Thursday, February 13, 2020
Jeffrey R. Boles (Temple University - Department of Legal Studies in Business) has posted two manuscripts on SSRN on the topic. The first is Anti-Money Laundering Initiatives for the South African Real Estate Market (1 Journal of Comparative Urban Law and Policy 197 (2017)). Here is the abstract:
South Africa operates as a major African financial center, with its robust banking and financial sector and significant cash-based market, and it consequently exposes itself as an attractive target for criminal activity generally and money laundering in particular. Long known as a money laundering hotspot, South Africa shows a low prosecution rate under its main anti-money laundering legislation. Former Finance Minister Trevor Manuel estimated in 2001 that between 2 billion and 8 billion US dollars are laundered through South African institutions annually. The South African real estate market in particular provides opportunities for criminals to launder their funds through purchasing and/or developing properties. Criminals can use the luxury real estate market in the Western Cape Province, for instance, to launder sizeable amounts of illicit funds through buying high-end properties via cash and offshore shell companies that hide their true owners, and the purchased real estate functions as the means to launder the criminal proceeds. Money laundering in real estate is a classic method of laundering money given that the funds can be hidden in real estate by multiple transactions cloaking the illicit source. This Article analyzes money laundering in the South African real estate sector, and in particular, “the darkest corner of the real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities,” and recommends specific initiatives that may help combat the offense in this sector.
The second is Million Dollar Ghost Buildings: Dirty Money Flowing Through Luxury Real Estate Markets (45 Real Estate Law Journal 476 (2017)). Here is the abstract:
This Article analyzes this money laundering loophole in the real estate sector, named “the darkest corner of the real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities.” Because all-cash purchases allow buyers to avoid bank financing, and in turn, the need to provide identification to the banks as part of the banks’ anti-money laundering procedures, the real estate transaction coupled with limited liability laws in the U.S. provide secrecy and opportunity for money launderers. Charles Intriago, the president of the Association of Certified Financial Crime Specialists, highlights the problem as “The regulation of real estate transactions for financial crime and money laundering is worse than Swiss cheese for all the holes it’s got.” The federal government has recently taken initial steps to combat the issue, devoting resources to decrease money laundering in the real estate industry, including the issuance of temporary regulations targeting certain U.S. cities, as well as a 10-agent unit to investigate money laundering, with real estate as a focal point. This Article examines these initiatives and argues for a proper balancing between the need to combat money laundering in the real estate sector and effectively close the loophole with the need to maintain efficiency in real estate sales transactions and a reasonable expectation of privacy by property owners.