Blog / / 07.08.20
Today, The Sentry published an advisory detailing how kleptocrats and their networks have increasingly been using African real estate to launder the proceeds of corruption. Investigative reporting by The Sentry and others on illicit flows stemming from grand corruption has highlighted how, in cities like Nairobi, Kampala, Windhoek, Cape Town, and Johannesburg, banks and governments have not prioritized the money laundering risk in real estate, creating a growing opportunity for corrupt actors to exploit the sector.
The advisory, “Looted Funds Used to Buy Real Estate,” focuses largely on the real estate sectors of Uganda, Kenya, Namibia, and South Africa, which provide the comparative political and monetary stability coveted by corrupt actors laundering their ill-gotten gains. It describes several methods used by politically exposed persons (PEPs) to purchase real estate in these countries and details related red flags, including the purchase of real estate by family members and associates, the use of shell companies and trusts to purchase property, the purchase of properties in foreign countries by individuals subject to international sanctions, and the use of unexplained wealth to purchase properties. These red flags, drawn from public reporting and The Sentry’s own investigative findings, align with the risk categories highlighted by the Financial Action Task Force (FATF), an intergovernmental standard-setting body to combat money laundering and terrorist financing.
Several regulatory challenges in the four countries impede efforts to fight financial crime in the real estate sector. The advisory highlights challenges such as low prosecution levels, insufficient oversight, a lack of awareness of reporting requirements, and limited reporting on suspicious behavior from relevant actors like real estate agents. The advisory also lays out several steps to directly address these challenges and mitigate money laundering risks in the real estate sector, including increased information sharing and cooperation among regulators in southern and eastern Africa, the United States, and Europe. The advisory suggests that the Geographic Targeting Orders (GTO) issued by the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) are innovative mechanisms whose limited but crucial success can be replicated in the sub-Saharan region.
Crucially, actions by banks, governments, and other relevant actors to curb money laundering through real estate in eastern and southern Africa can put pressure on kleptocrats and their facilitators and combat profiteering from corruption and violence elsewhere on the continent.
The Sentry’s advisory is modelled on those issued by FinCEN. Since 1996, FinCEN has issued a series of public and private advisories for financial institutions on a variety of topics including foreign corruption, human trafficking, and more recently, COVID-19-related fraud. These advisories provide necessary context and descriptions of financial crime methods and patterns and seek to inform financial institutions’ compliance regimes. The aim is to boost reporting by financial institutions on suspicious behavior and help gather intelligence that can inform efforts to fight financial crime.
Today’s real estate advisory is only the first money laundering risk advisory from The Sentry. Moving forward, The Sentry will be publishing advisories that focus on specific sectors associated with grand corruption in sub-Saharan Africa. These advisories will seek to raise awareness and provide insight on sector-specific risks to financial institutions and relevant authorities. Similar to publications issued by FinCEN and the UK’s National Crime Agency, The Sentry’s advisories will contain useful information like typologies, red flags, and guidance on mitigating specific risks. This type of highly targeted and detailed information is useful for banks, regulators, law enforcement, and other government agencies and important in the global effort to combat illicit finance.
Click here to read the advisory, including the red flags and recommendations.