By: Ivo Dekkers
Global interconnectedness and interdependence provide a conduit for transnational organised criminal networks involved in drug trade. For Europe in particular, factors such as comparatively tolerant policies, efficient supply chains and favourable socio-spatial conditions (i.e., financial, digital, and logistical infrastructure) made the continent attractive for illegal drug trafficking. The precise magnitude of the shadow economy it creates is obscured, however profit margins are tremendous. Indicative of the severity of the narcotics business is its mystification and firm entrenchment in Western European societies, with the ever-increasing profitability and subsequent material luxuries and sense of belonging coaxing more young people into organised crime. To stay under the radar and launder money once inside the world of crime, many turn to real estate exploitation. Poor oversight, a lack of scrutiny and regulations within the sector further facilitate the spending and laundering of dirty money. The weaponisation of real estate is not a new phenomenon: the Russian mafia and drug cartels have been doing it for years in localities favourable to the underworld, like Panama. More recently, Western Europe has similarly become a haven for criminal investments in real estate.
‘Undermining’ crime on the rise: the slippery slope toward a life of crime
Although ‘shady’ business remains well-hidden to the eye of the general public, it is a dynamic phenomenon omnipresent in society. What used to be marijuana cultivation nurseries are now factory-like ecstasy production labs. Instead of organising sports matches, football clubs and crime are increasingly entangled, now facilitating drug trade, meetings of criminal figures, and money laundering. Once concerned with processing name changes, civil servants are violently pressured into creating fake passports for criminals. And what was previously a handful of small vessels has now transformed into scores of gigantic containerships unknowingly ferrying thousands of kilos of cocaine annually, each cleverly hidden inside their freight.
These ships are the first stopover of the European supply chain. Bribed customs officers and harbour officials ensure that the containers holding the drugs go smoothly through clearance checks for low-level criminals to then extract them from the ports. From here, delivery to a nearby stash house is child’s play. The smuggled drugs are then passed over to crime bosses and later dispersed amongst the lower levels of dealers who sell it on the street. Meanwhile, every handover either increases the drug’s street value or decreases its purity – or both.
The world of crime has evolved; however, the solutions are denied by the very circumstance inherent to the problem. To reap the benefits of trade globalisation, there is a requirement for a larger playing field of global interconnectedness. However, this simultaneously enables transnational organised criminal networks to flourish and remain inconspicuous.
One of the outcomes perceptible in Europe is the phenomenon of undermining crime. Although suffering from some conceptual confusion, undermining crime commonly refers to an unintentional adverse and subversive effect of crime systematically striking societal structures at its roots on a nation-wide scale. It is also generated, albeit accidentally, by structures and opportunities meant for other purposes. Crossing borders without passport checks in the European Union is one example of this. Intended to promote the free movement of people and a European single market, it simultaneously facilitates drug trafficking throughout the continent. The result is an entanglement of the legal economy and the criminal world, undermining the very fundamentals European countries are built on. More and more, crime syndicates simply pull the strings, enabled by the structures in place, general rigidity to change, and the reactive (in preference to proactive) nature of counter approaches.
Real estate vis-à-vis undermining crime
Real estate is the largest, far-reaching, and most intricate money laundering instrument in the world of crime. Although the point of departure is drug-related crime, a handful of side and alternative criminal activities surface by combining narcotics and real estate. Mix and shake drug profits and property investments, and the finished cocktail is an amalgam of potential other criminal activities. The list is exhaustive; human trafficking or people smuggling, arms trafficking, illegal gambling, selling illegal fireworks, handling stolen property, and cargo theft are just a few examples.
The paramountcy of real estate is multifaceted, but we must be careful to separate crime involving the exploitation of real estate and making transactions, in the broadest sense, with property. Both represent a means to an end within this dichotomy. While the former denotes concern with illegal occupation, rental irregularities and illegal use, the latter suggests dubious and suspicious transactions (e.g., money laundering constructions), earning money through tricks and devices (e.g., tax fraud), and acquiring real estate through criminal tactics (e.g., extortion or intimidation). Although this article primarily focuses on real estate exploitation, the role played by transaction-related matters still necessitates attention. An example includes evading tax paying duties through facilitating illegal occupation, such as listing properties on Airbnb.
Broadly speaking, real estate supports criminal quests as they seek to conceal their finances from law enforcement. The reasons are manifold. The real estate sector lacks transparency, it facilitates comfortable concealment, and properties simply yield high returns. Beyond these practical advantages, criminals also need property in a practical sense. They need a living space, their criminal activities need a building, and their registered cover companies need buildings – the list goes on.
Although the picture painted here may seem like a criminal utopia, using property to obscure crime does not come without risk. If closely inspected, criminal real estate investments are perceptible in the legal economy. But criminals know that, in real estate, small risk equals high reward. They are conveniently given this opportunity by the structures in place. And with the state’s limited effectiveness in countering these developments, criminals continue marching in triumph. Consequently, the impact can take on various forms.
Take holiday homes. Their prevalence in North-western Europe provides ample opportunity for criminal exploitation; it allows making, hiding, and laundering, hiding dirty money. Criminals use their profits to buy singular, multiple, or entire parks filled with holiday homes. In the Netherlands, they often bypass governmental oversight as purchases, sales, and resales of holiday homes do not require mandatory registration with the bureau of records. With such structures in place, exploitation provides an easy cloak of secrecy for criminal conduct.
Another common real estate money laundering tactic is using small construction companies. Criminals have been known to do this due to the relative ease of falsifying financial records and overall susceptibility of the sector. Through incorporated businesses, felons can renovate, reallocate and allot, rent out, sell or resell their own holiday homes, an easy money laundering method. Criminal activities such as prostitution, drug production, housing illegal migrant labourers, or stashing contraband like drugs, money, or weapons can also be effortlessly conducted and kept in the dark.
Creating a limited liability company (LLC) similarly opens doors for criminals. Due to (partial) anonymity of the owner through an assumed personage, it allows criminals to use the company as a legally compliant individual. The process is relatively easy if handled properly and carefully: create an LLC and an associated business banking account, use the LLC to receive money which needs to be laundered, and finally, buy real estate in the LLC’s name, making the dirty money clean money. The property is now owned by the LLC, thus anonymising ownership, and shielding the individual from incrimination, adding a powerful protective layer.
Adding insult to injury, local government institutions tend to lack the means to tackle the problem. On the one hand, a persistent knowledge gap and capacity issues plague local governments. On the other hand, holiday homes and parks continue to attract tourism. The latter forms an additional problem because acknowledging these benefits often overshadows the issue of the lack of knowledge and capacity, and in doing so facilitates the proliferation of the vast money laundering machine. Insufficient oversight or awareness thereof, however, is difficult to resolve. Together, these factors and the structures in place help explain the increasingly large scale of these criminal activities.
Let us circle back to the paths real estate offers for alternative or additional criminal activities, facilitated by property ownership. First, it clears the way for inconspicuous human exploitation. Holiday homes and parks are in less populous areas, and as mentioned, lack regular scrutiny. Their recurrent use for illegal prostitution and illegal labour migrant housing should therefore not come as a shock. These forms of human exploitation often include inhumane and unlawful living and working conditions, resulting in an exacerbation of vulnerability and health issues. In a similar vein, the homes can be used for illegal gambling. But gambling in both legal venues like casinos and property obtained using money earned through unlawful activities, such as gambling surreptitiously or stash houses, undermines society. In the case of the former, it usually concerns money laundering, i.e., black money, whereas the latter case regularly involves the sale of illicit drugs or illegal prostitution. Illegal gambling, in whichever form, tends to go together with the possession of drugs, illegal firearms, illicit trafficking of humans and large cash sums. Alternative forms of criminal holiday home ownership include stashing ill-gotten gains, producing drugs, (re)packaging synthetic drugs, cutting up cocaine, cultivating marijuana, fake money production and criminal meeting venues. Virtually any other criminal activity not contingent on the specific factors a property offers, such as location or proprietorship, can be added to this list.
Crucially, however, simply buying holiday property and exploiting it for criminal activities would not classify as undermining crime. Regardless, it is still frequently done. This obscures the true nature and impact of undermining crime. Likewise, the effectiveness and specificity of counter approaches, identifying marks, or targeted awareness campaigns to curb its surge is also unclear. We must not risk undermining crime becoming yet another case of unproductive counter efforts which eventually bring about a waterbed effect.
For real estate to advance undermining of proprietorship – in other words to subvert critical societal pillars and structures systematically and unintentionally – it must make legal income streams possible. This goes beyond laundering dirty money and involves creating an additional protective layer, for instance, by renting out several apartments and shielding them from law enforcement. If done cleverly, criminals declare property tax, raising no suspicions. Applying for permits to subsequently abuse them can also occur relatively easily. This appeals to criminals and intertwines the legal and illegal economies. Criminals can also simply continue going about their business in other locations, exploiting different properties. This will only persist unless actions are taken to undermine the undermining effect and counter the expansion of such a criminal empire. But in the meantime, authorities continue to be led astray and criminal enterprises continue to flourish.
We are at the foot of a steep mountain. At the very least, a solution requires an integrated, multidisciplinary counter approach to the surging exploitation of real estate for criminal purposes. A most welcome development is therefore the current transition from solely arresting criminal leadership, impounding cars, and non-sensible resource injections to uncovering criminal cash flows and letting actionable intelligence guide the way.
In the current system, organised criminal networks manoeuvre not only in the spaces void of governmental control. Illicit activities exploiting real estate go beyond that, with an undermining impact as a result. If smart resource allocation, policy and investigative focus would be proportionate to the filthy lucre yielded by criminals, it may not be too late to remedy the future. In other words, this necessitates a sharp increase in digitally monitoring real estate purchases, physically patrolling areas filled with holiday homes and cooperating inter-regionally to create transparency in the sector. Beyond flattening the curve though, no workable, realistic wonder drug against drug trade riches currently exists. The overarching reason for the current proliferation of criminal real estate continues to be one of budget and capacity, both in terms of allocation and size. Ultimately, this hinders further resolve with flourishing criminal networks as a result.
Consider reading the article linked below to further grasp the severity of the problem of undermining crime as well as its origin and potential avenues of resolve, or rather, mitigation: https://jasoninstitute.com/countering-cocaine-trade-in-western-europe/