convergence

Shelley
other forms of investment in the legitimate economy, as property can provide a base for other
criminal operations and/or a steady parallel income stream.
The absence or deficiencies of legislation targeting real estate money laundering make it
an attractive arena for corrupt officials and criminals. Corrupt officials are more interested in
enjoying and preserving capital while organized criminals more frequently launder money to
hide capital, generate revenue streams, and facilitate their illicit activities. Therefore, they often
choose different types of property in which to launder their investments.
The failure to recognize and acknowledge the extent of the problem has resulted in little
if any pressure on the real estate community to regulate itself in this arena, unlike banking
and other financial sectors. Moreover, the absence of will among many real estate professionals
in many parts of the world to conduct due diligence regarding their clients, and the absence
of sanctions for complicity in money laundering in real estate, have exacerbated the problem.
Furthermore, no sanctions have been imposed on other professionals allied with the real estate
business, such as notaries and mortgage brokers, who have facilitated this laundering.
This chapter analyzes the global problem of MLRE. Even though there are certain locales
particularly known for this problem such as the Mediterranean coast of Spain and France,
Sicily, Dubai, and the high-end resort areas in Mexico, MLRE occurs in diverse locales in both
the developed and developing worlds.
Although there are no definitive global studies, the problem of MLRE appears to have
increased in frequency since restrictions were tightened on other financial transactions
post-September 11, 2001. This has been possible because in some countries and regions
lacking adequate controls, cash can be used to purchase real estate.
Defining the Problem
Money-laundering experts define three phases of laundering—placement, layering, and integration.
Placement involves the introduction of dirty money into the system. Layering occurs
when the money is already in the system and the audit trail is deliberately obscured. Integration
occurs when the money is already functioning within the system. Real estate can be used at all
stages of the laundering process. Money laundering in real estate can occur in the placement
stage, where the launderer places the illegally obtained funds into real estate construction or
into a house or a commercial real estate purchase. Transactions in the layering stage are intended
to obscure any financial (traceable) links between the funds and their original criminal
sources. In this stage, laundering typically occurs by moving funds in and out of offshore bank
accounts. Overseas, the money may be used for real estate investments or may assume the form
of a foreign bank loan to buy a house, when the loan is in reality the purchaser’s own money
parked overseas. Finally, the goal of integration is to create a “history” showing that funds were
acquired legally. In the integration phase, the criminal places money in the real estate sector
and is not interested in trading in real estate but in investing. 9
Many aspects of money laundering have been thoroughly investigated. A significant body
of literature examines laundering through banks, shell companies, offshore vehicles, and more
unusual instruments such as art and coins. Surprisingly, there has been very little research done
on the real estate market as a vehicle for money launderers. The few research studies of the
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