Vol. 2 No.10  

Money laundering still targeting real estate sector

Global mafia groups use Romania as a vehicle for laundering money through property and casinos because of high returns and loopholes in the law. ‘The Diplomat’ investigates

     Emerging markets are a soft option for mafia groups who want to disguise the criminal source of their income.
     One technique in south and central Europe is for these money launderers to make a sudden cash investment in a business that offers a strong return.
     Therefore real estate purchases are targets.
     One example, cited by a specialist, involved a team of lawyers from a western mafia  group who descended upon a new market, which was lax in its regulations. In a weekend, 15 ‘lawyers’ bought over 100 apartments in cash, then left the country.
     Their strategy is to leave these flats and wait as the market gains in value. These apartments act as ‘sleeper properties’.
     Five years later the criminal organisation sets up a local company, which becomes owner of the flats. Through this company, the mafioso sell the properties.
     This way the money seems to be a legitimate investment in a risky market. Then the ‘lawyers’ can send the money home.
     “Real estate is one of the most used, in buildings and land,” says Dr Paolo Sartori, the Interpol Liaison Officer in Romania and Republic of Moldova, who checks on Italian Mafia activity in south and eastern Europe. “It is one of the easiest ways to wash cash. It appears to be a clean operation and it is hard for us to reconstruct.”
     General Prosecutor Laura Kovesi also adds that, as far as she knows, investment in properties seems to be the “main activity field” of money laundering in Romania.
     The current boom in real estate is probably not due to massive amounts of laundered money, but more to the availability of mortgages and the growing wealth of the average Romanian. However there is a fear that property bought in this sector from an illegitimate source could distort the market – particularly at the higher end. “Criminals do not care if they have to pay a lot,” says Sartori. “It’s just an instrument for them.”
     Loopholes in the Romanian Constitution, which says that all property is lawfully acquired, also make it easier for foreigners to come to Romania to wash their cash.
     “I see Romania more like a transit country for money laundering,” Kovesi says. “But it could be the final destination if we talk about properties.”
     Real estate is also attractive to criminals because it offers high profits in Romania. In the last three years the market has increased by 100 per cent and in the next decade, depending on your level of optimism, the returns could be anything upward of 400 per cent down to losing the shirt off your back.

Price of luxury

     Luxury products, such as cars, are a target for criminals, although this is an end to laundered money, rather than another stage in its transfer. Many cars in Romania are bought with cash.
     “Some rich people buy less expensive luxury cars so as not to catch the eye of the authorities – because they are laundering money through cars,” says a businessman in the car industry. Some also pay in installments worth under 10,000 Euro to be less conspicuous.
     But the really big transactions – in the tens of millions – occur through the banking system. This is the the largest vehicle, per volume, in Romania.
     Because Romania is not an off-shore financial centre, the nation acts as a station on the journey of the money, rather than its destination.
“The Mafia trust the banking system in south and eastern Europe,” says Sartori. “It has started to use the banking system to make big money laundering operations.”
     In three hours on the Internet, money launderers can wash the cash through 20 banks in 20 different countries on a world tour. The problem for the authorities is gaining enough evidence to prosecute these transactions. “To reconstruct this we need years,” says Sartori. “Some countries are off-shore and do not allow us to check their bank accounts.”
     Cooperation between states is the most important factor, but Sartori says the Romanian authorities are very co-operative, as are the local banks, which are mostly western owned.

Criminal identity

     In south and eastern Europe the Italian mafia is involved in money laundering, as are those from Russia, which includes weapon dealing from Transnistria and from Turkey, in drug dealing. Money can also come from human traffic.
     “There is one country where they launder the money and another where they invest the money,” says Sartori. “The mafia was globalising before the economy was.”
     These groups undertake market research, look for emerging economies where they can invest the money and gain a return. They do not go to Afghanistan, for example, because it is not profitable.
     Adriana Popa, president of the National Office for Preventing and Combating Money Laundering, says that usually those who are doing money laundry in Romania are Romanians. These tend to be individuals or small organisations, because Romanians are not very professional at being mafioso.
     “Romanian organised crime groups do not have the characteristics of a Mafia group,” says Sartori. “They do not have control of a region or territory. There are no clear share of roles. There are few protection rackets. They are not pyramidic, like Cosa Nostra, and each group is independent.”

Laundering: easier before 1999

     In 1999 in south eastern European countries the means of washing money was crude because there was no legislation to criminalise the activity. “They used to come to the region with bags of cash and buy apartments and retail units, even entering into privatisations,” Sartori adds.
     Since Romania declared money laundering a crime, in 1999, there have been only around seven final convictions. “I believe that lately the indictment number is quite high,” Kovesi says. “But it is a crime which is very hard to prove.”
This is due to the Romanian law. The prosecutor must prove the money came from a criminal source before it can accuse someone of laundering money. This is part of the Romanian constitution – called the presumption of lawful acquirement of property. This means if you have cash, you must have earned it honestly.
     Kovesi gives an example of a 20 year-old man who has never worked but seems to own five villas.
     When he is called to court, the prosecutor has to prove he obtained his fortune illegally.
     “He is not obliged to tell me, as a prosecutor, from where he obtained this money,” she says, “I am the one that has to prove it.”
     This law is a gift to foreign criminals or ‘laundering tourists’. If a criminal comes from Russia, for example, to wash his cash in Romania, in order to prosecute him in this country, the crime in Russia must be proved.
     But the criminals can be caught in the act while washing the cash. Local legislation allows investigators to monitor some financial transactions. When there are some suspicious transactions, the investigators have the power to interfere to stop some them. “It is hard to catch criminals in the act, but money laundering can be proved,” says Kovesi.

Combating vehicles

     Few countries have a good record in securing convictions for money laundering. Sometimes the best method is to prevent laundering from happening by educating and regulating the owners of potential vehicles for the crime – and then threatening them with punishment if they do not comply with the rules.
     The National Agency for  Preventing and Combating Money Laundering should receive information on all transactions over 10,000 Euro from every economic sector, as well as info on all suspicious transactions. The Agency then forwards any signs of possible money laundering to the Prosecutor’s Office.
     Local banks report around 30 to 40 suspicious transactions daily. But from the non- financial institutions reports are fewer.
     The European Commission’s May 2006 Monitoring Report stated that real estate and casinos were not reporting enough suspicious transactions. Following this, the Agency initiated new laws in July addressing these sectors. Now the Agency is training associations in real estate and casinos, so that companies in these sectors can detect potential money laundering. “In the last months these reporting entities realised that it is to their own benefit to report and they started doing it,” says Agency president Adriana Popa.
     In the year up until 10 November 2006 banks and non-banking institutions had reported more than 2,500 cases of suspicious transactions. They have also reported to the agency 9,000 cases of transactions involving amounts of more than 10,000 Euro in cash – 6,000 of this figure were from banks.
     However it is unlikely that only 3,000 non-banking cash transactions worth over 10,000 Euro took place during this period.
     Entities who do not report such transactions can face punishment. There have been financial penalties against casinos and real estate agents which do not report suspicious transactions or those over 10,000 Euro. This can act as a strong method of prevention.

Is Romania too clean?

     But Romania may die out as a target for money laundering, because other markets are more attractive for criminals.
     “Now Romania is entering the EU these kind of operations are going further east,” says Sartori, “migrating to where legislation is weaker.”
     Instead it may become a place that generates money to be laundered and crime to occur – thus aligning itself with western countries. “In the last five to seven years intravenous drugs users increased from 3,000 to 30,000 in Romania,” says Sartori. “Drug dealers who sell in Romania won’t launder their money here.”

Report by
Ana-Maria Smadeanu
and Michael Bird


     Money from a crime that the perpetrators or their agents move from place to place. Usually they will transfer the money through different countries to obscure its origins. The aim is for dirty money to appear it comes from a legal source.


     Drug traffickers, embezzlers, corrupt politicians, gangsters and terrorist financiers looking to launder their cash in a different country from their own. Among Romanians, money from bribery and untaxed incomes is common. In tax evasion one example is for a managing director to put some payments through his personal bank account rather than  through the company account.
     “The money does not appear in the accounting books of the company,” says Adriana Popa, president of the National Office for Preventing and Combating Money Laundering. “Practically this way you’re avoiding the tax collectors.”


     The Euro, of course. This is used in 12 countries and moves across borders without anyone noticing.


     If they want to risk the banking system, money launderers break up large amounts of cash and enlist different people to make deposits below 10,000 Euro – the threshold for any entities receiving money to report a transaction. This is called ‘smurfing’. However, if you’re a criminal thinking of using this technique, be warned. The 10,000 Euro limit is not an absolute. Investigators can check repeat amounts under this figure if they have been made several times using the same bank account. Criminals then send these deposits into an overseas bank which allows anonymous banking, such as the Bahamas, Bahrain, Cayman Islands, Hong Kong, Antilles, Panama or Singapore.


     Money can enter the mainstream if the criminals create a local business or ‘shell company’, set up to launder money. This takes in payments for goods and services that do not exist. These are places with large cash transactions where it is easy to blend in the money, such as bars, casinos, restaurants, car washes, strip clubs, pawnbrokers or bureau de changes. Here the company reports higher revenues than it is earning in order to launder money, but appears to be legitimate.
     “It was hard for us at the beginning to insist and convince people in southeastern Europe that if we find a clean company that pays taxes and has no fiscal problems, that this could send out an alarm,” says Paolo Sartori, Interpol Liaison Officer in Romania and Republic of Moldova. Making more business sense is to invest in legitimate investments to clear the money, such as in real estate or art deals.