When they actually happen, real estate transactions can be thrilling. Sellers spend so much time working on their home, agents exert so much effort trying to sell it, and buyers look at dozens of different places on the search to find the right one for them. When everything lines up to make a sale actually happen, people don’t want to ask too many questions. The old saying goes “Never look a gift horse in the mouth,” and much the same is true in real estate. Maybe you should be asking more questions.
If those involved want to be compliant with the law, they need to make sure ahead of time that the transaction is legitimate. This means not just that the buyer has the funds, but that those funds were obtained in a legal manner. It means making sure the seller wants to move locations and not just use a sale to fraud someone else. Someone can not typically actually trace the money exchanged in a real estate transaction, of course. The best way to find out if something fishy is going on is with background checks.
Background checks and due diligence are processes where an independent third party searches an individual’s past for any unusual or alarming events. It can help bring to light a history of fraudulent practices, money laundering, theft, reputation damage, inaccuracy of previously provided information, and simply embarrassing mistakes. Some people think such processes are only important when something looks suspicious in a transaction. In actuality, they should be a mandatory requirement every single time.
Real estate is attractive for a number of reasons:
- Prices are stable.
- It’s a valuable asset that appreciates in value over time.
- Properties can be used as second homes or be rented out.
- A person can move a lot of money in one transaction, especially if he or she is buying property in expensive markets.
- There are basically no requirements for conducting due diligence on transactions or reporting suspicious activity when compared to banks and financial institutions.
- Buyers can be shell companies as well as offshore accounts can mask the identity of the beneficial owner (*)
(*) Good news: On 12/11/2020 the U.S. Senate passed a bill that was approved by the House earlier in the week and now will be sent to the White House for President’s signature before becoming law, which would require anonymous shell companies to disclose their true owners.
With that all being said, real estate is very attractive not only to good investors but also to financial criminals. Actually, real estate is often their preferred vehicle for cleaning their ill-gotten gains in addition to earning income from the investment they made.
It is important that buyers undergo background checks and due diligence because the agent will likely not know the history of the buyer. Buyers who act the same as everyone else could secretly be involved in money laundering. Buyers can bring money from anywhere in the world to the United States through wealth advisors or investments, but the money is not always actual legal tender.
It can become a nightmare if a real estate actor or business accidentally gets caught up in a money laundering scheme.
It is always better to be safe than sorry. When you are involved in any part of a real estate transaction, you want to require background checks and due diligence every time to ensure everything is correct and compliant. Find out more about their circumstances and if you are able to bring any concerns and risks to your superiors or to an attorney prior to starting a transaction. Know what to do in case of suspicious activity. If you need help assessing the risks, or making sure your business has a program in place to detect inconsistencies, contact Prae Venire. Our consulting firm is ready to provide corporate compliance and risk mitigation services tailored specifically to your individual needs.