Are the oligarchs hiding money in American real estate? Property information is a missing link, according to research
As US authorities step up efforts to seize the assets of Russian oligarchs in the wake of Russia’s war on Ukraine, lawmakers in New York are proposing a bill to make land ownership more transparent.
Two lawmakers introduced legislation last month that would require anyone buying property in New York through a limited liability company, or LLC, to disclose their identity to the state and include the information in their returns. of income. Limited liability companies, business structures that protect their owners from personal liability, are popular in the world of financial secrecy because they allow buyers of property to hide their identity.
In New York, a longtime hotspot for hiding foreign wealth, shell companies have been used to buy up luxury properties, allowing the true owners to remain anonymous.
“Leaks such as the Panama Papers and the Pandora Papers have also revealed the extent of money laundering around the world for the purposes of tax evasion through anonymous front companies such as LLCs,” the drafts say. law, citing investigations by the International Consortium of Investigative Journalists. to show how financial secrecy has created local, national and international public policy issues.
Lawmakers also pointed to New York Times reporting on how shell companies obscured a flow of foreign wealth into elite New York real estate, whose owners included people under investigation or sanctions “for crimes such as money laundering and embezzlement”.
“The LLC laws allowed such individuals, whose purchases would otherwise have been scrutinized by international legal or tax authorities, to purchase assets in New York through anonymous and virtually untraceable front companies,” the bill says. , presented by State Senator Brad. Hoylman and Assemblywoman Emily Gallagher.
A recent analysis examines the US government’s oversight of real estate money laundering and highlights the importance of mandatory beneficial ownership reporting in making the federal program more effective.
The research, published by the Anti-Corruption Data Collective and the Brookings Institution, examines a US Treasury policy, enacted in 2016, that imposes an anti-money laundering rule on high-end cash purchases of residential homes in a handful of hot real estate. spots, including Manhattan. The policy, called geo-targeting orders, was implemented following concerns that dirty foreign money was being used to secretly buy multimillion-dollar homes in the United States. The GTOs were deemed a success and expanded to 20 more counties in 2018.
But the new analyzes found that the GTOs had very little effect in deterring cash purchases of homes through opaque shell companies. Researchers analyzed data from online real estate company Zillow on residential real estate purchases in counties where the program was introduced. While the Treasury said the measure provided valuable insight into suspicious purchases, the studies say there is no evidence that cash-only property buyers even tried to circumvent the rules by buying homes below the price threshold or using trusts or other financial entities not covered by the policy. Researchers said they were unable to identify any property foreclosures resulting from the program and that the Treasury did not report any instances where GTO data helped law enforcement prosecute known cases of money laundering. ‘money.
Although Brookings notes that deterrence was never the primary goal of the GTO program, which instead sought to gather information about suspicious purchases and pass it on to law enforcement, the authors conclude that valid information about the actual ownership of real estate buyers are a missing link in politics. efficiency.
“In the wake of Russia’s invasion of Ukraine, the need for high-quality ownership information is greater than it has ever been,” Brookings’ report said, citing KleptoCapture. , a new program from the US Department of Justice, as an example. “But the success of these initiatives will depend on and be limited by the quality of the information already gathered by the GTO program.”
Similarly, the ACDC report stated that “the lack of overt enforcement and validation of ownership information has failed to create a sufficient deterrent effect to drive out participation in the sector by illicit actors” by the GTO program.
The analysis comes at a time when the Treasury is proposing new regulations related to money laundering in real estate and when there is renewed interest in targeting the assets of oligarchs, including their property in the United States.
For example, Russian oligarch Oleg Deripaska, a close ally of President Vladimir Putin, had secretly bought a mansion in Washington, D.C., paying $15 million in cash and more than $47 million for a property in Manhattan using shell companies, The Washington Post reported in 2017. The US Treasury sanctioned Deripaska in 2018, and he lost an appeal to lift the sanctions earlier this week.
Ukrainian oligarch Ihor Kolomoisky and his associates amassed a ruinous Midwestern real estate empire, at one point becoming Cleveland’s largest commercial landlords, ICIJ found in a 2020 briefing. The findings were part of the investigation FinCEN Files with BuzzFeed News on Global Flows of Dirty Money. Kolomoisky was sanctioned by the US State Department last year.
The U.S. housing market was called a “kleptocrat’s dream” in a report released last year by Global Financial Integrity, a Washington, DC-based transparency advocacy group, which found that at least $2.3 billion dollars had been laundered in the previous five years through US assets. purchases.
Last year, the ICIJ’s Pandora Papers investigation revealed billions of dollars in property purchases made through offshore shell companies. Hundreds of companies in the leaked files listed owning real estate as their goal. The secret investments included millions poured into US rental properties by a wealthy religious order disgraced by a sex abuse scandal, the real estate empire of a ruling family in London and a luxury apartment in Monaco owned by a woman who allegedly had a child with Putin.