Tuesday, July 1, 2014

US premium housing - the ultimate money launderer?

New York magazine has a fascinating article on how the US high-end housing market is becoming the preferred means of money-laundering for shady characters all over the world.  Here's a brief excerpt.

According to data compiled by the firm PropertyShark, since 2008, roughly 30 percent of condo sales in large-scale Manhattan developments have been to purchasers who either listed an overseas address or bought through an entity like a limited-liability corporation, a tactic rarely employed by local homebuyers but favored by foreign investors. Similarly, the firm Corcoran Sunshine, which markets luxury buildings, estimates that 35 percent of its sales since 2013 have been to international buyers, half from Asia, with the remainder roughly evenly split among Latin America, Europe, and the rest of the world. “The global elite,” says developer Michael Stern, “is basically looking for a safe-deposit box.”

. . .

Even those with less reflexively hostile reactions to foreign buying competition might still wonder: Who are these people? An entire industry of brokers, lawyers, and tight-lipped advisers exists largely to keep anyone from discovering the answer. This is because, while New York real estate has significant drawbacks as an asset—it’s illiquid and costly to manage—it has a major selling point in its relative opacity. With a little creative corporate structuring, the ownership of a New York property can be made as untraceable as a numbered bank account. And that makes the city an island haven for those who want to stash cash in an increasingly monitored global financial system. “With everything that is going on in Switzerland in terms of transparency, people are being forced to pay taxes on their capital that they used to hold there,” says Rodrigo Nino, the president of the Prodigy Network. “Real estate is a great alternative.”

Those on the New York end of the transaction often don’t know—or don’t care to find out—the exact derivation of foreign money involved in these transactions. “Sometimes they come in with wires,” says Luigi Rosabianca. “Sometimes they come in with suitcases.” Most of the time, the motivation behind this movement of cash, and buyers’ desire for privacy, is legitimate, but sometimes it’s not. An inquiry by the International Consortium of Investigative Journalists, a Washington-based nonprofit, has uncovered numerous cases in which New York real estate figured in foreign financial- and political-corruption scandals. “It’s something that is never discussed, but it’s the elephant in the room,” says Rosabianca. “Real estate is a wonderful way to cleanse money. Once you buy real estate, the derivation of that cash is forgotten.”

. . .

Behind a New York City deed, there may be a Delaware LLC, which may be managed by a shell company in the British Virgin Islands, which may be owned by a trust in the Isle of Man, which may have a bank account in Liechtenstein managed by the private banker in Geneva. The true owner behind the structure might be known only to the banker. “It will be in some file, but not necessarily a computer file,” says Markus Meinzer, a senior analyst at the nonprofit Tax Justice Network. “It could be a black book.” If an investor wants to sell the property, he doesn’t have to transfer the deed—an act that would create a public paper trail. He can just shift ownership of the holding company.

There's much more at the link.  It's a very well written and engrossing article.  Highly recommended reading.


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