Rowena Bethel, the Executive Commissioner of Compliance and legal advisor to the Ministry of Finance has advised that under the Proceeds of Crimes Act, every citizen of The Bahamas is responsible for reporting any suspicious transactions they come across.
This is especially important in the Bahamas real estate industry where financial crimes, scams and land theft have been rampant over the years, and many real estate professionals have made fortunes engaging in questionable practices.
The real estate industry, world-wide, is highly vulnerable to illicit or terror-supported money laundering because high value assets are involved. In the US, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) points to a 1996 report prepared by the National Institute of Justice stating that “real estate transactions offer excellent money laundering opportunities.”
Criminals often filter their ill-gotten wealth gained from drug trafficking or other illegal activities through various financial transactions in an attempt to make it difficult to trace.
In doing so, they frequently work with business people in real estate and financial institutions. Sometimes these criminals find willing partners, but often the professionals they work with are not fully aware of who they are doing business with until they themselves are unknowingly committing crimes that can expose them to prosecution.
Some naively believe that to commit a crime one must have an intent and that intent necessarily implies that the person knows they are committing the crime. Not so. Numerous reported legal decisions have interpreted the willful-blindness exception, several of which involved the transfer of real estate.
Willful blindness can be described as a situation in which a person’s suspicions are aroused and the person refuses to investigate for fear of discovering the property is criminally derived. Willful blindness can occur when a person’s ignorance of a fact is solely because of the conscious avoidance of the truth.
For an example, let’s look at a situation where a real estate agent participates in a sale of a house to a drug dealer.
Most of the broker’s activities would be fairly normal for a purchase and sale transaction. However, the purchaser drives an expensive foreign car, looked at houses during business hours and brought a briefcase containing $20,000 in cash to demonstrate his ability to purchase the house.
The purchaser also, with the knowledge of the broker, restructured the sales transaction and gave the seller cash under the table for a reduction in the purchase price.
The broker, if pressed, would have to admit that the money used to purchase the house “might have been drug money.”
The circumstances surrounding the sale of the property and the midstream restructure, which was fraudulent, would be enough for an honest judge to find there was willful blindness.
Here are a few other examples of using real estate transactions as an integration tool for money laundering.
One option is for the criminal to use international real estate flips. Here they arrange to “sell” a piece of property to a foreign investor who is, in reality, themselves working through one or several offshore companies. The “sale” price is suitably inflated above acquisition cost, and the money is repatriated in the form of a capital gain on a real estate “deal”.
Similar local property deals occur where they will purchase a piece of property, paying below the real market value on the paperwork. The rest of the purchase price is paid in cash, under-the-table. The property is then resold for the full market value and the money recouped, with the illegal component now appearing to be capital gains.
An increasingly common method involves placing a deposit on a house purchase and then pulling out of the deal after a few days. Because it usually involves the lawyer deducting a 5% commission on a failed deal, the criminals then get a legitimate check from the lawyer’s office.
It because of the vulnerability of the Bahamian real estate industry and the corruption of the Bahamas Bar Association that many honest ethical Bahamians strongly support the Bahamian Government’s initiative to add real estate agents, and most importantly lawyers, to the list of professionals who would be subject to on-site Compliance Commission inspections.
