Wake Up And Smell The Dirty Money
A report from the Real Deal. “When Treasury officials rolled out a plan last year to unmask anonymous buyers of luxury real estate, a key criticism was that it excluded deals involving wire transfers — a gaping loophole large enough to drive a truck through, some said. By closing that loophole this week, regulators hope to tighten the noose around bad actors trying to launder money through pricey property. But there’s more.”
“The Treasury Department’s financial crimes unit, FinCEN, also hinted at its eventual plan to apply LLC disclosure rules to deals nationwide by broadening the rule to Hawaii, an increasingly important market for Chinese and Russian buyers, sources said. And it signaled its intent to expand the net to commercial real estate deals in the near future, according to sources who cited the fine print of an eight-page advisory published by FinCEN on Aug. 22. Money laundering in commercial real estate has largely flown under the radar but may present an even greater threat than laundering in the residential market, as The Real Deal explored in an investigation last year.”
“In the meantime, FinCEN gave the LLC disclosure rule more teeth when it added wire transfers to a rule requiring title companies to disclose the buyers of luxury real estate who purchase using an LLC or corporate entity. ‘Most transactions, including ‘all-cash transactions,’ include a wire transfer somewhere in the process,’ said Aaron Shmulewitz of Belkin Burden Wenig & Goldman LLP. Closing off the loophole ‘will bring into the statute a very large number of the transactions that have been exempt for the last year-and-a-half.’”
From CNBC. “The Treasury Department said that 30 percent of high-end real estate deals that were subject under a new watchdog program involved people who had been targeted by the government for ’suspicious activity’ and potential money laundering. Treasury this week expanded and extended a program targeting luxury real estate deals in New York, Miami, Los Angeles and other big markets to prevent the use of real estate for money-laundering by overseas buyers. The program was designed to prevent buyers from using shell company’s or LLC’s to hide the identities of the real buyers.”
“Analysts say the biggest impact could be in Miami and southern Florida, which has been suffering from a glut of new high-end condos and has relied heavily on buyers from Latin America — some of whom have come under scrutiny for corruption or money laundering. ‘This could have a chilling affect,’ said Nela Richardson, chief economist for Redfin. ‘That very high end of the market is the most vulnerable to these issues. If a lot of foreign buyers were parking their money in high-end real estate and that much of it is tainted, this rule will have an impact.’”
The Miami Herald in Florida. “Wake up and smell the dirty money. That’s the message federal regulators are sending to the real estate industry in Miami and other high-priced housing markets. The rules, previously so limited in scope that they applied only to a few hundred deals, will now cover every big-ticket cash transaction by shell companies in seven major markets. They are the South Florida counties of Miami-Dade, Broward and Palm Beach; all five boroughs of New York City; San Antonio, Texas; Honolulu (included in the order for the first time); and Los Angeles, San Diego and San Francisco.”
“‘This is going to gather much more information,’ said Andrew Ittleman, a South Florida attorney who specializes in anti-money-laundering laws.”
“The federal decree comes at a bad time for Miami real estate. Overbuilding and a slump in foreign buyers are hurting sales. The average sales price for luxury condo units in Miami Beach fell 21 percent year-over-year in the second quarter of 2017, according to a report from brokerage Douglas Elliman. Two-thirds of those sales were cash.”
“The rules kick in at different price points depending on the market. In South Florida, they apply to shell companies buying homes for $1 million or more with cash. ‘This will help a market that has long neglected the amount of criminal activity taking place in the condo sector,’ said Jack McCabe, a South Florida real estate analyst.”
“The degree to which suspect money fuels Miami’s luxe real estate market is debated. But real estate crops up in case after case involving illicit funds. The flood of cash has helped raise home prices far beyond what most locals can afford. As part of FinCEN’s latest push, the agency has told real estate industry professionals they should be on the lookout for suspicious activity from their clients. Warning signs of bad behavior include clients willing to blindly overpay or lose money on a deal; the purchase of properties with ‘no regard’ for their condition or location; funding that far exceeds a client’s known wealth; and clients asking for unwarranted secrecy or for records to be altered.”
From NBC News. “The five-bedroom house in New York’s Long Island suburbs — listed for nearly $1.3 million — boasts a southern exposure and proximity to a country club. But here’s what’s more interesting: The seller, a Chinese national named Sun Sidong, has been linked by American security experts to a network of Chinese companies under Treasury sanctions for helping companies and individuals who support North Korea’s nuclear and ballistic missile programs. Sun’s Great Neck house is an example of how the alleged sanction-busting networks can stretch around the globe, even to the luxe suburbs of Long Island.”
“‘The fact that you have somebody who’s engaged in trade that is potentially not just sanctioned, but dangerous, and that individual then invests in real estate in the United States reflects that there are holes in the system,’ NBC News National Security Analyst Juan Zarate said.
“Sun, whose U.S. company operates out of a New York City address he does not own, bought the Great Neck property near the country club for $1.1 million in December 2016. The house is already on the market again. Sun’s U.S. real estate broker told NBC News that’s because Sun ‘doesn’t want to do business here.’”
From The Guardian on Nigeria. “A Nigerian court confiscated four large housing complexes worth $7 million from a former oil minister accused of corruption on Tuesday as fraud investigators continue to claw back her fortune. Lagos high court judge Abdulaziz Anka ordered former petroleum minister Diezani Alison-Madueke to hand over the developments located across Nigeria that were found to have been purchased with suspect cash.”
“Nigeria’s anti-graft Economic and Financial Crimes Commission (EFCC) argued in court that Alison-Madueke, along with her cousin Donald Chidi Amamgbo, had made the purchases through front companies. During a search of Amamgbo’s property, investigators also found documents indicating that he owned some 18 companies and property in Britain and the USA — as well as Nigeria. He told officers that he had registered the corporations in order to hold property on Alison-Madueke’s behalf, the court heard. Amamgbo also revealed that Alison-Madueke had made mortgage payments worth more than $3.3 million (2.8 million euros) in cash.”
“The first female president of the global oil cartel OPEC — who was one of Africa’s most prominent female politicians — has always denied the allegations, which involve billions of dollars syphoned from oil deals and state accounts. The ruling followed an application by the EFCC which earlier this month successfully confiscated a $37-million luxury apartment complex from the former official. Alison-Madueke is currently on police bail in London after being arrested in connection with a British probe into international corruption and money laundering.”
From Netral News on Indonesia. “Deputy Eradication of National Narcotics Agency (BNN) Inspector General of Police Arman Depari confirmed in tracking the assets resulted from drug transactions it is not easy. The agency also encountered several obstacles. The obstacles in tracing the asset resulted from drug transactions, Arman explained, are changes of places, so the officers only find traces only. ‘For example in the form of property, then as if [dealers] have an import and export business and foreign money changers and in the form of deposits,’ said Arman.”
“A total of six non-bank foreign exchange business activities (KUPVA) or money changers are indicated to be an intermediary channeling of funds for drug abuse business with a value of nearly IDR4 trillion($280 million). Of those six KUPVA, four businesses do not have permission, while two other businesses misappropriate permission from BI. The dollar proceeds then are transferred to an overseas account through banking.”
“‘Another obstacle is that there is no response from foreign banks to the funds transferred abroad via those banks. There are 11 foreign countries indicated, while the one who responds is only one country, that is, Japan,’ he said. Some countries that do not respond, among them, are China, America and the Netherlands.”
The Sydney Morning Herald in Australia. “A quarter of Chinese buying property overseas leave their apartments vacant and the majority pay for their purchase with cash, a survey of mainland Chinese customers by investment bank UBS shows. Another 25 per cent of overseas property owners use their home on a temporary basis, suggesting about half of the overseas properties owned by mainland Chinese were not fully utilised, the bi-annual survey suggests.”
“The rush of offshore buyers - who are limited to purchasing newly built property - has also sparked an apartment boom in east coast cities. Up to 25,500 apartments will be completed in Sydney this year, with a further 16,700 in Melbourne and 10,600 in Brisbane, analysts Charter Keck Cramer estimate. Under pressure to show foreign-ownership rules are working, the Australian government has also cracked down on the established housing market.”
“The survey, conducted with Chinese consumers bi-annually, includes questions about buying intentions and purchasing habits overseas. The top five international preferred investment destinations were Hong Kong, Singapore, Japan, Canada and Sydney. The survey follows news this week of China officially putting the brakes on businesses speculating in overseas property development, as they were ‘not the real economy’ and could harm China’s financial interests by increasing capital outflows.”
The Vancouver Sun in Canada. “The B.C. Civil Forfeiture Office is attempting to seize a $5 million, 13,000 square-foot mansion in rural Richmond that was allegedly used for illegal gambling, money laundering, kidnapping and blood-soaked assaults. The sprawling eight bedroom and 11-bathroom property — built on two-acres of Richmond agricultural land reserve — is also at the centre of an anti-gang investigation. ‘This is a large and complex investigation,’ said Sgt. Brenda Winpenny, of B.C.’s Combined Forces Special Enforcement Unit. ‘We anticipate charges and arrests.’”
“A civil forfeiture action filed June 29 in B.C. Supreme Court alleges that defendant Wen Feng, a woman whose listed address is an expensive property in Aurora, a suburb north of Toronto, bought the Richmond property at 8880 Sidaway Road in October 2015. According to B.C. Assessment Authority records the sale price was $4.4 million. But she wasn’t the real owner, and ‘acted as a nominee or ‘owner of convenience,’ the claim states. The other named defendant, Lap San Peter Pang, is Wen Feng’s brother and ‘the beneficial or ‘true’ owner of the property,’ the claim alleges.”
“The claim also alleges the property ‘is an instrument and proceeds of unlawful activity,’ and ‘has been used to engage in crimes,’ including ‘laundering the proceeds of unlawful activity.’”
“It was in December 2015 that the B.C. Lottery Corporation was informed the mansion was operating as an illegal casino, the B.C. Civil Forfeiture Office claim alleges. In April 2016, Richmond RCMP entered the mansion in response to an anonymous call, the claim states, ‘that someone was being held hostage at gunpoint inside the residence.’ Police found gaming tables and 15 people involved in gambling, a large amount of casino chips, playing cards, a money counter, and ‘an elaborate video surveillance system,’ mounted above the gambling tables, the claim alleges.”
“Next, in May 2017, police responded to reports of a person admitted to Richmond General Hospital who had been stabbed at the property, the claim alleges. Inside the mansion police found ‘25 individuals, dancing and drinking’ and ‘blood soaked paper towels in a kitchen garbage can.’”
“The claim states that the defendant Pang told police he was the resident and caretaker of the mansion, which contained hundreds of liquor bottles but no personal items that one would expect to find in a home. Pang was living in only one room equipped with a small hotplate, according to police. Next, on June 13, 2017, a person was admitted to Richmond hospital ‘with a broken arm, broken nose, and other injuries after being kidnapped, forcibly confined and assaulted with a metal bar or pipe,’ at the property on the previous day ‘by Mr. Pang and others,’ the claim states.”
“In a response filed Aug. 10, Wen Feng says she bought the ‘recently built, luxurious mansion of over 13,000 square feet’ as an investment, and ’sourced the down payment’ using a line of credit secured against her personal home, the sale proceeds of a Toronto condo, a loan from a friend, and a mortgage from the Bank of Nova Scotia. The property is now listed for sale at just under $6 million ($1 million over its assessed value).”
