Money laundering in Malta's real estate market

Findings from the National Risk Assessment

A comprehensive 200-page report on Malta's National Risk Assessment has raised concerns about significant money laundering activity in the real estate market. This assessment, carried out by a committee including the police and the Financial Intelligence Analysis Unit (FIAU), recognizes that while the exact extent of money laundering in the property sector remains unclear, the signs are worrying.

In 2021, real estate assets frozen in Malta in connection with financial crime investigations amounted to approximately €44.6 million. This significant figure highlights the vulnerability of the real estate market to money laundering. The appeal of the real estate sector for criminals lies in its ability to facilitate the laundering of large amounts in a single transaction. Additionally, investing in real estate for renovation and resale serves as a front to justify illegal income.

Although the government introduced a cap of 10,000 euros on cash transactions in property sales and other high-value goods in 2021, loopholes remain. In particular, the regulations do not apply to cash used for construction, renovation or completion of properties, raising concerns about money laundering through these channels.

The rental market is not immune, as it can provide criminals with the pretext of legitimate income.

Tax evasion in real estate transactions

The report also sheds light on tax malpractices in real estate trading:

• Sellers and buyers often report too little Property values reduce tax liabilities.
• In 2021, 32% of real estate transactions were flagged as potentially undervalued.
• The Malta Tax and Customs Administration responds by appointing an independent architect for the reassessment in such cases, resulting in revised tax obligations based on these new assessments.

FIAU's analysis of suspicious real estate transaction reports primarily indicates tax crimes, often involving at least one Maltese resident.

Trends and licensing in the real estate market

On the subject of buying real estate:

• The purchasing rate from foreigners remained stable until December 2021.
• Maltese nationals made up 98% of title deed holders.

The report also addresses the issue of real estate agent licensing. Of particular concern are the lack of enforcement action against unlicensed agents and the existing “weaknesses” in licensing laws, particularly where individuals occasionally act as intermediaries in real estate sales.

In summary, while the full extent of money laundering in the Maltese real estate sector remains unclear, the evidence points to significant risks that require stricter supervision and regulation to curb these illegal activities.