Money Laundering through Real Estate

Real estate is not covered under the Prevention of Money Laundering Act, however it plays a significant role in integration of the funds into Indian economy. Certification program offered by Indiaforensic on Risk Based Money Laundering covers the detailed session on Money Laundering through Real Estate.

Though Money Laundering Regulations don’t cover the Real Estate Sector Directly, it covers the transactions in the financial institutions. Investments in the Real Estate properties, Joint Ventures and Financing deals take place through the banking system.

Land is a conduit of laundering the dirty cash. Corruption proceeds largely go into the land and structures erected on the land. The unstructured growth of this sector have not only affected the economic life and urbanization but have created environmental problems in various Indian cities. Since constructing the buildings require no skills besides networking in vendors, all the major politically exposed persons have interests in real estate.

The real estate sector is frequently used in money laundering activities due to the following reasons:

    • real estate can be bought using cash;
    • true ownership can be disguised;
    • property is a secure investment with good potential to increase in value.

Money laundering takes place with large amounts of money. Criminals try to launder large amounts of money that they cannot buy cash. Real estate is one of the sectors where large amounts of money are used the most. Some common methods include but not limited to:

  • Investment of illicit money in real estate to purchase or sale, for renovations and improvements etc.
  • Structuring of cash deposits across different banks/branches to avoid triggering threshold transaction to buy real estate.
  • Price manipulation e.g. over-valuation, under-valuation, reverse flip or multiple purchases and sales in a short period of time.
  • Purchase of properties to facilitate other criminal activity such as drugs production, thus generated revenue may then be used to buy additional properties to disguise the original source of funds.
  • Use of front companies e.g. shell corporations, trusts, etc. to hide beneficial ownership and links to criminal activity.
  • Use of third parties or family members with no criminal record as the legal owner to avoid direct involvement in the money laundering process.
  • Use of loans and mortgages (e.g. lump sum cash repayments to integrate illicit funds into the economy, loan back money laundering method).
  • Use of professional facilitators (e.g. real estate agents, lawyers, accountants, etc.) to complicate the money laundering process.
  • Rental income to legitimize illicit funds.
  • Investment by overseas-based criminals to conceal assets and avoid confiscation from authorities in their home countries.
  • Use of offshore lenders.

Risk Based Money Laundering Course offers complete overview of the real estate related laundering.