Are Illegal Funds Fueling the Real Estate Market? Initiatives to Deter Money Laundering Lead to Increased Scrutiny and Higher Fines
On March 4, 2019, a British customs agency raided 50 real estate agencies and announced the largest fine ever imposed in the U.K. for money laundering violations in the real estate market. The fine, £215,000 (about $283,000), was issued to Countrywide estate agents for failing to conduct due diligence, proper verification and record keeping, and failing to ensure compliance with policies and controls in violation of U.K. money laundering regulations.
Just four days after the announcement of the fine, the U.K. Treasury Committee published its first of two reports, outlining findings regarding anti-money laundering and the sanctions regime. The report criticized real estate agents for failing to have proper regard to money laundering compliance and risk assessment in their dealings.
The U.K. is not the only country that has identified a problem involving the use of real property to launder money. In the U.S., the Treasury Department’s Financial Crimes Enforcement Network has taken actions to increase scrutiny of money laundering risks in the real property sector. One problem they’re combating is the use of shell companies to obscure the identities of the actual purchasers.
U.S. regulations now force title companies in some metropolitan areas to reveal the names of the actual owners. The regulations currently apply to counties that are home to the following cities: Boston, Chicago, Dallas, Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York, San Antonio, San Diego, San Francisco, and Seattle. These regulations are likely to be expanded nationwide, or at least to other major U.S. cities in the near future. In addition, banks and other non-bank mortgage companies have requirements under the Bank Secrecy Act which are designed to help identify and prevent potential money laundering schemes in the real estate market.
Similarly, in New Zealand, a new provision went into effect this year that requires real estate firms to comply with the country’s anti-money laundering laws. Real estate firms now have the same obligations as existing reporting entities, including the appointment of a compliance officer, preparing and maintaining a written risk assessment and compliance program, training and vetting staff, conducting due diligence, monitoring transactions for unusual behavior, reporting suspicious activity, filing annual and transaction reports, and conducting independent audits.
These events demonstrate that governments are focused on deterring real estate brokers from turning a blind eye to anti-money laundering regulations. One motivation for doing so is the belief that dirty money is driving up real estate prices. As governments become more proactive in preventing money laundering schemes in the real estate sector, individuals and companies operating in that space should stay up to date with applicable rules and regulations to prevent fines or further scrutiny.
Visit our website to learn more about V&E’s Government Investigations & White Collar Criminal Defense practice. For more information, please contact Vinson & Elkins lawyer Jennifer Freel.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.