Money Laundering through the real-estate industry means the integration of illegal funds into the legal system through safe investment into properties. Through this, the origin of the money is camouflaged and criminals can utilize the money. Various techniques are used to launder money through these channels including opaque financing schemes, overvalued and undervalued prices, shell companies, or third party involvement. High-profile businessmen and politicians around the world are involved in investing in foreign property as a means to hide the real source of their money as well as moving the illegal funds out of their jurisdiction.

FATF- Financial Action Task Force is taking measures to completely eradicate money laundering through such businesses. They have created the AML compliance to fight off money laundering. AML- Anti-money laundering is a way of customer due diligence and recording of the personal data of each customer to prevent money laundering activities. However, AML systems in real-estate are weak to have a huge room for improvement. Read this blog further to fight out the role of the AML system and its significance for the real estate industry.

How is Real-Estate Abused with Money Laundering

The real-estate industry has ample room for improvement regarding the fight against money laundering. Real-estate is one of the most conventional methods of money laundering that criminals have long benefitted from. The real estate industry involves the transfer of a large sum and this results in a higher risk of money laundering. The illicit funds are used for the payment of large transactions. If we keep in mind the three stages of money laundering, real estate is mainly targeted for the third stage. Let’s have a look at the stages of money laundering first.

Placement

This is the stage where criminals put their illegal funds into the legal financial system. This is the movement of money from criminal association to the legal financial system. For example, this is the breaking of money into small deposits.

Layering

This is done to hide the source of the illegal money and to ensure that no trail of criminal activity is left behind to be followed. This is done through the layers of financial transactions.

Integration

In this process, the money is finally integrated into the legal system as legalized funds and can be utilized for its own purpose. By buying real-estate property, it is a common method of integrating illicit funds into the legal financial system. When the property is sold or is rented, all the income related to it also becomes a source of legitimate funds.


A report by the UK’s Treasury suggested that it has become hard to identify the source of the money due to the complicated system of shell companies. Due to the anonymity factors and overseas bodies, the source of the money becomes vague. National Risk Assessment report of 2020 has also highlighted the risk of money laundering through real estate properties.

AML Systems and its Importance

AML is a law that requires the identification of all the customers that businesses deal with before onboarding them. Through this identification, bad actors are caught and the businesses are highlighted for the risks involved. How AML systems work is that an AI-powered solution is used to verify the identity of the customers within seconds, The customer has to present their identity document and the AML verification can verify the identity through an extensive background check.

If the agents involved start to verify the identity of their customer and verify it against the global sanction lists, then they will be made vigilant of the risks they might get involved in.