How REALTORS® Help Prevent Money Laundering in Real Estate: Setting the Landscape
TAGS: Anti-Money Laundering
REALTORS® are committed to doing their part to help prevent money laundering in the BC real estate sector. As the professional association for BC Realtors, BCREA is committed to providing knowledge and resources to help address this complex issue. As part of this commitment, we have created a new blog series to increase awareness around money laundering in the BC real estate sector and how Realtors are helping to lead efforts to prevent it.
In this first blog post of the series, we review the concept of money laundering, and how and why criminals may attempt to target the BC real estate sector.
What is money laundering?
Money laundering is the act of disguising the proceeds of crime to make them appear legitimate. This allows criminals, including organized crime and drug traffickers, to benefit from their crime by enabling them to use the profits of their illegal activities without arousing suspicion.
While money laundering occurs in many sectors of the economy, criminals looking to “clean” the proceeds of their crimes may find real estate attractive because of the high value of real estate.
How does money laundering happen?
Money laundering typicallyinvolves at least three steps, which often occur simultaneously:
- Placement: placing the proceeds of crime within the financial system, for example, using small bills to buy in at a casino and receiving higher denomination bills or a cheque in return.
- Layering: converting the proceeds of crime into another form, such as purchasing real estate; criminals will often create complex layers of financial transactions to distance themselves from the underlying criminal activity.
- Integration: returning the laundered proceeds to the economy to create a perception of legitimacy.
If money laundering occurs in real estate, it’s most likely to occur at the layering stage. At this stage, criminals would look to purchase a property by engaging in a transaction that looks legitimate but disguises the true beneficial ownership of the property.
Why real estate?
In 2018, Peter German began an investigation into money laundering in BC and examined several industries, including real estate, casinos, luxury cars and horse racing. In his 2019 report, German recognized that criminals may find real estate attractive because:
- it is high value,
- it is often seen as a “safe” investment,
- it has the potential for profit over time or income from rent, and
- the owner of a property may be a corporation, trust or nominee, which may help to conceal the true identity of the buyer.
While the BC Land Owner Transparency Act, which takes effect this month, intends to make real estate purchases in BC more transparent, it will take a coordinated effort to solve this complex problem and deter criminals from laundering money in the real estate sector in BC and across Canada.
The next blog post in this series will discuss how Realtors and brokerages can assess their practice for potential vulnerabilities and reduce the risk of being targeted by criminals.
For more information and resources on anti-money laundering, visit BCREA’s AML resources page.
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