Money laundering through property

Laundering money through property is an international problem that has driven up property prices and enabled investors to ‘flip’ properties as criminals scramble to buy them. We aren’t talking just high price property here; criminals can invest in property by paying for construction in cash, loaning themselves a mortgage through a shell corporation, renting out rooms for cash or even declaring higher rental profits.

As the purpose of laundering money in property is not to own a home but to clean the cash, it isn’t known how much money invested in property has been taken out of it. But with the high demand for property with a growing world population and housing shortages, any influence over the property market will directly affect us all, not just the economy.

It can be difficult for authorities to recognise which property deals are suspicious as they are often transacted through layers of different lawyers, corporations and intermediaries which front the transactions.

A London property purchaser is currently under investigation for buying properties worth £80 million, and Canada’s government has described its own real estate market as a ‘giant washing machine’ with a steep rise in money laundering linked to a 5% rise in the cost of buying a home. Vancouver’s house prices have tripled since 2005.

New evidence shows that Vancouver, in particular, is attracting some of the world’s worst criminals. Multi-million dollar mansions are being bought or built by suspected drug lords and criminals with ties to Chinese crime networks. In a study of 1,200 luxury home transactions in 2016 in Vancouver’s lower mainland area, it was revealed that over 10% of home buyers had criminal records. Of these, 95% were believed to be linked to Chinese criminal networks.

One luxury mansion was purchased for $7.5 million in 2011 but sold again in 2016 for $22 million. The same purchaser, a Macau gambler who has since fled home, sold a number of other homes worth around $50 million in total and also made nearly 30 suspicious gambling transactions in the Lottery Casino. The same person is suspected of taking our multi-million property loans with lenders associated with organised crime.

Authorities found that some convicted drug related criminals didn’t even bother to hide their property purchases but, with few resources and so much suspected money laundering, it was impossible to deal with the level of crime.

According to a report published in March 2019 by the British Columbian Expert Panel on Money Laundering in Real Estate, over C$7 billion of ‘dirty’ money was laundered in 2018, most of it through property purchases. It is estimated that it represents 4.6% of all property transactions but the figure is likely to be an under-estimate. The figure represents 5.3% of the residential market, mostly focused around Vancouver. The most likely properties to be targeted were luxury homes.

In 2016, a year when Canadian property prices were relatively stable, Vancouver’s property prices increased by 30%. In 2018, house prices fell by an average 0.9% from the year before. However, these property transactions had the effect of increasing prices by 5%, so the dirty money would appear to be propping up the property market.

Experts have blamed Canada’s mixed jurisdiction and justice system, which has lax financial reporting compared to most developed countries, along with few police and other resources available to tackle this kind of crime. Penalties, too, were considered less punitive than other countries.

Former chief of police, Senator Vernon White, blames the fentanyl drug supply from China and has supported measures to block supply. He said the large number of deaths from fentanyl, together with the related housing affordability crisis, among the greatest threats to have faced Canada: “I have been in policing 33 years and I have never seen anything with the profitability that fentanyl has. This is a security threat. If terrorists were killing 5-6,000 people per year, we would do something about it.”

Since 2016, Britain has had a public registry for the reporting of money laundering, although criminal activities in some overseas territories have proved difficult to pursue.

Thinking of buying a multi-million property in London or anywhere else in England and Wales? Ask a Property Surveying Chartered Surveyor for a building survey.

Back to June 2019 Newsletter