Inter-Governmental Action Group against Money Laundering in West Africa (GIABA)
- 40 pages
- For Official Use Only
- February 3, 2009
1. Various studies, including those carried out by the Financial Action Task Force (FATF) over the past few years, suggest that advances in technology and the progressive tightening of anti-money laundering (AML) regulations are leading money launderers to make more complex arrangements outside the formal financial services industry, such as the use of various professional services, and in particular the real estate business.
2. The primary objective of this typologies exercise is to carefully examine the vulnerability of the real estate sector in West Africa, given the large volume of monetary transactions involved and its significant impact on geo-political and socio-economic conditions in the West African region. The exercise also attempts to shed light on how the real estate sector in West Africa could be especially attractive to launderers.
3. The study aims essentially at (i) exploring the means by which illicit funds are channelled through the real estate sector to be integrated into the formal economy, and (ii) identifying the control measures in place to combat this form of abuse in member states. It is essential to note that one of the most effective ways of gathering information on how the sector is manipulated is to examine concrete case studies. The report is therefore based on information provided by GIABA members who took part in the 2008 typologies exercise.
4. The fact that there is no average market price for real estate property in the region, coupled with the extensive use of bulk cash for payment, poses a particular difficulty in determining who is actually laundering money and how they are proceeding in this sector. The fact that prices vary widely across towns and districts throughout the region reinforces the difficulty. And the involvement of legal professionals in the completion of real estate transactions makes this category of professionals one of the links in the anti-money laundering and combating the financing of terrorism (AML/CFT) process, albeit a weak one, since in some countries most of them are not covered by AML/CFT obligations. In particular, the principle of endorsing “out of sight” payments by legal practitioners involved in real estate transactions creates the opportunity for criminals to abuse and misuse non-financial professionals such as lawyers, notaries and registrars, who can endorse cash sales or purchases of property that may have been paid for with “dirty money” out of their sight.
5. The typologies exercise revealed that money laundering throughout the sector could easily be disguised as genuine commercial transactions among the large number of transactions taking place. The risks and vulnerabilities detected show that there is an urgent need to raise awareness of the effects of money laundering through the real estate sector, address the lack of real estate regulation in the region, expose the possible sociopolitical costs of money laundering through the sector, and recommend ways of addressing these issues.
6. In addition, the report identifies, through case examples, some basic techniques that have been used, such as the use of unregistered real estate agents and other front men, mortgage schemes and advance fee fraud, and parallel (alternative) money transfer systems. The report also looks at the characteristics that make the real estate sector in West Africa particularly attractive to potential misuse and abuse by criminals, and briefly describes each money laundering technique, followed by one or more case examples. It is hoped that the money laundering indicators identified will assist financial institutions and real estate businesses in setting up measures to enforce customer due diligence (CDD) rules and record-keeping, as well as performing a risk analysis on both new and existing clients.
7. The report also highlights some the efforts made so far in the region, including the criminalisation of money laundering through the enactment of anti-money laundering (AML) legislation in all member states, and the gradual establishment of financial intelligence units (FIUs) in each state.
8. The exercise identified five areas that are particularly vulnerable to misuse in money laundering schemes involving real estate: the use of monetary instruments; third parties, front men and businesses; legal practitioners; service providers; and financial institutions, including alternative transfer systems. These areas, however, deserve further in-depth research if more concerted action is to be taken. The report concludes by making some policy recommendations consistent with the basic FATF 40+9 Recommendations.
9. Experts from Benin, Côte d’Ivoire, Ghana, Guinea-Bissau, Liberia, Niger, Nigeria, Senegal, Sierra Leone and Togo took part in the exercise and provided useful information and case studies which formed the basis of this report.
10. In the past decade, studies have shown that West Africa has witnessed a tremendous increase in construction in the real estate sector. In large part this is the result of diaspora Africans wanting to own a place they can call home, as well as providing for their families. Migration, it is believed, has played a major role in the structural transformation of West African cities. The studies have shown the significant investments of migrants in real estate and their influence on the transformation of major cities in the region. West African migrants living abroad maintain strong links with their countries of birth. Their foreign wages give them high purchasing power, which allows them to invest in their villages and towns by building houses, health centres, schools, religious centres and so on, thereby contributing to the social improvement of the lives of their families.
11. It is believed that the inadequacy of AML/CFT legislation and the lack of knowledge and enforcement of the relevant laws in member states constitute an attraction to the real estate sector for criminals. The predominantly cash-based nature of the economies of the region, coupled with the ease with which individuals could acquire properties in many countries without being subject to CDD requirements, also make the region in general, and the real estate sector in particular, vulnerable to launderers and terrorist financiers.
12. In its effort to protect the economies of ECOWAS member states, to contribute to the economic development of the peoples of the region and to promote good governance and the rule of law, GIABA has set out to determine and describe the typologies of money laundering as part of its strategic objectives and its Action Plan for 2007–09.
13. During its 8th Technical Commission/Plenary Meeting held in Ouagadougou, Burkina Faso, in November 2007, GIABA agreed to undertake a typologies exercise in order to determine the techniques, mechanisms, methods and trends of laundering through the real estate sector in the region.
17. The specific objectives were to:
• study the techniques and methods used by criminals to launder money through the sector;
• expose the possible social and political costs of money laundering through the real estate sector, highlighting the influence of criminal organisations and their capacity to weaken the social fabric, ethical standards and ultimately the democratic institutions of society;
• demonstrate the ways in which real estate transactions can serve as an integration tool for launderers, i.e. once the funds have been moved through the financial system sufficiently to make their origins extremely difficult, if not impossible to trace, they can be enjoyed by the criminals or employed as capital in furthering their criminal deeds;
• raise awareness of the fact that the lack of real estate regulations in West Africa can be a significant barrier to investment in member countries; and
• make recommendations to improve compliance through the introduction of acceptable standards and good practices.