Auditing to the Inherent Risks of Real Estate Gatekeepers

Mitchell Lincoln, CAMS-Audit

Real estate has long been a relative secret that criminals utilized to hide their assets. It has been overlooked for years as the government and financial institutions found it difficult to detect due to the complex nature of the transactions and the level of anonymity that is permitted in real estate transactions.

Several characteristics of real estate increase the risks of money laundering in this sector. Real estate provides a means to launder and conceal ill-gotten gains while providing a layer of anonymity to individuals. Criminals can invest their monies into a legitimate asset that has potential to appreciate over time while providing a means to generate income and liquidate into cash at a later time. In addition, fluctuations in real estate market values vary by region and numerous factors impact property values making it easier to manipulate and difficult to monitor criminal mischief. The culture of real estate lacks AML regulation and awareness; driven by sales, commissions and closing times make it ripe for illicit actors to take full advantage.

Regulatory efforts to curb money laundering activity in the U.S. real estate sector are lacking as real estate professionals were granted an exemption from complying with AML regulations. However, in 2016, the Financial Crimes Enforcement Network (FinCEN) gave notice of intent to begin monitoring real estate activities in the form of Geographic Targeting Orders (GTO). The GTO’s signaled FinCEN’s goal to broaden its visibility into potential suspicious activities in the real estate sector. Regardless of the current AML regulatory environment in this sector, the onus falls back to financial institutions to understand the nature and purpose of transactions that are conducted through their accounts. This includes assessing the risks of real estate gatekeepers and their account activity.

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