HOA Detective™ – March 11, 2025: HOA cognoscenti from one end of the spectrum are rejoicing (along with the current administration) after the announcement that the U.S. Treasury Department has agreed to NOT enforce provisions of the Corporate Transparency Act (CTA) that apply to domestic corporations, which includes HOAs that are typically operated as nonprofit corporations.
Before we examine the subject of money laundering and HOAs, the HOA Detective™, and the founders of CIDAnalytics want to go on the record by saying they we too believe the CTA was an egregious example of government overreach in most respects. However, throwing the proverbial baby out with the bath water is equally as irresponsible as having “too much government.”
Never mind that the owners of CIDA and a sister company (both domestic LLCs), managed to file the required CTA report in advance of the 1/1/2025 deadline WITHOUT having an advanced degree or even the assistance of a paid professional other than our CPA, but that’s another story.
The Mechanics of Money Laundering: For those readers who are not of a criminal mind and may be wondering why there is suddenly a big fuss over money laundering, we offer this primer on the mechanics of how ill-gotten money can be laundered. The term “money laundering” refers to the process of disguising the origins of illegally obtained money so it appears to come from legitimate sources. Criminals engage in money laundering to avoid detection by law enforcement and to integrate illicit funds into the legal economy.
The Three Stages of Money Laundering: Money laundering typically follows a three-stage process:
- Placement – The illegal funds are introduced into the financial system.
- Layering – Transactions are used to obscure the origins of the money.
- Integration – The “cleaned” money is reintroduced into the legitimate economy.
Breaking it down in more detail, this is how money laundering works:
- PLACEMENT: Getting Dirty Money into the System – The first step is the most challenging for criminals. They must deposit large sums of cash without raising suspicion. This is done by:
- Using Cash-Intensive Businesses – Criminals purchase or invest in businesses that handle large amounts of cash, such as bars, nightclubs, casinos, laundromats, or car washes. They mix illicit money with real business revenue.
- Structuring (Smurfing) – Depositing small amounts of cash (under the reporting threshold) into multiple bank accounts to avoid detection.
- Gambling – Buying casino chips with dirty money, gambling a little, then cashing out the chips as “winnings.”
- Real Estate Transactions – Purchasing, developing or renovating properties with illicit funds, then selling them to make the money appear legitimate.
- LAYERING: Obscuring the Trail – Once the money is in the system, criminals use complex transactions to make it difficult to trace its origins. This includes:
- Shell Companies – Creating offshore or domestic companies that appear to conduct business, but exist only to process transactions.
- Fake Invoices & Overbilling – Creating fraudulent invoices for services that were never provided, effectively legitimizing the movement of illicit funds.
- International Transfers – Moving money through multiple jurisdictions, especially those with lax banking regulations, to create confusion.
- Cryptocurrency Transactions – Converting money into Bitcoin or other cryptocurrencies, moving it through multiple wallets, and then cashing it out.
- INTEGRATION: Making the Money Seem Legitimate – The final step is to make the “cleaned” money usable without raising suspicion. Criminals do this by:
- Buying Luxury Assets – Purchasing cars, jewelry, art, or real estate with laundered money.
- Investing in Businesses – Acquiring legitimate businesses and funneling money into their operations.
- Loans and Fake Employment – Providing “loans” to themselves or fake salaries to associates who then return the money through seemingly lawful means.
How Legitimate Businesses Are Used for Money Laundering – Criminals prefer certain types of businesses because they offer a plausible explanation for large cash flows. Common examples include:
- Cash-Intensive Businesses
- Restaurants, bars, strip clubs, laundromats, vending machine companies
- Criminals inflate sales figures and deposit illicit funds along with actual revenue.
- Real Estate and Property Development
- Buying property with illicit funds, making minimal improvements, and reselling it for a profit (“flipping”).
- Using rental properties to generate “clean” rental income from tenants.
- Financial and Investment Firms
- Using hedge funds, stocks, and bonds to move money around.
- Setting up fraudulent investment schemes.
- Trade-Based Laundering
- Import/export businesses over- or under-invoicing goods to manipulate transactions.
- Nonprofits and Charities
- Creating fake charities to receive and distribute illicit money under the guise of donations.
- Shell Companies
- Setting up businesses in offshore tax havens where ownership is anonymous.
HOAs as Money Laundering Vehicles: Homeowners Associations (HOAs) are established to manage and maintain the common areas and enforce community rules within residential neighborhoods. However, the concentration of financial control within a small group of individuals can make HOAs susceptible to fraudulent activities, including money laundering.
Adding to the problem is that the HOA governance process as well as the community management industry is almost completely UNREGULATED. To say the HOA landscape from one end to the other is underregulated would be a statement of Trumpian proportions.
How HOAs Can Be Exploited for Money Laundering: Money laundering involves disguising illicitly obtained funds to make them appear legitimate. Within an HOA, this can occur through several methods:
- Embezzlement and Misappropriation of Funds: Board members with access to HOA funds may divert money for personal use, creating false records or invoices to conceal their actions. https://www.aprio.com/is-fraud-occurring-in-your-hoa-community/
- Kickbacks and Bribery: Board members might accept bribes from contractors or vendors in exchange for awarding them contracts at inflated prices, with the excess funds being split between the parties involved.
- Shell Companies: Fraudulent board members can establish fictitious companies that bill the HOA for services never rendered, effectively siphoning money from the association. https://www.local10.com/news/local/2024/10/24/authorities-announce-additional-arrest-in-hammocks-hoa-fraud-investigation/
FOUR CASE STUDIES
#1: West Kendall, FL – Hammocks HOA Fraud – A notable example of HOA exploitation is the case involving the Hammocks Community Association in West Kendall, Florida. In November 2022, several board members, including the former president, were arrested on charges of grand theft, racketeering, fraud, and money laundering. They allegedly diverted association funds to companies they controlled, using the money for personal expenses. The former president reportedly paid nearly $1 million to three companies that would cash the checks, retain a percentage, and return the remainder to her. If convicted on all charges, she faces up to 150 years in prison.
https://www.ochhoalaw.com/resources/blog/borrowing-more-than-a-cup-of-sugar
#2: Las Vegas, NV – HOA Fraud 20-Years in the Making – Another significant case dating back more than 20 years occurred in Las Vegas, NV – home to many an erstwhile criminal, current and past – where 26 individuals pleaded guilty to a massive fraud scheme aiming to control condominium homeowners’ associations. Once elected to the boards, these individuals manipulated votes to select certain property managers, contractors, and attorneys, submitting fake bids to ensure co-conspirators were awarded contracts. https://www.justice.gov/criminal/criminal-vns/case/hoa-cases
#3: Houston, TX – Maria Denise Southall-Shaw – Yet another significant case involves Maria Denise Southall-Shaw, a former manager of Shadow Creek Ranch in Pearland, Texas. Between November 2013 and November 2017, Southall-Shaw approved invoices from a vendor for goods and services she knew had not been provided. In return, the vendor paid her half of the payments they received from these fraudulent invoices, which were allegedly for items such as pool equipment and supplies. The vendor made these payments to Shawdashian Group, a company Southall-Shaw owned. She pleaded guilty to wire fraud and faces up to 20 years in federal prison, as well as a possible $250,000 fine. https://communityassociations.net/manager-scamming-company/
#4: Phoenix, AZ – Harlon White, K. Powell, R. Ellerbrock, et al – Last but not least, the case of a Phoenix, AZ father/daughter crime syndicate that was sentenced to federal prison after pleading to crimes including conspiracy to commit money laundering for misusing an estimated $1.2 million in stolen HOA fees. https://communityassociations.net/sentenced-defrauding-associations/
Preventive Measures: To safeguard against such fraudulent activities, HOAs can implement several measures:
- Segregation of Duties: Ensure that no single individual has control over all financial processes.
- Regular Audits: Conduct independent financial audits to detect and deter fraudulent activities.
- Transparency: Maintain open communication with homeowners regarding financial matters and board decisions.
- Board Training: Provide training for board members on ethical standards and financial management.
- Strict Compliance: Make it a STRICT policy of your HOA to comply with ALL laws that do exist. In so doing, the BOD is sending a message to all stakeholders that obedience of the law will be the standard for all current and future Boards.
In the absence of strong regulatory oversight responsible HOAs should adopt such practices, to reduce the risk of fraud and ensure that association funds are used appropriately for the benefit of the community.
Other News and Sources
https://www.mcgowanprograms.com/blog/warning-signs-of-hoa-fraud-and-theft/
https://www.the-sun.com/news/13739897/homeowners-hoa-fees-high-expensive-foreclosure-florida
