Recent years hav
e seen a drastic spike in suspected use of real estate development and property transactions for money laundering. In 2020, Germany’s Financial Intelligence Unit (FIU Deutschland) reported a 50 % increase in the number of suspected transactions across Germany, a similar trend that can be recognised across Europe.
Both the European Commission and European Parliament recognise the high risk posed by the property sector and have shared guidelines on the various risk factors member countries, financial institutions and related stakeholders should keep an eye on: look out for non-traditional financial schemes, over or undervalued property and use of cash in property related transaction (European Parliamentary Research Service, 2019).
An example of this is when the Estonian Tax and Customs Board (ETCB) discovered a minor discrepancy during a routine tax check of a SME with no apparent business activity, leading to a criminal conviction and seizure of assets. During a routine check by the tax audit department, it was discovered that a company with no apparent business status and income was developing and selling real estate. It seemed odd that they had not registered as a person liable to value added tax, since real estate development is costly, and a VAT registered legal entity can deduct input VAT.
Further investigation revealed that the stakeholders of the company were involved in at least two other similar ventures through other legal entities and used an elaborate scheme to hide the final beneficiaries, origin or funds as well as other companies related to the ventures.
An initial investigation revealed that some of the stakeholders had ties to organised crime, prior drug related offence convictions, a tax offence and that the company had withdrawn earnings from the sale of four apartments (worth 473 000 EUR) in cash. Similarly, most of the investments made into real estate development, using elaborate financing schemes including mortgages and loans, were withdrawn in cash prior to making the payment to the actual sub-contractors. Therefore, it was impossible to establish how the development process was financed, where the earnings ended up and what the actual costs and profits were.
An investigation of the perpetrators premises revealed the credentials and passwords of multiple people along with their bank accounts and payment/e-service accounts used for shuffling the money prior to making the cash withdrawal. Some of the funds were transferred to other EU member states and some withdrawn using bank cards issued in other countries.
In this particular case, the perpetrators were convicted for a tax crime but if the E-solution being developed by the TRACE project consortium had been available to the ETCB during the time of the investigation, less resources would have been consumed and it would have been easier to produce tangible court evidence in relation to the money laundering crimes.
The TRACE project develops an AI system with a reasoning mechanism that uses intelligence analytics and visualisation to map and visualise illicit financial flows. Our technical solution is supported by policy recommendations to optimise information sharing in transnational investigations on illicit financial flows as well as sharing of best practices and practical timely intelligence.
For more information on this research area please contact us.
Author: Republic of Estonia Tax and Custom Board (ETCB)