Case Studies

Real estate corruption call

by Mark Rowe

The governments of Australia, Canada, the UK and the US need to close glaring legal loopholes to prevent the corrupt elite from laundering the proceeds of grand corruption in their local real estate markets, says an anti-corruption pressure group.

In a new report, Doors Wide Open: Corruption and Real Estate in Key Markets, Transparency International (TI) points to ten main problems related to real estate and money laundering in those four countries and makes recommendations on how to address them. The report focusses on four countries that it calls known hot-spots for the corrupt to invest and launder money.

José Ugaz, Chair of Transparency International, says: “Governments must close the loopholes that allow corrupt politicians, civil servants and business executives to be able to hide stolen wealth through the purchase of expensive houses in London, New York, Sydney and Vancouver. The failure to deliver on their anti-corruption commitments feeds poverty and inequality while the corrupt enjoy lives of luxury.”

TI says that real estate has long provided a way for individuals to secretly launder or invest stolen money and other illicitly gained funds. According to the Financial Action Task Force (FATF), real estate accounted for up to 30 per cent of criminal assets confiscated worldwide between 2011 and 2013.

Not only do expensive apartments in New York, London or Sydney raise the social status of their owners and allow them to live in luxury, they are also an easy and convenient place to hide money from criminal investigators, tax authorities or others tracking criminal behaviour and the proceeds of crime, says the campaign group. Despite anti-corruption promises by government in the countries covered in the report, current rules and practices have failed to detect and prevent money laundering in the real estate sector, the anti-corruption group found.

Australia, Canada and the US rely almost exclusively on banks to stop money laundering, even though middlemen including real estate agents, accountants, tax planners, lawyers and others participate in deal-making. This makes all-cash deals, which do not require the involvement of a bank and which represent a significant proportion of high-end sales made to overseas investors, especially difficult to track, according to TI.

Only the UK requires that checks are made on people selling real estate, to identify suspicious activity and identify the real owners of the property. However, the same checks by real estate agents are not required on the buyers – where the highest risk of money laundering exists – leaving a hole in defences against corrupt money.

The report also finds that offshore companies pose a risk in all four countries because they are able to purchase property without needing to disclose any details of who ultimately owns and controls them to any government authority. The UK has committed to establish a registry to collect and publish this information.

None of the countries analysed have tests in place for professionals working in the real estate sector to assess whether they are aware of their anti-money laundering obligations. Very little information is published regarding any sanctions applied to real estate agents, lawyers, accountants and notaries for facilitating money laundering into the real estate sector, TI adds.

To view the 40-page report visit http://www.transparency.org/whatwedo/publication/doors_wide_open_corruption_and_real_estate_in_four_key_markets.

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