A Note From The Legal Helpdesk: Money Laundering and Real Estate Transactions
January 2, 2018
Real estate transactions are often targeted by criminals as a means to launder illegally-obtained funds. While real estate professionals do not have money laundering reporting responsibilities, real estate professionals can still be at risk from the activities. Here are some tips on identifying potential criminal activity and what you can do about it.
Money Laundering 101
Money laundering is a process used by criminals to disguise the illegal origin of funds so that authorities cannot trace the funds back to the origin. Laundering can be described in three steps – 1) placement – introducing the illegal proceeds into the financial system, 2) layering – putting distance between the proceeds and the source through multiple layers of financial transactions, and 3) integration – returning the proceeds back to the criminal from an apparently legitimate source. Real estate transactions can be targeted at any stage.
A few simple examples:
- Buyer is a drug dealer. Buyer purchases real estate in his wife’s name with cash obtained by selling illegal drugs. Buyer sells the property after a year and now has “clean” money from a legitimate source.
- Buyer and Person are partner drug dealers. Person’s wife owns a piece of undesirable property valued at $100. Person’s wife sells property to Buyer for $100,000 cash.
Here are some red flags of which to be aware (more here):
- Buyers seeking to purchase a property without regard for condition, location, assessed value or sales price;
- Purchasers attempting to purchase property under the name of an unrelated individual or company; and
- Purchasers asking for records to be altered.
Real estate brokers, escrow agents and other real estate professionals do not have an affirmative obligation to report suspicious transactions. However, if you believe a transaction in which you are a part involves money laundering, you can report it to the U.S. Department of the Treasury, Financial Crimes Enforcement Network (FINCEN). The Bank Secrecy Act (BSA) provides a safe harbor from liability for the filing of suspicious activity reports by those involved in real estate closings and settlements. See 31 U.S.C. § 5318(g)(3). FINCEN has an e-filing system for convenient, secure reporting (access here).
Under Alabama’s Real Estate License Act, real estate licensees have a duty of confidentiality for any information given to the licensee in confidence. See Ala. Code § 34-27-82(a)(3). If you have confidential information of suspicious transactions, contact the Alabama Real Estate Commission’s Legal Office for guidance.
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