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FinCEN
Releases Report on Money Laundering in the Residential R/E Industry
The Financial
Industry Crime Enforcement Network (FinCEN) released its report,
Suspected Money Laundering in
the Residential Real Estate Industry:
An Assessment Based Upon Suspicious Activity report Filing
Analysis (http://www.fincen.gov/news_room/rp/files/MLR_Real_Estate_Industry_SAR_web.pdf),
detailing its study of money laundering methods and trends in
residential real estate. The study confirms the number of suspicious
activity reports (SARs) filed indicating money laundering has
increased. The report covers the period of
January 1, 1996
, through
December 31, 2006
.
FinCEN
used a database analysis tool to isolate SARs of all types filed
with narratives containing one or more key words generally
associated with the residential real estate industry. Searches of
the Bank Secrecy
Act (BSA) database located 195,253 SARs of all types meeting
those criteria. Of the 195,253 SARs located, 1,095 were randomly
selected for detailed review. Of these, 1,029 were filed by
depository institutions, 59 by money services businesses and several
by security and futures businesses. FinCEN’s review identified 747
filings that described residential real-estate related transactions
or involved persons, professions or businesses in that sector. Of
that 747, 151 (20.21%) described suspected structuring and/or money
laundering. The 151 narratives fell into six categories:
structuring, money laundering, tax evasion, fraud, identity
theft, and other reported or suspected illicit activities.
Builders,
contractor, and rehabbers were the most commonly reported subjects
that were affiliated with residential real estate-related
businesses. Over 75 percent of the entities suspected to be involved
in residential real estate-related money laundering were identified
as individuals unaffiliated with residential real estate-related
businesses. Techniques used included “straw borrowers,”
fraudulent documentation, and dishonest appraisers. The “straw
buyer” borrows the money fraudulently. The money
launderer/fraudster then strives to appear as a normal buyer by
making regular and timely payments on the mortgage loan, thereby
integrating his illicit funds. Eventually the launder may re-sell
the property, allowing for a trade-up to a more expensive property
affording greater laundering and investment potential.
The
Report provides examples of actual SAR narratives. It shows that
U.S.
financial institutions
have been able to identify some possible instances of money
laundering through residential real estate. FinCEN said the report
is intended to help raise awareness of the vulnerability and assist
financial institutions to better recognize risk and thus provide
better information to law enforcement in order to combat criminal
activity.
The
Report may be viewed at http://www.fincen.gov/news_room/nr/pdf/20080501.pdf
.
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