How rising Abuja Properties may Fuel Money Laundering Risks
-By David Chukwu
The rise in property developments in Nigeria’s capital city, Abuja, is equally fuelling concerns the real estate sector is becoming an avenue for individuals to conceal their illegally acquired wealth.
According to Valuechain findings from a survey of developers, within the central and highbrow parts of the city, hundreds of new and existing estates and luxury flats that are grossly unoccupied continue to litter the city.
This comes as the Federal Capital Territory Administration (FCTA) late last year concluded plans to create four new districts in the territory.
With the coming of the new districts, there is the likelihood that more people will flow into the city and more estates and other private office and residential developments will happen.
The anticipated rising property developments has warranted the need for law enforcements agencies to increase their focus on the real estate sector because of the sectors high vulnerability to money laundering.
The type of properties in reference that are vulnerable to money laundering in the city are not limited to residential buildings alone but banks as well as office complexes, market stalls, plazas and pieces of undeveloped land.
Money laundering, according to the European Parliamentary Research Service (EPRS) in a February 2019 briefing, is the process used to camouflage the illegal origin of funds generated by illicit or criminal activities.
In real estate, money laundering involves using such funds to pay for the transactions involving properties.
How Corrupt People Launder Money via Real Estate:
Reports based on surveys provide for a typology of the basic techniques used for laundering money through the real estate sector.
Two reports by the Organisation for Economic Co-operation and Development (OECD) published in two consecutive years: the one titled ‘Money laundering and terrorist financing through the real estate sector’ and the 2008 OECD report ‘Real estate sector: Tax fraud and money laundering vulnerabilities’ highlight the basic techniques used for laundering money through the real estate sector.
Real estate money laundering can be in form of complex loans or credit finance; use of non-financial professionals and through mortgage schemes and financial institutions.
Other features, according to the OECD report, that can serve as specific indicators of real estate money laundering include recourse to third parties by customers (sellers and buyerr) for concealment of ownership; unusual income (e.g. inconsistency between income and standard of living), and unusual debt (e.g. mortgage with low income or unidentified lender) on the part of the legal owner.
The other ways are the use of front companies i.e. shell companies, trusts and company structures, allowing the criminal not to appear as the real owner and rental income to legitimise illicit funds (renting the property to a third party they use as the legal owner).
Other pointers to real estate money laundering include property renovations and improvements using illicit funds that increase the value of the property, which is then sold at a higher price.
The scale of Money-laundering via the Real Estate:
Although there are limited reliable sources on the scale or impact of money laundering via real estate. However, some estimates by the United Nations Office on Drugs and Crime (UNODC) in a 2011 report showed that money laundered globally in one year could represent between 2 % and 5 % of global gross domestic product (GDP).
As regards money-laundering risks associated with the real estate sector, the 2008 OECD report “Real estate sector: Tax fraud and money laundering vulnerabilities”, based on a 2006 survey covering 18 countries, said that none of the countries had reported official figures or statistics.
However, the Financial Action Task Force (FATF), an inter-governmental body that sets international standards for combating of money laundering, in one of its reports noted that because the real estate sector has notoriously lax controls, it is an attractive target for those wanting to hide the proceeds of crime.
A major indication of the scale of money laundering via real estate, FATF report showed, is the share of real estate in criminal assets confiscated, which was estimated at 30% between 2011 and 2013.
Another impact is that distortions in the prices of real estate could affect housing affordability, something that has been witnessed in several cities in both developed and developing countries including Nigeria.
This impacts not only those people rendered unable to purchase housing but also renters. In both cases, this can affect decisions about where to live, among other factors.
Accuity, one of the world’s leading business data providers, in one of its reports said that as banks and financial institutions increase their controls to combat financial crime, money launderers are looking for new targets and they find real estate sector as the weakest link.
Most of the basic techniques used for laundering money through the real estate sector listed by the OECD report are the same techniques found to have been used by money launderers in Nigeria.
Former chairman of the Economic and Financial Crimes Commission (EFCC), Ibrahim Lamorde, once raised concerns over the new mode of money laundering through investments in real estates in the FCT.
He said during a visit to erstwhile FCT minister, Bala Mohammed that the EFCC had uncovered several money laundering schemes in the city in which the perpetrators disguise the proceeds of crime by investing in properties without using the banks, preferring to pay for their acquisition with cash.
The ex-EFCC boss further revealed that the laundered funds are frequently converted into foreign currencies through the bureau de change before the purchases are made and that in most cases, no change of ownership is done after such acquisitions, making it difficult to verify the identities of the new owners or the sources of fund.
He added that evidence of the trend was the number of palatial but unoccupied houses that litter the capital city.
The EFCC in particular has recently intensified efforts to fight money laundering in the real estate sector as evidenced in cases of investigations of phoney real estate deals as well as sealing of properties alleged to be proceeds of financial crime.
A cross section of property developers, engineers and project management experts applauded the anti-graft agency saying the move would help to stop illicit financial flows into property development but warned about the slowdown of new or ongoing projects in the industry, should the acts of the agency turn out to be mere witch hunt.
Combating Real Estate Money Laundering:
As part of ways to combat money laundering cases globally, the FATF developed the anti-money-laundering (AML) framework in relation to real estate in 2012.
FATF now wants gatekeepers (wide range of professionals who are governed by different regulations and anti-money-laundering obligations) in real estate transactions to run customer due diligence checks based on risk assessment and record-keeping requirements.
This includes real estate agents involved in transactions for their clients concerning the buying and selling of real estate and also lawyers when preparing or carrying out such transactions for their clients.
Among the gatekeepers, the financial sector also has a role to play. This role, according to the EPRS briefing, is important but should not be over-relied upon, as not all transactions pass through a financial sector intermediary, especially in the case of cash transactions.
