Houses in Beverly Hills bought with money embezzled by Kuwaiti officials. A skyscraper in the heart of Manhattan controlled by the Iranian government. Real estate investments from a boutique company that has received millions of dollars from Colombian drug cartels.
All three examples are cited in a report recently released by Global Financial Integrity, a Washington-based think tank, which describes how dirty money circulated in US real estate, a sector that has proven popular for kleptocrats, criminals and corrupt officials to store illicit funds.
The report underscored the need for more robust and targeted regulation and reform of current practices in real estate.
The conclusion was drawn after analyzing a database of over 100 real estate money laundering cases in the US, UK and Canada from 2015 to 2020.
âThe report’s findings demonstrate that the current US approach is woefully inadequate and that the country’s real estate sector poses significant national security risks by continuing to be a safe haven for criminals and kleptocrats,â reads. one in the report.
At least US $ 2.3 billion has been laundered in the past five years through US real estate, according to the report, although the estimate, which is based only on reported and known cases of money laundering is almost certainly only a fraction of the actual amount. For comparison, over the same period, at least $ 1.1 billion and $ 626 million were laundered in the UK and Canada, respectively.
Real estate is preferred by organized crime groups and corrupt officials as a vehicle for money laundering because its value is generally stable and appreciates over time, allowing criminals to accumulate wealth and transform potentially an illicit investment into a legitimate investment through rental or development. Real estate transactions are also subject to limited oversight, unlike bank accounts, making it easy to hide and protect ill-gotten wealth.
More than 80% of all U.S. cases involved money coming from abroad, and in 82% of cases, anonymous shell companies or complex corporate structures helped to disguise the identity of the real owners of the property. property.
More than half of the real estate money laundering cases in the United States analyzed by the report’s authors involved a âpolitically exposed person,â that is, someone who has been given a position of. influence and public power, which makes it more at risk of being involved in corruption. This poses a problem, according to the report, because identifying who is and is not a politically exposed person has been seriously underestimated in current regulations.
The United States has one of the weakest regulatory frameworks to combat real estate money laundering among the G7 – an intergovernmental forum that also includes Canada, France, Germany, Italy, Japan and the UK – although historically one of the first to target it.