Illegal Financing Red Flags

Real estate professionals should be aware of “red flags” that may indicate illegal financing activities. The presence of one, or even multiple factors, does not necessarily mean the purchaser or seller is engaging in money laundering activities.

Risk factors fall into broad categories:

Geographic Risk

  • Is the customer and/or the source of funds located in a jurisdiction with weak anti-money laundering regimes, supports or funds terrorism, or has a high degree of political corruption?

Customer Risk

  • Is there a large unexplained geographic distance between the location of the property and the buyer?
  • Is there unusual involvement by third parties?
  • Will residential title be held by a corporation that obscures the owner’s identity, without a legitimate business explanation?
  • Does the purchase involve high-ranking foreign political officials or their family?

Transaction Risk

  • Is the owner selling for significantly less than the purchase price, or seems disinterested in obtaining a better price?
  • Is the buyer bringing actual cash to closing?
  • Is the purchase without a mortgage and inconsistent with the buyer’s occupation or income?
  • Is the buyer interested in immediate resale, especially at a substantially higher or lower price, without reasonable explanation?
  • Is the buyer purchasing property without viewing it, or with no interest in its characteristics?
  • Are there any other activities that appear suspicious and do not make professional or commercial sense?

Your obligation to report suspicious activity depends on your jurisdiction. U.S. real estate professionals should refer to NAR’s voluntary guidelines concerning anti-money laundering. Before proceeding, it’s also advisable to consult with your managing broker and attorney.

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