Real estate has become a desirable target for people looking to hide the illegal sources of their wealth.
It is not the first time that Malaysia's property market has come under scrutiny for its involvement in money laundering. Money laundering, as defined by Bank Negara Malaysia (BNM), is "the process of converting cash or property derived from criminal activities to give it a legitimate appearance." It is a procedure to mask the illegal source of dirty money. Due to the complexity of regulations and the appeal of valuable assets, real estate has become a desirable target for people looking to hide the illegal sources of their wealth.
Due to the covert nature of the crime, precise data on money laundering through real estate in Malaysia is difficult to come by but the issue's global scope offers an extremely sobering context. According to a 2020 United Nations Office on Drugs and Crime (UNODC) report, money laundering contributes between 2% and 5% of the world's gross domestic product (GDP). Given the size of Malaysia's real estate market, it makes sense to assume that the nation is not immune to such illegal plundering.
Twists and turns
Money laundering through real estate involves complex mechanics. Illegal funds are frequently incorporated into the economy through a sequence of intricate transactions. Buying real estate can be an important part of this process because it makes it possible to turn illicit funds into assets that appear to be legitimate. Money launderers are particularly drawn to high-end properties because of their potential for significant capital appreciation, especially in prime locations.
How it's monitored
Litigation, corporate and property firm Richard Wee Chambers provided a good explanation of how money laundering activities are monitored. As stated in their publication entitled Money Laundering, Real Estate and the Legal Profession, Malaysia has established an Anti-Money Laundering & Counter Financing of Terrorism (AML/CFT) framework to detect, reduce and prevent emerging money laundering threats. This framework includes preventive measures for reporting institutions, financial intelligence units and law enforcement agencies as well as domestic and international cooperation.
The Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act (AMLATFPUAA) 2001 governs the financing of terrorism and money laundering. If found guilty of this money laundering offence under Section 4 of the 2001 Act, the punishment will be five times the total or value of the proceeds from an unlawful activity or the instrumentalities of an offence at the time the offence was committed, or five million ringgit. As for the prison sentence, it will not exceed fifteen years.
BNM looks out for suspicious cash transactions exceeding RM50,000 involving physical currencies and bearer negotiable instruments, excluding bank drafts, cheques, electronic transfers or fixed deposits. More activities on the list include but are not limited to transactions that cannot be matched with the investment and income levels of the customer, depositing large cash amounts in the reporting institution’s multiple bank accounts on the same day, a client who shows unusual concern for secrecy as well as a customer who suddenly starts making investments in property in large amounts when it is known to the reporting institution that the customer does not have the capacity to do so.
Too easy?
The way Malaysia's real estate market is set up may make it easier to launder money. The trail of funds can be obscured by the high volume of cash transactions, especially in the luxury market. Further complicating ownership structures and making it challenging to identify the true beneficiaries of property assets is the use of nominee corporations and trusts.
Money laundering through real estate has ramifications so broad it can boggle regular folk like you and me. In addition to undermining the integrity of the financial system, it distorts property prices and lowers the affordability of housing for regular people. In addition, it has the potential to support other illegal activities like terrorism and drug trafficking.
Effort from all
Although it will take a lot of work to completely eradicate money laundering from the real estate sector, governments, regulatory agencies and industry experts can significantly turn around the situation. Malaysia can prevent money launderers from taking advantage of its property market and maintain its financial integrity by increasing transparency, improving regulatory oversight and encouraging ethical practices.
It is also imperative to reinforce the AML framework. Increasing the severity of money laundering offences, broadening the range of reporting entities and improving customer due diligence protocols have been some great proven methods. Furthermore, encouraging beneficial ownership registries and other forms of property ownership transparency can aid in the prevention of money laundering.
It is also essential to raise public awareness of the problem. Public awareness campaigns about money laundering indicators and calls to report questionable activities can play a major role in prevention. Since money laundering frequently entails cross-border transactions, promoting international cooperation is extremely essential as well. Law enforcement agencies can greatly increase their chances of identifying and dismantling money laundering networks by exchanging information and intelligence.
The real estate industry has without a doubt been a significant driver of economic expansion. But in order to fully maximise the industry’s potential, the problem of money laundering must be addressed. Malaysia can preserve its reputation, support its financial system and establish a fairer real estate market for all by acting swiftly to clean up the industry.
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