How Money Laundering Works in Real Estate

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It is estimated that $5-billion was laundered via real estate in British Columbia in 2018. This is according to recent ground-breaking reports by Simon Fraser University public policy professor and former B.C. deputy attorney general Maureen Maloney, and by former RCMP deputy commissioner Peter German. These reports indicate that these laundered funds contributed to increased real estate prices by at least 5% — significantly impacting housing affordability (particularly in Greater Vancouver).

Money laundering via real estate can work in many ways. Here is the most common underlying process:

First: Money is generated via illegal activity somewhere

Second: The funds arrive in BC via, for example, cash and deposited into a Canadian bank account

Third: The money is wired into an anonymous Canadian shell or holding company

Forth: This shell company then buys real estate

Digging deeper into the various strategies, we have compiled a list below:

Method 1:

Criminals may buy real estate using a third party or family member as the legal owner. Generally, the proceeds of crime are deposited into these third parties’ bank accounts to make the purchase(s).

Method 2:

Mortgages and loans: Criminals lend out the illegal money as mortgage loans, and then the repayment of it can be reported as legitimate income.

Method 3:

Manipulation of property values: Criminals may collude with third parties to under- or over-value real estate values. Under-valuation: the criminal buys real estate and the price on the contract is under-valued, and they pay this price with legitimate funds. However, they pay the seller the additional amount (such that the total sale price is fair market value) outside of the contract with illegal funds. Over-valuation: a property’s value may be over-valued to maximize mortgage amount meaning more illegal money can be paid toward mortgage which legitimizes the funds.

Method 4:

Depositing cash to various banks below the $10,000 mark, which is the threshold for reporting. Then, the cash is used to write various cheques to purchase real estate.

Method 5:

Criminals may lease out their properties, providing the tenants with the rent money. When the money comes in it can be claimed as legitimate income.

Method 6:

Renovation to property: Criminals may use illicit funds to renovate properties. Property is then re-sold at the increased value and the profits are considered legitimate income.

Method 7:

Shell companies, holding companies, and trusts be used to receive funds and then buy real estate - thereby distancing the criminal from the funds.

Method 8:

Use of professional facilitators: Criminals may use a variety of third party professionals to assist with structuring deals and moving money around. The involvement of several professional third parties legitimizes the activities.

Method 9:

Overseas property purchases: When a criminal buys outside of their jurisdiction, especially if the ownership of property is in a shell company or third party name, any trouble they may face at home is generally kept separate from where the illegal money has been hidden.

Money laundering in BC is an issue that affects us all. There are still many unknowns, but the above information gets us one step closer to understanding the impact this concern has on the Canadian real estate market.