As noted in a prior blog post, South Africa's Financial Intelligence Centre ("FIC") periodically releases financial crime typologies and case studies. Recently it published information about typologies in two different lines of business: (1) casinos and the gambling industry, and (2) the property sector, discussed in this post.
The Property Sector
The FIC's publication encourages those dealing in South African real estate to be aware of money laundering relating to the sector. The FIC describes the industry as an "attractive destination for illicit funds." According to the FIC, South Africa's "property environment, including renovation and improvements, is often associated with criminal proceeds related to corruption and narcotics as well as a variety of other predicate offenses."
Money laundering vulnerabilities in the property sector can arise in various ways. One example the FIC discusses is the concealment of criminal ownership by using nominees and front companies. Other examples of money laundering in the property sector include the financing of property through bonds, and the purchase of income-generating property that allows a criminal entrepreneur to comingle legitimate rental income with criminal revenue. The FIC also notes that flipping property to "take advantage of the sizeable underground, cash-based home renovation industry," and under-invoicing on purchase prices are other ways persons may launder money in the property sector. The FIC provided numerous indicators of potential money laundering in the property sector. For example:
- Purchases involving large cash amounts
- A prominent influential person ("PIP") investing in property
- An unnecessary use of third parties during the property transaction
- Unusual methods of payments
- Transactions entered into at a value significantly higher or lower than the market value of the property
Case Study of a Foreign PIP
The FIC also provided three case studies relating to the property sector. One case study involved properties linked to a foreign PIP, who allegedly had involvement in embezzling money from the PIP's home jurisdiction. Investigations revealed that the PIP used a South African lawyer to purchase the property and utilized a shell company registered in another jurisdiction. The property was ultimately restrained and forfeited to the PIP's original jurisdiction where the funds had allegedly been misappropriated.
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