Commercial Property and the increased risk of Money Laundering

Written by Malcolm Driscoll, Lead AML Consultant, FCS Compliance

The vulnerability of the commercial sector to money laundering is often overlooked.   Many law enforcement investigations reference Organised Criminal Groups (OCG’s) and how they launder their ill-gotten gains through the real estate market.  But their focus is in the main on the purchase and rental of residential properties and not commercial.

However, recent growth in the commercial market more widely and in construction in particular, has proved to be an attractive financial proposition for investors.   Some of the sums of money involved are not inconsiderable and because of this, there is an increased potential for money laundering opportunities.

For agents the commercial market can often appear a ‘trouble-free’ zone and all too frequently ‘business entities’ are overlooked. But the fact remains anti-money laundering (AML) compliance is still needed to prevent criminals laundering funds through the property market.

As recently as May this year, reports published in the US identified $2.6 billion of suspected criminal or alleged illicit funds being used to purchase commercial property.  These were funds that had been acquired and stored worldwide before being laundered in the US commercial real estate market.

And the US isn’t alone.  Recent reports suggest that in Berlin, a city that has been undergoing massive re-construction, there’s a similar pattern of laundered money being used to fund commercial property.

The question is what can agents do to prevent being targeted for this kind of activity and how do they go about complying with their AML obligations?   Essentially whether the deal is a residential or commercial one, the same rules apply.  When dealing with corporate entities, developers of new property or even purchasers, identifying the ‘Ultimate Beneficial Owners’ (UBO’s) of those companies is still needed.

With large scale operations clearly identifiable within the public domain, there is the potential for ‘Simplified Due Diligence’ to be applied.  However, and equally in respect of the purchasers as the developers, if companies or businesses are looking to buy into those developments, the opportunity is for individuals to hide illicit funds or, indeed, the true identity of the actual purchaser.

When undertaking Customer Due Diligence (CDD) it’s vital that the ‘entity’ and individual(s) and funds behind the respective parties in the transaction have been fully identified and verified.

In short, whether an agent is involved in a commercial or residential deal they have an obligation to prevent money laundering.

Article written: June 2024