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In February of 2022, Transparency International revealed that Russians linked to the Kremlin or with corruption charges had invested £1.5 billion in the UK property market, mostly through companies held in Britain’s overseas territories and crown dependencies. The findings exposed Great Britain as “a global hub for money laundering.” However, criminal investments into real estate markets have been perpetrated for decades and have seeped into every corner of the world.
The link between real estate and money laundering is a global phenomenon and is considered one of the older methods of laundering illegal funds. Investments in property can allow criminals to add a veil of legitimacy and normality to their ill-gotten gains.
The sector is also attractive due to its profitability, including appreciation of housing over time, re-sale value after renovations, or income generated from rent. This interest doesn’t stop at homes but is also extended to other types of properties such as vineyards and factories.
According to a recent report by Global Financial Integrity (GFI), over $2.3 billion have been laundered in the U.S. real estate industry over a recent five-year period. Transparency International noted that at least £4.4 billion investments in UK real estate came from politically exposed persons (PEPs) in high-risk corruption jurisdictions. Europol also found that 68% of criminal organizations in the EU have used the property market to legitimize their illegal proceeds.
Myriads of opportunities worldwide, the use of golden visas, weak regulatory oversight, and the ability to invest large sums of money is what makes real estate a perfect target for money launderers.
How do criminals use real estate to launder money?
Criminals may use a variety of methods to launder money through real estate. The use of shell and front companies established in weakly regulated nations is a method often used to conceal the true identity of the person or persons purchasing a property. This may include individuals involved in criminal organizations or ones that hold an important position, such as politicians or PEPs, that have been charged of corruption or other crimes and are looking to evade sanctions.
Gatekeepers also play a big role in helping crooks. Complicit lawyers, notaries, attorneys, and real estate agents are used by criminals to facilitate the purchase of property. In exchange for money, they may turn a blind eye to the true nature of the funds or the person behind them.
There are a variety of other tricks that lawbreakers may use to clean their dirty funds. These include but are not limited to: sale of property between scheming criminals, purchase of a house to renovate to re-sell for a higher price, loan of money to an associate who pays back the “mortgage” with the necessary documentation (a method known as loan back), or the purchase of undervalued property to be sold at its market value price.
What are examples of money laundering and real estate?
There are countless examples of criminals using the property market for money laundering purposes. Below are four examples from recent years:
1
In 2018, Zamira Hajiyeva, the wife of Jahangir Hajiyev, Azerbaijani ex-chairman of the state-controlled International Bank of Azerbaijan from 2001 to 2015 and in jail for corruption, was found to have acquired a £22 million house in London, including a golf club Berkshire, using a series of offshore companies in the British Virgin Islands that belonged to her husband.
2
In 2009, the former president of Taiwan, Chen Shui-bian, was sentenced to 9 years in prison for bribery and money laundering charges. It was purported that a part of the money he had accepted as bribes was spent in a $2 million apartment in New York.
3
In 2016, an investigation by Europol and the Spanish police, known as Operation Usura, unmasked a Russian and Ukrainian criminal syndicate that had laundered €62 million in real estate across Spain.
4
Between 2006 and 2015, prominent Ukrainian oligarch Ihor Kolomoisky, together with his associates, had purchased 22 properties in the Midwest of the U.S. worth roughly $490 million. This was done through companies registered in Delaware despite Mr. Kolomoisky appearing in the U.S. sanctions list. At a certain point, he even became Cleveland’s largest commercial landlord.
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Hello, very interesting piece, could you share the Europol study supporting the statement that: "Europol also found that 68% of criminal organizations in the EU have used the property market to legitimize their illegal proceeds."? The hyperlink provided does not work.
Thanks!
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Hello, very interesting piece, could you share the Europol study supporting the statement that: "Europol also found that 68% of criminal organizations in the EU have used the property market to legitimize their illegal proceeds."? The hyperlink provided does not work. Thanks!
Dear Laure, thanks for letting us know. The link has been updated. Have a great day!
Thanks for sharing us!