Look out for the signs of money laundering

GREATER METROPLEX -- Criminals often filter their ill-gotten wealth gained from drug trafficking or other illegal activities through various financial transactions in an attempt to make it difficult to trace.

In doing so, they frequently work with business people in real estate and financial institutions. Sometimes these criminals find willing partners, but often the professionals they work with are not fully aware of who they are doing business with until they themselves are unknowingly committing crimes that can expose them to prosecution.

Financial-transaction money laundering

One type of prohibited money laundering is financial-transaction money laundering -- knowingly engaging in a transaction designed to conceal the source of the proceeds of specified unlawful activities.

The statute specifically applies to real estate transactions, including the purchase and sale of real estate and the lending of money secured by real estate.

In order to commit the crime of financial-transaction money laundering, a person must engage in a financial transaction either:

• with the knowledge that the transaction is designed to conceal or disguise the nature, location, source, ownership or control of the proceeds of specified unlawful activity; or

• to avoid a state or federal transaction-reporting requirement.

In addition, the crime can be committed by "engaging in monetary transactions in property derived from specified unlawful activity."

In order to commit this offense an individual must knowingly engage, or attempt to engage, in a monetary transaction in criminally derived property that has a value greater than $10,000, and the property must, in fact, be derived from specified unlawful activity.

Sellers and lenders should be concerned

You may naively believe that to commit a crime you must have an intent and that intent necessarily implies you know you are committing the crime. Not so. Numerous reported legal decisions have interpreted the willful-blindness exception, several of which involved the transfer of real estate.

Willful blindness can be described as a situation in which a person's suspicions are aroused and the person refuses to investigate for fear of discovering the property is criminally derived. Willful blindness can occur when a person's ignorance of a fact is solely because of the conscious avoidance of the truth.

In a federal criminal case, the defendant was a real estate agent who participated in a sale of a house to a drug dealer.

Most of the broker's activities were fairly normal for a purchase and sale transaction. However, the purchaser drove a Porsche, looked at houses during business hours and brought a briefcase containing $20,000 in cash to demonstrate his ability to purchase the house.

The purchaser also, with the knowledge of the broker, restructured the sales transaction and gave the seller cash under the table for a reduction in the purchase price.

The broker also told a government witness the money used to purchase the house "might have been drug money."

The broker was convicted by a jury, but the trial court granted a judgment of acquittal, which eventually was reversed by the appellate court.

The circumstances surrounding the sale of the property and the midstream restructure, which was fraudulent, were enough for this court to find there was willful blindness.

Develop safeguards for your clients

The financial-transaction money laundering law is broad enough to cover all kinds of circumstantial evidence that could be present in any real estate transaction. Therefore, real estate professionals should develop appropriate safeguards:

• Neither a seller nor a lender should allow the use of cash, multiple party checks or third-party checks in any sale or financing of real estate.

• The seller or lender should require that any title company acting in an escrow transaction not accept cash and only accept wire transfers of "good funds."

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