Money laundering remains prevalent in US real estate

Money laundering finds many avenues. Money earned through the illicit activities of terrorists, drug lords, arms traffickers and other criminals is washed away through car sales, yacht purchases, jewelry and art acquisitions, and deposits in banks which – wink, wink – distract attention, even in sports betting.

But perhaps nowhere is this criminal enterprise more important than in real estate, both residential and commercial.

A new report from Global Financial Integrity, a Washington-based think tank that studies illicit financial flows, says America has become a “safe haven” for money laundering. The group says that “at a minimum,” $ 2.3 billion has been laundered through real estate in the past five years. And given that GFI has only investigated cases that have already been reported or tried, it found the total value of goods purchased with laundered money to be even more “mind-boggling.”

This is one of the reasons President Joe Biden released a national security study memorandum earlier this summer that established the fight against corruption as a core national security interest. Among other things, he said his administration will lead efforts to “make it increasingly difficult for corrupt actors to protect their activities.”

Biden aims to “significantly strengthen” the government’s capacity to fight corruption, including all forms of illicit financing, and to “empower” individuals, transnational criminal organizations and their enablers. It would freeze and recover stolen assets and, where possible, return those assets to citizens who have been harmed by scams.

The president is also urging the Treasury Department to revoke the regulatory exemption for real estate agents, who are currently not required to identify their ultimate clients or report any suspicious activity. The United States is the only major economic member of the G7 not to impose anti-money laundering rules on real estate professionals.

Banks must report suspicious activity, and in some cities, title insurance companies are required to identify the people behind shell companies that buy homes for $ 300,000 or more in cash or virtual currency. But not real estate agents.

If necessary, the president says he will propose legislation to modernize, coordinate and improve the Fed’s ability to prevent money laundering.

Lawyers for O’Melveny, a Los Angeles-based global law firm, review of Biden memorandum says top-down directive is expected to result in increased enforcement actions that “will place a significant burden” on market participants .

“When the Justice Department finds evidence of misconduct,” the lawyers wrote in a recent newsletter, “businesses should also expect an increase in the number and extent of surveillance imposed, including the prevalence had dropped during the last administration. “

Changes can’t come soon enough for GFI President Tom Cardamone. “It is clear that despite their best efforts, the US government’s attempt to tackle money laundering – particularly the use of real estate – has fallen short of what is needed to address this issue. growing, ”he said.

The GFI report states that real estate money laundering is not confined to the big gateways where luxury real estate markets are concentrated. On the contrary, it also occurs in the cities of Alaska, the suburbs of Boston, and the manufacturing towns of the Midwest.

And while anonymous shell companies and complex corporate structures remain the most popular ploys, a “wide range” of gatekeepers such as lawyers, realtors and title agents allow perpetrators, “either through willful blindness. , or by direct complicity, ”reports GFI.

The complicity was the case recently in Illinois, where a licensed real estate broker used the structured cash deposits of a suspected drug dealer to purchase residential properties. He used his own name to disguise the real buyer and submitted fictitious proof of funds letters during settlement. He won thousands of commissions – and also 14 months in jail.

GFI analyzed 125 cases reported between 2015-2020 in the United States, Canada and Great Britain for its report, concluding that the current approach in this country – using geo-targeting – is “unsuitable for combating” money laundering money in the real estate industry. In 60% of the cases, the properties concerned were located outside the targeted counties.

Of the 56 US cases covered in “Acres of Money Laundering: Why US Real Estate is a Kleptocrates Dream,” 82% involved money coming from abroad. And many cases involved “politically exposed persons” who “looted, looted and laundered the assets of their country of origin”.

For example, millions of people have been cleared by various Russians, the Kolomoisky family from Ukraine, the Maduro regime in Venezuela, and Teodoro Obiang from Equatorial Guinea. In one case, $ 100 million embezzled from the Kuwait Ministry of Defense was used to purchase a 157-acre Beverly Hills property known as “The Mountain.”

Residential properties accounted for the bulk of the cases identified, but commercial property values ​​were “significantly higher,” according to the report. Some of the income-generating properties identified included office parks, hotels, a mental health facility, supermarkets and condominium complexes. An enterprising drug dealer bought a wind turbine.

And yet, at present, commercial real estate is not subject to any reporting obligation.

Lew Sichelman has been covering real estate for over 50 years. He is a regular contributor to numerous housing magazines and to housing and housing finance industry publications. Readers can contact him at [email protected].