Money Laundering and Terrorism Financing
Future regulation of U.S. real estate brokers and agents may occur regarding the growing problems of money laundering and terrorist financing. To help minimize the need for targeted regulations, brokers and agents need to become aware of how real estate is currently being used in illegal financing schemes and begin to take steps to play their part in the global fight against money laundering and terrorist financing.
The crime of money laundering continues to be a growing area of concern in the United States. Therefore, law enforcement agencies and the financial sector devote considerable time and resources to combatting these illegal financial activities. While money laundering is most often associated with banks and other financial institutions, real estate transactions can also provide cover for various money laundering schemes.
Money laundering is the process criminals use to disguise the illegal origin of their funds. Certain criminal activities generate substantial proceeds. Legitimizing, or "laundering" this money through the financial system, is a critical component for criminals to hide their activities and not draw attention to their illegally derived proceeds.
The actual process of money laundering is a three step process that is initiated by introducing the illegal proceeds into the financial system, e.g., breaking up large amounts into small deposits or by purchasing financial instruments, such as money orders, which is referred to as placement. This is typically followed by distancing the illegal proceeds from the source of the funds through layers of financial transactions, referred to as layering, and finally by returning the illegally derived proceeds to the criminal from what appears to be a legitimate source, known as integration.
A real estate transaction can be used in any one of the three stages of money laundering. For example, if an individual purchases a home and uses illegal funds as part of the down payment, this would be considered integration.