Anti-money laundering and sanctions evasion measures in the real estate market

Abstract

High value, price stability, and the potential for maintaining anonymity have driven the widespread practice of utilizing the real estate market for money laundering and sanctions evasion. The tools for mitigating these risks, which entities of primary financial monitoring can employ in their activities, include risk criteria and analytical instruments based on the application of a risk-based approach. The purpose of the article is to identify specific risk criteria capable of enhancing the effectiveness of financial monitoring systems within obliged entities when servicing clients in the real estate sector. Methods. Methods of analysis and synthesis were applied to identify and subsequently structure international typological studies and regulatory guidelines. The evaluation of legislative requirements in the US, European Union countries, and Ukraine aimed at detecting the actual beneficial owners of real estate was carried out using the comparative method. The grouping method was applied to stratify analytical instruments within the risk criteria. The generalization method was used to formulate overall conclusions. Results. Risk criteria that obliged companies in the financial monitoring sector can utilize when analyzing their clients' transactions in the real estate market have been identified. A list of financial monitoring tools has been formulated that facilitates the detection of illegal schemes involving real estate, including risk criteria related to the identification of offshore companies or trust structures, sanction lists or criminal offense registers, non-market lending conditions, atypical servicing of credit obligations, the conclusion of several real estate purchase and sale agreements within short time intervals, as well as the overvaluation of real estate objects. It has been revealed that jurisdictions with effective financial monitoring systems possess regulated procedures for identifying the ultimate beneficial owners of companies participating in real estate purchase and sale agreements and reporting suspicious financial transactions to financial intelligence units. The fragmented nature of the geographic targeting orders issued by the US financial intelligence unit and the limitations of data collection caused by the presence of a minimum financial threshold and the analysis of transactions exclusively involving legal entities are emphasized.