convergence

Money Laundering into Real Estate
a source of major discontent within the population, particularly in poor countries. Revelations
of the sumptuous property of Arab leaders, for example, helped fuel popular resentment before
the Arab Spring.
An activist in Gabon with assistance from Transparency International and Sherpa
successfully initiated legal action to freeze 73 properties purchased by the families of African
dictators from Gabon and two other African countries. 18 The French Supreme Court froze
these properties in an unprecedented legal action against the French assets of PEPs.
Among the many other financial consequences of money laundering into real estate is the
exacerbation of economic bubbles. For example, this was seen in Japan before the long-term
recession. Yakuza members and organizations moved large amounts of their assets into commercial
real estate, driving up prices. This bubble could not be sustained and many commercial
loans were not repaid to the banks as Yakuza members had key roles in the directorates of the
banks. 19 The same phenomenon was observed more recently in Dubai. Little scrutiny was given
to the source of assets used to buy apartments, villas, and offices in the rapidly developing property
market in Dubai. As investigations have shown, money from corrupt officials poured out
of Afghanistan into Dubai, and the recent arrest of post-Soviet drug kingpin Kamchy Kolbaev
in United Arab Emirates (UAE) is illustrative of the criminal capital that has been invested
in the economy there. The illicit capital fueling the real estate boom may have contributed to
the instability of the markets and the sharp decline of property values. 20
MLRE can increase prices, making it impossible for local individuals to acquire real
estate. The threefold growth of property prices in Mombasa, Kenya, within 5 years made it
increasingly difficult for middle-income families to buy homes. 21 In the mid-2000s, according
to the Economist, South Africa had the largest price increase in housing of any major market
analyzed. 22 The President of the Financial Action Task Force stated in 2005 that he suspected
money laundering was one of the reasons for the sharp increase in property prices there.
Money laundering can result in overconstruction of expensive housing and hotels.
Properties 23 stay vacant for years because individuals cannot afford to buy or stay in them.
The vacant hotel phenomenon can be seen in Central America and several Soviet successor
states. The housing boom in Turkey, facilitated in part by the laundering of drug and human
trafficking proceeds, has resulted in overconstruction and empty housing in some coastal areas.
MLRE can also result in severe violations of environmental regulations and destruction of
protected habitats. This has been a widespread phenomenon in southern Italy. Already in the
mid-1990s, citizen groups were established to combat the destructive environmental impact
of housing in areas too close to the sea or other fragile terrains. 24 As a result of this citizen
mobilization, some illegally constructed housing has been torn down, especially in periods of
government crackdowns on the Mafia.
Money laundering into construction companies can drive out legitimate investors who
cannot obtain bank credits or compete against money launderers with so much disposable cash.
These cash-rich investors move money not only into the property, but into the companies that
will construct new developments, thereby increasing their laundering options.
These practices do not always involve high-end properties. Money laundering into
lower-end property may lead to decay and increased crime in urban areas. 25 In some cases,
properties are bought to launder the money and then left vacant. This has been observed in
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