Real Estate Industry? Sales and Management SARS

Real Estate Industry ? Sales and Management SARS

This information is presented to provide financial institutions with trends and patterns of suspicious activity relating to sales and management in the real estate industry. In an effort to identify areas of potential concern, two preliminary analytical studies were performed in the last 18 months. The results of these studies will further a continuing dialogue with, and study of, the industry?s potential money laundering vulnerabilities.

During the fall 2002, FinCEN completed a study of the trends and patterns observed in SAR filings related to the real estate industry, specifically related to the sale and/or management of real estate. The review period for that study encompassed the period of January 2001 to August 2002. Recently, an update to the study covering the period of September 2002 to March 2003 was completed to identify any significant changes in reporting of suspicious activity since the original was conducted. The following provides a comparative analysis of the two studies.

The number of records retrieved for the period January 1, 2001 through March 31, 2003 demonstrated a steady increase in the number of SARs filed on persons or businesses identified as having occupations involving the sale and/or management

of real estate. Financial institutions filed 43% more such SARs in 2002 than were filed in 2001.

In the first study, a search of the SAR data retrieved a total of 1,554 unique SAR records for the period January 1, 2001 to August 31, 2002. (In the twelve-month period for 2001, 850 SARs were filed; during the eight months in 2002 from January through August, 704 SARs were submitted.) A steady increase was noted in the number of filings beginning with the third quarter of 2001. This increase indicated an increasing pattern of identification of suspicious activities by persons listed as having real estate related occupations. This trend continued in the fourth quarter 2002 through the end of the first quarter 2003. During this latter period, a total of 1,224 unique SAR records were identified.

Statistical Information (September 1, 2002 to March 31, 2003)

The following chart relates the types of violations, total numbers and percentages of SARs reported by financial institutions:


Violation amounts ranged from $0 to $150 million Seventy-two SARs reported amounts of $1 million or more.

During the research period, 374 financial institutions in 44 states,21 Puerto Rico and the Virgin Islands filed SARs related to real estate sales or management. Nineteen of the 374 institutions were foreign corporations licensed to conduct business in the United States. Approximately 60% of the SARs were filed in four states: California (32%); New York (14%); Texas (7%) and Florida (7%). These findings were consistent with the pattern of geographic filings in the initial study.

The following table identifies the types of institutions and volume of SARs submitted.


Highlighted Violations Types

The narratives of a random sample of 580 SARs (approximately 47% of the total retrieved SARs) were reviewed for this updated study. The Financial Action Task Force (FATF) recently included real estate in the list of operations that require financial oversight. That, coupled with a recent trend to reduce restrictions on foreign investments, and a corresponding increase in foreign investments in real estate, focused attention on reports that described funds either coming into or going out of the United States.

Terrorism

One SAR narrative described activities that were suspected of being terrorist related. A bank filed a report on a customer who gave his occupation as real estate investor. The customer received funds from an airline company previously sanctioned by OFAC for conducting a transaction with a Specially Designated National (SDN). The customer, in turn, wired funds to South America and to another domestic bank. Additional research concerning the details of the domestic wire transfer revealed an additional SAR regarding the receiver of the funds. In this second SAR, the suspect?the same individual that received the funds described in the first SAR?was receiving suspicious transfers from the Middle East and Canada.

Cash Structuring

Transaction structuring was described in 329 (57% of the sample) of the 580 sampled SARs; seven described foreign fund transfers. The reports in this category described customers suspected of structuring transactions to avoid having a CTR filed. Thirty-two of the sampled SARs noted that the customer changed the transaction when informed of the CTR requirement. Eleven of the sampled narratives described structuring in wire transfers. The transactions were specifically described as ?cash? in 184 (56%) of the sampled SARs in this category. All other reports identified the transactions as ?checks,? ?wire transfers,? ?money orders,? or ?traveler?s checks.?

BSA/Structuring/Money Laundering

The narrative described activity as ?suspicious? in 111 (19%) of the 580 sampled reports. The narratives did not describe ?Money Laundering? or ?Structuring,? but stated that the filer believed some type of illegal activity could be involved. SARs specifically describing structuring and money laundering were broken out of this category for a more in-depth study, which will appear later in this section. The filers reported eight of the suspicious activities directly to law enforcement.

Fraud

Fraud was cited in 68 (12%) of the SARs sampled. Types of fraudulent activity were: Loan Fraud (54), Identity Fraud (6), Flipping (4),23 Advanced Fee Fraud (2), and Securities Fraud (2).

There was no mention of money transferred into or out of the country for this category. The reporting financial institutions contacted law enforcement agencies directly about 12 (2%) of those incidents.

Check Fraud/Check Kiting

Check Fraud was cited in 34 (6%) SARs; Check Kiting was cited in 25 (4%) SARs of the 580 narratives sampled. Reporting institutions notified law enforcement of about 12 (20%) of the suspicious incidents.

Money Laundering

Money Laundering was cited in 12 (2%) sampled SAR narratives. Filers reported one of those incidents directly to law enforcement. Two of the reports involved foreign money transfers.

Summary

The trends and patterns revealed in the initial report continued in the update period. The same four states identified in the initial report as having the majority of the suspicious activity (California, New York, Florida, and Texas) were identified in the update period as the locations having the most activity. The same types of financial institutions filed the reports for both periods.

The most common >
The narratives described the suspicious transaction as ?cash? in 219 (or 38%) of the total sampled reports. With the exception of real estate rentals (which comprised only 6% of the occupations in the sampled reports), real estate is not largely considered to be a cash industry. Large cash payments in a non-cash business could be an indication of money laundering activity.

Thirty-six SARs (or 6% of the sampled reports) described funds either entering or leaving the United States. Following is the geographic breakdown of the locations from which money was transferred into or out of the United States.


Excerpted from SAR Activity Review Issue 6, page 31