Strengthening Security in Luxury Real Estate Against Financial Crimes

If there’s something people love investing in, it’s real estate. A good property comes with several benefits, such as a steady cash flow, prime leverage for better returns, tax deductions, and diversified assets. Subsequently, investing in a luxury home can quadruple that wealth and status.

Unfortunately, criminals prize real estate just as much. Some are happy to buy expensive luxury condos if it means they can turn a profit with fraud, money laundering, or the financing of terrorism.

This is the biggest reason why robust security measures are essential when selling or even buying luxury real estate. Find out more about why you should take financial crime in this sector seriously and how to protect yourself and your properties. 

How Financial Crimes Affect Luxury Real Estate

The last few years have seen a shift in luxury real estate sales. After aggregate global wealth grew by 12.7% in 2021, properties began to sell at anywhere between $10 million and $30 million or more. Also note that most buyers above the age of 21 now want real estate.

Through this surge in investment, it’s easy to miss the red flags of fraud, embezzlement, or money laundering. These would include things like inconsistent or hidden buyer details and a confusing paper trail that obscures the buyer’s identity even more, as well as where their money came from.

This is a problem when existing anti-money laundering real estate regulations in the US expect thorough recordkeeping and reporting from financial organizations, including real estate brokers. SARs and AML/CFT programs must feature appropriate policies, controls, employees, training, and independent audits. 

As FinCEN pushes to tighten laws further, especially regarding non-financed residential and commercial transactions, falling prey to fraudsters because of slack security measures could spell disaster for brokers.

You’d lose valuable property to illicit buyers, come under FinCEN’s scrutiny, pay fines for not complying with AML/CFT regulations, and lose many more assets, including your integrity in the real estate sector.

How to Strengthen Security and Counter Financial Crime in Luxury Real Estate

Your first step should be to assess your company’s risks, resources, and responsibilities. Next, create a system that prioritizes the following principles.

Prepare for Layering Attempts

A common technique used in money laundering is layering. It involves making as many transactions as possible with illicit money in order to hide its origin and owner under a tangled paper trail.

So, if you’re a luxury real estate agent and a customer pays in untraceable cash instead of a loan or mortgage, you may be looking at a layering attempt.

To spot and counter such activity—preventing criminals from using and profiting from this stolen money—make sure you include layering AML processes in your security system. Incorporate features like transaction monitoring, customer due diligence (CDD), enhanced due diligence (EDD), know your customer (KYC) checks, and suspicious activity reports (SARs).

Focus on Monitoring and Background Checks

As you can tell from the previous tools, combatting financial crime in real estate comes down to verifying identities and ensuring the legality of all your transactions.

Clients buying luxury properties in 2023 may not care for too much friction in their purchasing journey, but you won’t regret making an effort to find a good balance between sophisticated security and customer service.

You’ll enjoy peace of mind knowing your sales are legitimate, and your client base will feel safe with your company, thanks to the protections you provide.

Invest in Superior Access and Surveillance Measures

Besides verifying IDs and analyzing transactions, pay equal attention to what people can access and what suspicious behaviors to look out for in a physical and electronic sense. As real estate security grows more crucial, technology plays a pivotal role. Implementing robust systems such as alarm monitoring software can drastically improve the surveillance and incident response in high-end properties. These solutions offer advanced features that cater to the complex needs of luxury real estate, ensuring efficient detection and management of any disturbances. It can also relate to both customers and workers.

For starters, consider other types of due diligence that suit a luxury real estate service. There’s financial and HR DD, for example. The former can check a potential buyer’s financial records for irregularities, while the latter ensures your own employees are reliable and not part of an elaborate money laundering scheme.

In general, access and surveillance controls can feature passwords, two-factor authentication (2FA), encrypted keycards, identity and access management (IAM), AI-based solutions, and anything else that safeguards parts of your business that criminals could exploit.

Train Your Workforce in Real Estate Security

Establish policies that your employees understand and can follow, from acquiring and analyzing a buyer’s proof of ID to sending a prompt and accurate SAR.

Even better, offer training on key topics like online security, data management, AML/CFT compliance, and common risks in the luxury real estate business. Everyone should be on the same page when it comes to protecting your company.

Promote Collaboration

The ultimate weapon against fraud, money laundering, and terrorist financing is smooth cooperation between companies and policing bodies.

This means that your security system should make it easy to communicate and share resources with other organizations concerned with financial crime, whether that’s FinCEN or fellow real estate agencies.

Luxury Real Estate Needs Protection from Financial Crimes

As interest in high-end property continues to grow, real estate services are more prosperous than ever, but also vulnerable. 

Criminals use increasingly clever tactics to hide their tracks and buy houses as fronts or assets for their illicit plans. This and the current wave of legitimate interest in luxury real estate makes it harder to catch bad actors in the act.

But there are many ways to keep criminals out of your operations and avoid serious damage to your finances, stability, and reputation. Research the tips above further and come up with a strategy and set of tools that suit your service’s security needs.

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