TRADECRAFT 101 PART NINE: MONEY LAUNDERING THROUGH REAL ESTATE INVESTMENTS

The ability of money launderers to adroitly move and clean their clients' dirty money through real estate has been a sore spot with law enforcement agencies for decades. Unfortunately, unwittingly aided and abetted by powerful forces in the real estate industry itself, laundrymen have been able to accomplish their goals for clients, eve in the face of legislation and practice designed to rein in money laundering through real estate transactions. Even in the face of increasing scrutiny, and the imposition of legal guardrails designed to suppress such illegal conduct, it is alive and well today, due to the hule volume of real estate transactions consummated each day, as well as the fertile imaginations of the laundrymen involved.

Let's take a look at the tradecraft; the primitive version, which has been around for many decades, is to directly approach a seller, outside of the knowledge of his attorneys and realtors, and to create two purchase prices and (virtual) closing statements: the public "official" contract price, and the true price. Cash, delivered directly to the seller, outside of the transaction, and often unbeknownst to the attorney handling the closing, allows the laundryman to tender criminal proceeds into the deal. 

When the property is eventually sold, often at a price substantially higher price, the client ends up with cleaned funds, in many cases coming from a financial institution funding source, that survives any inquiry. The limitation of this method is that these amounts which can be cleaned are generally finite, requiring multiple purchases to effect any substantial laundering. They also leave a potential witness against not only the clients, but the laundryman as well; the Seller, of confronted by law enforcement, or the IRS, could decide that the untaxed cash he or she received was not worth getting indicted over, in a criminal conspiracy, and cooperate against you and your client. That is a risk with this method.

My preference is participation in a scenario where the real estate, whether it has improvements (meaning buildings) upon it, or is raw land, is owned by a corporation. Rather than engage in a sale, involving a warranty deed, which must be recorded in the public records registry in the country where the realty is located, the laundryman simply obtains ownership of the corporation, meaning that 100% of the issued and authorized shares of stock in the corp are transferred over to whomever you designate as the recipient, meaning the client, or even another corporation, if you want to keep the transaction totally opaque. If no need is recorded, law enforcement, or anyone else inquiring, is never aware that ownership and control has shifted to your clients' control. He or she can likewise transfer ownership of the corp, and title continues to remain in the hands of the corporation. Title is clear, just who owns that corp is now different. 

The sale of the corp stock still results in the effective cleaning of the clients' criminal proceeds; it is of course booked as the sale of the realty for tax purposes. That neat trick about the stock doesn't figure into the satisfactory result, the proceeds of sale of real estate with its now cleaned capital. The closing statement only shows a traditional transaction. 

Didn't you ever wonder why all those expensive multi-million dollar sales in Manhattan of pricey residences involve corporations, rather than individual sellers? Not all of them are for the reason of confidentiality of wealthy foreign nationals wishing to conceal the matter from their own taxmen at home.   

There are, of course, other methods, which we will cover in a  subsequent article, as our readers, as we are aware that compliance officers only have limited time each day to devote to keeping up with publications. I've been there myself; you must return to your open files, some of which are time-sensitive. Hope this helps.