Lawyer Monthly Magazine - May 2019 Edition

MAY 2019 29 Expert Insight www. lawyer-monthly .com and their repayment can be used to mix illicit with legitimate funds. Money launderers often also collude with third parties such as real estate agents to manipulate the value of a property. Can you explain more about the manipulation of property values? The key methods used are over and under-valuation. Under-valuation 3 involves recording the property value on a contract of sale which is less than the actual purchase price. The difference between the contract price of the property and its true worth is paid secretly by the purchaser to the vendor using illicit funds. The purchaser is able to claim that the amount disclosed in the contract as having been paid is within their legitimate financial means. If the property was sold at the market or higher value, the apparent profits would serve to legitimise the illicit funds. This method is also used to pay less stamp duty. Criminals may also overvalue real estate with the aim of obtaining the largest possible loan from a lender. The larger the loan, the greater the amount of illicit funds that can be laundered to service the debt. The audit trail may be further confused by reselling property in quick succession 4 . The property is sold at a higher value, either to related or acquainted third parties, or to companies or trusts controlled by the criminal. This gives an appearance of seemingly legitimate profits while the criminal maintains ultimate control over the property. What are some other ways that money is laundered through real estate that allow criminals to evade detection in Australia? Cash may be deposited below the $10,000 reporting threshold 3 across different banks/ branches to avoid triggering threshold transaction reports to AUSTRAC. The funds are then used to obtain bank cheques to buy real estate. Another common method is leasing out the properties, providing tenants with illicit funds to cover the rental payments, in order to legitimise the illicit funds. Criminals may buy property using illicit funds with the intentionofconductingcriminal activity at the property 5 , such as drug production. Illicit funds can also be used to pay for renovations, thereby increasing the value of property. The property is then sold at a higher price. One of the most commonly known methods is the use of front companies, shell companies, trusts and company structures 2 established in Australia or overseas. Property held in the name of one of these companies allows criminals to distance themselves from ownership. How is the money laundering process facilitated? Which parties are involved? The Financial Action Task Force (FATF) recently released a report 6 on the international activities of professional money launderers. The report shows that professionals such as lawyers, accountants, real estate agents, financial advisers and trust and company service providers may assist criminals to launder money through real estate. These parties also commonly conduct legitimate businesses alongside their dealings with the proceeds of crime. How exactly do these professional facilitators help in the laundering process? These professionals may assist criminals to launder money through real estate in a number of ways including establishing and maintaining domestic or offshore legal entity structures, such as trusts or companies, facilitating or conducting transactions on behalf of the criminal, receiving and transferring large amounts of cash, establishing complex loans and other credit arrangements, introducing criminals to financial institutions and facilitating the transfer of ownership of property to third parties. How and where do these professional money launderers operate? Investigations and research have shown that they operate all over the world, and often it’s a very sophisticated network with various professionals responsible for distinct portions of the money laundering process, as well as associates or contacts that coordinate with each other to facilitate money laundering. Such groups frequently conduct their activities and transactions across multiple borders and countries.