Lawyers, accountants, real estate agents may 'knowingly or unknowingly' help criminals to 'wash' dirty money through properties

SINGAPORE - Despite Singapore's strict regulations to prevent money laundering through real estate, property transactions remain attractive for criminals looking to wash dirty money, said lawyers and property consultants.

Many are drawn to Singapore properties due to the stable economy. Rising prices also make real estate an attractive and safe avenue. In addition, large sums of money are involved in a single transaction.

Ms Gazalle Mok, a partner at Rajah & Tann Singapore's corporate real estate practice, told The Straits Times that money laundering is a process of masking illegitimate funds so that they appear to originate from legitimate sources.

"The use of sophisticated means to place illegitimate funds into the economy and creating layers of transactions using different bank accounts and passports make it even more difficult to detect such criminal conduct," she said.

Ms Mok added that the effectiveness of due diligence checks is also largely dependent on the accuracy of declarations by buyers and the verification documents provided. "It is very difficult for lay persons to detect whether these are fake or forged."

Mr Dennis Miralis, an Australian lawyer at Nyman Gibson Miralis who is familiar with cross-border crimes, said real estate is "a very prevalent form of money laundering across the globe".

Apart from real estate, illicit funds are often used to buy luxury assets and invest in businesses. They can also be used in gaming machines and to buy casino chips, which are later encashed.

Professionals such as lawyers, accountants and real estate agents may "knowingly or unknowingly" help criminals to launder money through real estate by setting up and maintaining domestic or offshore trusts and companies.

They could also facilitate transactions on behalf of the criminal by receiving and transferring large amounts of cash, setting up complex loans and other credit arrangements, and facilitating the transfer of properties to third parties.

"All you need is someone who knows the law and accounting to help set up a web of companies to own 105 properties, and ideally link the proceeds back to an offshore account or tax haven," said a property consultant who did not want to be identified.

He was referring to the case in which 10 foreign nationals, aged between 31 and 44, were charged this week for alleged money-laundering and forgery offences, with police seizing about $1 billion worth of assets, including luxury homes, cars and cash, in one of Singapore's biggest anti-money laundering probes.

All of those caught are not Singapore citizens or permanent residents.

Prohibition of disposal orders were issued against 105 properties, with a total estimated value of $831 million.

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The items seized included more than 35 related bank accounts, more than 250 luxury bags and watches, more than 270 pieces of jewellery and documents with information on virtual assets.

"Accountants, real estate agents and solicitors who are involved in the property sector will increasingly need to play a front-line role in protecting and defending the real estate market from criminal exploitation.

"It is not possible for the police to arrest their way out of this problem. It genuinely requires a whole-of-society approach," said Mr Miralis.

On June 28, Singapore introduced onerous rules requiring developers to perform risk analysis, carry out customer due diligence checks, report suspicious transactions and implement programmes to prevent money laundering and terrorism financing for properties under construction.

"This includes ongoing monitoring of the purchasers throughout the whole construction period until legal completion, which usually takes about three years to five years to complete," Ms Mok said.

She noted, however, that there are non-property developers and individuals not governed under the Housing Developers (Control and Licencing) Act or the Sale of Commercial Properties Act, and they may not have the resources or capacity to conduct due diligence checks on buyers.

"Perhaps some form of governance should also be imposed on all vendors, not only property developers, to require due diligence checks on their purchasers and third-party payers to be cleared before options are issued, or sale and purchase agreements are entered into.

"Perhaps real estate agents can play a role in this aspect to conduct due diligence checks for their customers," Ms Mok said.

Developers who fail to comply with the new requirements may be guilty of an offence and can be fined up to $100,000. They may also face suspension or revocation of any licence that has been granted to them if found guilty of a money-laundering or terror-funding offence.

Lawyers shared with ST the different ways dirty money could be laundered through the property market:

Use of a third party  

Criminals often buy properties using the name of someone who is not on the police radar or a local person to avoid direct involvement in the money-laundering process. The property may be held in trust for the criminal.

Rents to legitimise illicit funds

Criminals may buy property under a third party's name and pay that third party rent using illicit funds. By "renting" their property through a third party, criminals can disguise illicit funds and ownership. 

They can also lease out their properties and provide tenants with illicit funds to cover the rental to legitimise the illicit funds. 

Home improvements

Criminals use illicit funds to pay for renovations, thereby increasing the value of the property, which is then sold at a higher price. 

Front, shell and other structures

Criminals may set up front companies, shell companies, trusts and other company structures in Singapore or overseas to buy properties and distance themselves from ownership.

False declaration

Criminals can collude with third parties, such as property agents, to under- or overestimate the value of a property. The difference is settled with undisclosed cash payments.

When a property is undervalued, the criminal (buyer) can claim that the amount paid in the contract is consistent with his legitimate financial means.

If the property was sold at the market value or higher, the profit would serve to legitimise the illicit funds. This method is also used to pay less stamp duty.

Criminals may overvalue a property to obtain the largest possible loan from a lender. The larger the loan, the greater the amount of illicit funds that can be laundered to service the debt.

"Some open accounts with banks to take up funding. But within a year, they pay up the loan in cash," said a lawyer, highlighting how this could be a red flag. 

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Loans and mortgages can be used as a cover for laundering the proceeds of crime, and their repayment can be used to mix illicit with legitimate funds.

To further confuse the audit trail, criminals may seek to resell a property in quick succession. 

The property is sold at a higher value, either to related or acquainted third parties, or to companies or trusts controlled by the criminal. This gives an appearance of seemingly legitimate profits while the criminal maintains control over the property.

Use of multiple accounts

Those who want to avoid triggering any suspicion or alerts may deposit small amounts of cash across different banks and avoid triggering threshold transaction reports. The funds are then used to obtain bank cheques to buy properties.

Engaging many professionals

Criminals may use multiple professionals to further complicate the money-laundering process to avoid detection. This provides a veneer of legitimacy to criminal activity and a buffer between criminals and their financial activities and assets.

This article was first published in The Straits Times. Permission required for reproduction.