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ACUMINOR REPORT 2019:2
– Criminal misuse of legal advisors, economists and real estate agents
Criminals are actively developing more sophisticated and complex methods to launder money. However, more elaborate schemes typically require special skills and knowledge. This creates a dependency on services related to certain professions such as legal advisory services, economy and real estate (“Specialists”). Such specialists are not necessarily involved in the predicate offence, but instead are to be seen as service providers that enable the laundering of illicit money. Even though it occurs that specialist by their own initiative engage in money laundering predicate offences, this white paper is dedicated to the topic on specialists who unwittingly may be used for money laundering schemes.
“FINANCIAL AND LEGAL SPECIALISTS MAY BE ABUSED FOR MONEY LAUNDERING
PURPOSES INDEPENDENT OF EACH OTHER, BUT IN MORE COMPLEX SCHEMES
IT CAN BE DESIRABLE TO UTILISE SERVICES OF SEVERAL DIFFERENT PROFESSIONS”
In the 2019 European Commission Supranational Risk Assessment, services provided by financial professionals, legal professionals and investments in real estate were found to be facing a significant to very significant threat from money laundering. Some examples of cases where specialists unwittingly can enable money laundering are advisory services and other actions related to:
- Circumvention of taxation frameworks
Creation, merger or acquisition of legal constructions such as for example corporations and trusts
Performing actions on behalf of a client, providing assurance, legitimacy and respectability towards third parties, for example through client accounts
Acquisition of real estate or land
Specialists can fulfil several purposes in money laundering schemes. They can for example assist in concealing the nature, source, location, origin and destination of funds, as well as ownership and control of legal entities. The sectors mentioned above are commonly characterised by long-standing relationships between the specialist and the client, which in theory should make it easier to detect un- usual transactions (granted that the unusual pattern is not considered ‘normal’ because it has been ongoing since the start of the relationship). However, in short-term relationships or single transactions it can be more challenging to identify criminal activities.
FINANCIAL AND LEGAL SPECIALISTS
Financial specialists (accountants, auditors, advisors and tax advisors) and legal specialists (legal professionals, lawyers and notaries) have specialised tax and legal expertise and offer a variety of services that are of interest to criminals. Intelligence indicates that criminals frequently exploit these sectors in money laundering schemes. It is in general easy to access services that these specialists provide, which means that services of more complex money laundering schemes are readily available to organised crime groups. Some of the main activities that financial and legal specialists have been known to assist criminals with are for example:
Undertaking certain litigation
Creating and/or managing a trust, company or charity
Managing transactions, legal entities and legal arrangements
Creating declarations for import and export
Holding a position within the company (such as owner, director or administrator)
“WHEN IT COMES TO FIGHTING FINANCIAL CRIME, IT’S ALL HANDS ON DECK”
Financial and legal specialists may be abused for money laundering purposes independent of each other, but in more complex schemes it can be desirable to utilise ser- vices of several different professions. For example, a legal specialist can create so-called ‘opaque ownership struc- tures’, which are business structures where the intention is to keep the real identity of the owner concealed, commonly by using nominee directors. In more complicated versions of the scheme, such structures are often established in nu- merous jurisdictions, commonly involving offshore centres which requires both regulatory and tax services.
REAL ESTATE
The real estate sector is often abused in combination with other sectors, for example the legal sector. One practical effect of this is that operators involved in multi-sectorial transactions should make sure to not always rely on KYC information collected by other parties. It is known that both organised crime groups and politically exposed persons in- vest funds in real estate, and also that they use sophisticated schemes involving multiple specialists to do so without detection. Funds used for real estate investments may also originate from illegal activities from outside the EU. Examples of warning signs in real estate investments are:
Cash payments
Using a third party for the investment
Transactions with offshore jurisdictions
Customer residing in a country that has been identified as high-risk based on the real estate operator’s financial crime risk assessment
CHARACTERISTICS, ACCESS AND CRIMINAL ABUSE
Some positions that are held by specialists are more frequently targeted by criminals who seek to force or persuade a participation in the criminal activities. Executives and middle management staff, or staff that have worked at a company for a long time are at a higher risk of being targeted. Criminals have also been known to infiltrate such sectors with corrupt specialists and even gain ownership of companies that are active in these fields. Both infiltration and ownership provide organised crime groups with a great potential to carry out money laundering schemes with only a small risk of getting caught.
When it comes to fighting financial crime, it’s all hands on deck. All parts of the financial system need to help out, not the least companies within legal advisory services, economy and real estate. These companies have a real possibility to proactively prevent financial crime before dirty money enters the financial system. In other words: They can make a real difference for global safety and security.
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You are free to use this report for your own personal development, in internal training or in other risk management activities. You are of course not allowed to resell this report, nor claim that you have made it yourself.
Please remember to state the source as follows:
Acuminor. (2019). A chain is only as strong as its weakest link – Criminal misuse of legal advisors, economists and real estate agents. Report 2019:2. Stockholm: Acuminor.
© Acuminor 2019
