Inside the US real estate stakeout aimed at the world’s wealthiest criminals

A majority of the Time Warner Center’s condos are owned by shell companies.
A majority of the Time Warner Center’s condos are owned by shell companies.
Image: Reuters/Rickey Rogers
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What are corrupt government officials and drug cartels to do with their ill-gotten cash? All too often, according to US officials, the answer is to buy expensive real estate through an anonymous shell corporation.

“It is apparent in our data that essentially criminals are parking dirty money, criminal proceeds, in luxury real estate, as a place to hide it, as well as place to invest it, as well as a place to enjoy it,” Jennifer Shasky Calvery, the director of the US Financial Crimes Enforcement Network (FINCEN), told Quartz. Now her agency has set up a Big Data-powered stakeout to track money laundering.

In a six-month pilot project starting in March, FINCEN will require shell companies making all-cash purchases of high-end real estate in Miami or Manhattan to reveal their true owners. Companies in those jurisdictions that provide title insurance, which protects homeowners from pre-existing legal claims, must report to FINCEN who is actually purchasing the home.

Currently, most US jurisdictions allow shell companies to conceal their true owners, which is what makes real estate purchases such an attractive loophole to money laundering laws. In one case, the son of the president of Equatorial Guinea purchased a $33 million Malibu home through a shell company, so neither US nor international investigators were aware that the asset was purchased with ill-gotten gains. It was only discovered after a post-9/11 investigation of terror financing stumbled upon suspicious transactions at a US bank.

That’s just one example. The government of Iran, for instance, owned a Manhattan skyscraper through a shell company for decades without the US knowing. The New York Times launched an investigative series into sketchy  real estate purchases by shell companies in Manhattan, where 30% of the most expensive apartments are empty for most of the year because they are merely parking spots for cash, not human abodes.

So how will this investigation work, and why is it only focused on two jurisdictions? The operation may be more successful in revealing the scale of the problem than in nabbing actual crooks.

“If you are a criminal and you want to launder money through real estate in the US, you’re probably not going to buy in those markets,” says Heather Lowe, an attorney at Global Financial Transparency, an NGO focused on illicit financial flows. “FINCEN has to know that. To my mind what they are probably looking for is whether there is a dip in the sale of high end real estate in Miami and Manhattan. That would give them evidence to say, no, there actually is a problem.”

The idea is also, perhaps, to see if high-end real estate sales grow in cities like Los Angeles or San Francisco while Miami and Manhattan are under more scrutiny.

Shasky Calvery, for obvious reasons, wouldn’t speak to the specific data her team will track, but says that when “an investigation or anything that is focused on criminal activity occurs in one area, will have effects in other areas—things move and shift in response.” She also notes that the probe could be shifted to other jurisdictions or extended in time.

In its latest data from 2015, the National Association of Realtors estimates that 24% of US real estate sales are all-cash transactions. But the group cautions that the number has been elevated after the housing crash by investors purchasing distressed properties. The number of high-value transactions involving shell companies are an even smaller part of that universe.

FINCEN has been looking at money laundering in the real estate markets for some time now; in recent years it has expanded know-your-customer requirements at banks and non-bank mortgage lenders. That means that the bulk of the US mortgage market is serviced by professionals who are required, at least in theory, to flag suspicious behavior to regulators. This new effort is a chance expand the coverage to the area where the biggest crimes are likely to take place.

“If we think that there is a sufficient risk there, we are going to be trying to figure out how can we write rules that would cover nationally the last portion of the market,” Shasky Calvery says.