Enjoy access to a free NMLS renewal class when you attend an in-person event.
- More than $2.3 billion has been laundered through the U.S. real estate market, and millions more through different assets, such as jewelry, art, and yachts.
- Buying a house as a deposit box for ill-gotten gains robs middle and lower class Americans of much needed housing supply.
- The use of anonymous shell companies and complex corporate structures continues to be the number one money laundering typology.
- 82% of U.S. cases involved the use of a legal entity to mask ownership, highlighting the importance of an ownership registry under the Corporate Transparency Act.
The Biden Administration recently issued a policy memorandum that identifies combating corruption as a national security priority. The fight against global corruption and illicit financial flow is often seen as U.S. foreign policy concern, but the administration is urging Americans to view it as a domestic threat to our integrity and equality.
Money laundering in U.S. real estate and its impact on the housing market is one example of how these issues intersect with domestic priorities, including economic inequality. The economic elites are the people who benefit most from corruption, typically due to their wealth or political connections. Ergo, the lower and middle class groups benefit the most from anti-corruption work.
In the capital of Armenia, Yerevan — amid the hustle and bustle of over a million Armenian residents — a strange phenomena can be seen by observers. There appear to be lots and lots of empty buildings. According to Yerevan residents, Russian Oligarchs bought up massive properties to stash their assets, oftentimes without even bothering to connect them to the electrical grid. This, of course, dwindles housing inventory even further for middle and lower class families, and causes the whole economy to suffer.
More surprising, perhaps, is that Armenia is not alone in this dilemma. The prevalence of money laundering through high-end U.S. real estate, enabled by anonymous shell companies, has previously been documented by the New York Times. Apparently, when foreigners need to stash away stolen assets in a safe locale or escape on a luxury vacation, real estate in Western countries is the first place they turn to.
This, of course, robs middle and lower class Americans of much needed housing supply. According to David Sanchez of the National Community Stabilization Trust, “Supply is extremely tight due in part to competition from international investors.”
In Cleveland, Ohio, a recently sanctioned Ukrainian billionaire Ihor Kolomoisky and his associates have become the biggest commercial real estate holders in the city. However, their negligence as landlords has contributed to the economic plight of Cleveland and other cities in Middle America. Meanwhile, the dangers of kleptocracy are creeping into more regions of the country.
A few years ago the U.S. became concerned with the illicit flow of money through luxury real estate, so the U.S. Treasury Department began to track secret buyers of high-end properties. The initiative began in Manhattan and Miami-Dade County, the darkest corners of the real estate market in 2016, with all-cash purchases by shell companies that shield the buyers’ identities. In the end, title insurance companies would collect the buyer’s identity information and report it to the U.S. Treasury.
In order to mend today’s dilemma, the administration encourages the Treasury Department to revoke the regulatory exemption for real estate agents, so that they would be required to identify their ultimate customers and report suspicious activity. This is already the case for U.S. banks. New standards would also apply to both residential and commercial properties to counteract the damage being caused in cities like Cleveland.
The U.S. State Department could push for a set of shared commitments on this topic as part of upcoming G7 or G20 meetings or as a deliverable of the Biden-proposed Summit for Democracy.
A new report from Global Financial Integrity, “Acres of Money Laundering: Why U.S. Real Estate is a Kleptocracy’s Dream,” provides clear evidence of billions of dollars being laundered through U.S. real estate.
The report states more than $2.3 billion has been laundered through the U.S. real estate market, and millions more through different assets, such as jewelry, art, and yachts. However, the use of anonymous shell companies and complex corporate structures continues to be the number one money laundering typology. Nevertheless, 82% of U.S. cases involved the use of a legal entity to mask ownership, highlighting the importance of an ownership registry under the Corporate Transparency Act.
Additional key findings on the on the U.S. include:
- Attorneys, real estate agents, investment advisers, and employees of financial institutions have repeatedly facilitated REML by high net-worth individuals through willful blindness or direct complicity. Still, the U.S. remains the only G7 country that does not require real estate professionals to comply with anti-money laundering (AML) laws and regulations.
- Well over 50% of the reported cases in the U.S. involved politically exposed persons, which is particularly problematic considering the lack of guidance from FinCEN on PEP identification.
- While commercial real estate featured in more than 30% of the cases and generally had significantly higher values than the residential real estate involved, the U.S. is yet to create any reporting obligations for risks in the sector.
To read Biden's policy memorandum, click the link provided.