property market. Performs this also apply to criminals based overseas?
Yes, overseas-based crime groups and people may buy property in Australia using illicit funds to hide assets from authorities within their home jurisdiction. Criminals may seek to integrate their funds into Australian assets so that they can avoid confiscation within their home jurisdiction. Purchases might be funded through overseas-based personal, company or trust accounts. Criminals could also use third parties to purchase then sell property to help conceal ownership.
Who is primarily responsible for monitoring this type of activity around australia?
AUSTRAC is the main Australian agency who can potentially detect money laundering through the property market, after which involve other relevant agencies in the investigation and prosecution from the offence. Money laundering through real estate might be identified where transactions intersect with the regulated AML/CTF sector, providing AUSTRAC with a degree of visibility over possible offences. AUSTRAC's method of regulation7 is further outlined in a recent report.
What impact performs this activity have?
Money laundering through real estate can distort property prices, pricing legitimate buyers as well as renters out of the market.
These factors can also affect decisions about where to live, resulting in a change of neighbourhood and the related displacement of less affluent households.
What would you see because the key challenges for police force agencies in combating money laundering through property, and the professional facilitators involved?
As is clear, the complexity and geographical spread of actions involved allow it to be difficult for authorities to pin down this criminal activity and, even so, it is difficult to gather complete proof of the source and movement of funds. Consequently, law enforcement is increasingly dependent on international assistance and partnerships to effectively combat this kind of activity and also the parties which help facilitate it.
Do you are feeling that current legislation is enough in effectively deterring money laundering with the property market? How could it be more efficient?
In Transparency International's recent 'Doors Wide Open' report8, it is posited the ease with which money can be laundered through real estate relates to insufficient rules and enforcement practices in attractive markets such as Australia. Transparency International proposed a set of reforms and measures to establish a highly effective system to detect and stop money laundering through real estate:
Coverage of anti-money laundering provisions ought to be adequate
All entities involved with property transactions should be required by Governments to conduct research on customers.
Beneficial ownership identification should become the norm
Governments should require that realtors along with other entities participating in property transactions keep records on the beneficial those who own customers before proceeding with the sale or purchase.
Checks on foreign and domestic politically exposed persons should be enhanced
Governments should require all reporting entities who participate in the exchanging of real estate to recognize whether a person is really a PEP, a relative or perhaps an associate of the PEP – and conduct enhanced research. Foreign PEPs as well as their associates ought to be treated as high-risk clients.
Foreign companies should only access real estate market upon providing info on their real owners
Governments should require that companies provide beneficial ownership information that is available to law enforcement, and preferably and in a public registry. This information should include name, nationality, birth date, address, and how control is exercised.
Suspicious transaction report rules ought to be adequate and implemented
Governments should require all parties involved in real estate transactions to report suspicious transactions towards the financial intelligence unit, which reports should be accessible legally enforcement agencies. Supervisory bodies ought to provide guidance on identifying 'red flags' as well as on effectively submitting STRs.
Professionals who are able to engage in property transactions should be registered and submit to “fit and proper” tests
All relevant parties should be required to register having a designated public authority and undergo anti-money laundering training.
Money laundering risks in the sector ought to be understood and fully acted upon
Both governments and reporting entities should conduct risk assessments and employ the findings to improve enforcement and compliance, respectively.
Supervision of the sector should be consistent and effective
Governments should determine a single independent supervisory body to oversee reporting entities' compliance with anti-money laundering legislation.
Supervisory bodies and the country's financial intelligence unit should be independent and really should have powers to request information and conduct on-site checks.
Sanctions in the sector ought to be effective and dissuasive
Administrative and criminal sanctions ought to be enforced against individuals and firms to punish non-compliance with anti-money laundering legislation.
What are some of the challenges faced when representing clients charged with international money laundering?
Given what has been postulated already about the international nature of cash laundering and the difficulties involved with detecting it, it's unsurprising that prosecutions for international money laundering are intelligence based and resource intensive. Often, they require several police force bodies working collaboratively to investigate and collect the required evidence across borders. The use of mutual legal assistance requests, the issuing of Interpol red notices and the freezing of assets are the procedures often present in these cases. It's also likely that the decision will have to be made about which jurisdiction will ultimately prosecute the offender, which means that there might be a request extradition. People who are being investigated and prosecuted from this backdrop, therefore, face many legal and procedural challenges in many jurisdictions in a manner that has never really been seen before in criminal law. It remains fundamental to international criminal justice that all of these processes adhere to the rule of law along with a suspect's human rights, including the to silence, bail, legal representation and a fair trial.
References:
-
AUSTRAC, 2010. AUSTRAC typologies and case studies report 2010 . Offered at: http://www.austrac.gov.au/sites/default/files/documents/typ_rpt.pdf
-
AUSTRAC, 2009. AUSTRAC typologies an incident studies report 2009 . Offered at: http://www.austrac.gov.au/sites/default/files/documents/typ09_full_rpt.pdf
-
AUSTRAC, 2012. AUSTRAC typologies and case studies report 2012 . Available at: http://www.austrac.gov.au/sites/default/files/documents/typ_rprt12_full.pdf
-
AUSTRAC, 2007. AUSTRAC typologies and case studies report 2007 . Offered at: http://www.austrac.gov.au/sites/default/files/documents/typologies_report.pdf
-
AUSTRAC, 2010. AUSTRAC typologies and case studies report 2010 . Available at: http://www.austrac.gov.au/sites/default/files/documents/typ_rpt.pdf
-
FATF, 2021. Professional Money Laundering. Available at: http://www.fatf-gafi.org/media/fatf/documents/Professional-Money-Laundering.pdf
-
AUSTRAC, 2021. AUSTRAC's approach to regulation. Available at: http://www.austrac.gov.au/sites/default/files/AUSTRAC_ApproachRegulation1811_v2WEB.pdf
-
Transparency International, 2021. Doors Wide Open - Corruption and Property in Four Key Markets. Offered at: https://knowledgehub.transparency.org/assets/uploads/kproducts/2021_DoorsWideOpen_EN.pdf
-
European Parliamentary Research Service, 2021. Understanding money laundering through property transactions. Offered at: http://www.europarl.europa.eu/RegData/etudes/BRIE/2021/633154/EPRS_BRI633154_EN.pdf
