Lawyer Monthly Magazine - May 2019 Edition

What impact does this activity have? Money laundering through real estate can distort real estate prices, pricing legitimate buyers and even renters out of the market. These factors can also affect decisions about where to live, resulting in a change of neighbourhood and the related displacement of less affluent households. What do you see as the key challenges for lawenforcement agencies in combating money laundering through real estate, and the professional facilitators involved? As is clear, the complexity and geographical spread of actions involved make it difficult for authorities to pin down this criminal activity and, even then, it is difficult to gather complete evidence of the source and movement of funds. Consequently, law enforcement is increasingly reliant on international assistance and partnerships to effectively combat this type of activity and the parties that help facilitate it. Do you feel that current legislation is sufficient in effectively deterring money laundering through the property market? How could it be more effective? In Transparency International’s recent ‘Doors Wide Open’ report 8 , it is posited that the ease with which money can be laundered through real estate relates to insufficient rules and enforcement practices How do these professionals evade detection and carry on their normal occupation? The complexity, global scale, and expertise in the provision of services make combatting the activities of professional money launderers a challenging task for law enforcement. Something that contributes significantly to this is ‘layering’. Layering is the process through which proceeds of crime received by professional facilitators are funnelled through an intricate and complex web of transactions, often via multiple countries, to disguise the origin of the funds, prior to it being returned to the criminal organisation from which they originated. This can involve cross-border cash movements and underground banking, the intermingling of funds through international bank transfers, and multiple virtual currency transfers. Proxy networks are one layering technique that serves as a prime example of the difficulty posed by professional money launderers to law enforcement in identifying and investigating this type of criminal conduct. A proxy network uses a series of international money transfers, for example, fake trade contracts and loan agreements through shell companies ‘located’ in a variety of jurisdictions to launder the proceeds of crime into seemingly legitimate funds. This activity is designed to eliminate the traceability of the original funds. What are the key risks relating to money laundering through real estate, and how can they be mitigated? In its briefing document 9 , the European Parliamentary Research Service demonstrates that unusual or suspicious patterns can be identified relating to a number of key areas:customerrisk,transaction risk and geographical risk. Spotting the money laundering risk behind the real estate transaction can help toperform a risk-based assessment and address the matter. Customer risk relates to the ability to identify the real purchaser and ascertain any third party involvement that may be obscuring the true beneficial ownership. Customer risk also covers purchases involving high- ranking foreign officials or their families, who require specific attention either as politically exposed persons (PEPs) or because of specific international provisions, such as sanctions. Transaction risk relates to elements such as a mismatch between the buyer and property, the use of complex loans, or anything which does not appear to make professional or commercial sense. An example of the latter may be a purchaser who is not interested in obtaining a better price or has not viewed the property prior to purchase. Geographical risk can relate to both the property and the buyer. A number of questions to be asked include: 1) Does the location of the property match the location of the buyer and seller? 2) Are the buyer and/or seller located in a country with a weak AML regime or a high degree of corruption? There is clearly a strong international element to money laundering through the Australian property market. Does this also apply to criminals based overseas? Yes, overseas-based crime groups and individuals may buy real estate in Australia using illicit funds to conceal assets from authorities in their home jurisdiction. Criminals may seek to integrate their funds into Australian assets in an attempt to avoid confiscation in their home jurisdiction. Purchases may be funded through overseas-based personal, company or trust accounts. Criminals may also use third parties to buy and sell property to further conceal ownership. Who is primarily responsible for monitoring this type of activity in Australia? AUSTRAC is the main Australian agency who can potentially detect money laundering through the property market, and then involve other relevant agencies in the investigation and prosecution of the offence. Money laundering through real estate may be identified where transactions intersect with the regulated AML/CTF sector, providing AUSTRAC with a degree of visibility over possible offences. AUSTRAC’s approach to regulation 7 is further outlined in a recent report. MAY 2019 30 Expert Insight www. lawyer-monthly .com