By Brian Kindle
bkindle@acfcs.org
August 6, 2015
UK Prime Minister David Cameron’s announcement this week of new efforts to ensure that London properties would not be used as a “place to stash your dodgy cash” have once again spotlighted the financial crime risks in the country’s real estate sector.
London’s luxury condominiums and skyscrapers are far from the only destination for those looking to park illicit proceeds in real estate, however. In recent months, media reports and law enforcement initiatives in several countries have drawn attention to money laundering in property markets ranging from New York to Sydney.
In response, FinCEN Director Jennifer Shasky Calvery has stated the agency will be scrutinizing real estate agents and others involved in property transactions more closely, raising the specter of potential new regulation for the industry.
Speaking at the West Coast Anti-Money Laundering (AML) Forum Conference in May, Calvery said that while money laundering in real estate was “not a new issue,” the agency continued to see reporting related to high-end property purchases by shell companies tied to suspected financial criminals.
Below is a guide to some of the global cities with attractive real estate markets for tax evaders, organized crime rings, corrupt officials and others.
While hardly comprehensive, the guide outlines a few of the emerging locales and perennial favorites for those with questionable cash to spend and few qualms about eye-watering property values.
Vancouver – A Setting for a Chinese “Fox Hunt”
In recent months, law enforcement from Canada, the US and China have all focused attention on Vancouver as a hub for money laundering, particularly by corrupt Chinese government officials and organized crime groups.
Driving Vancouver’s attraction for illicit proceeds are its thriving port, an increasingly hot real estate market, and the ability to form numbered companies in British Columbia, according to analysts and Canadian law enforcement agents.
Recently, sales of Vancouver properties have been linked to a multi-million dollar bribery and embezzlement scheme perpetrated by a former Chinese official.
Chinese law enforcement are reportedly looking into real estate purchases in Vancouver as part of an initiative dubbed “Operation Fox Hunt,” targeting fugitive Chinese nationals accused of corruption and fraud and assets they have shifted out of the country.
For more on the topic, click here (via Business Vancouver).
London – the New World Capital of ‘Dodgy Cash?’
London real estate has long been recognized as a prime destination for illicit proceeds worldwide, with analysts and law enforcement citing the city’s status as a preeminent financial center, a super-heated property market, and ability to purchase and hold properties using largely anonymous shell corporations as key drivers.
Offshore companies reportedly hold more than $190 billion in real estate in the UK, much of it in London, with Russian, Chinese and Qatari investors leading the way. In a recent interview with British publication the Guardian, the director of economic crime at the UK’s National Crime Agency stated that “Prices [in London real estate] are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.”
In response to media reports on London’s reputation as a real estate money laundering haven, Prime Minister David Cameron recently announced new measures to increase transparency on the foreign owners behind UK properties. Read more here (via CNN Money).
Vienna – Adopted Home for Ousted Oligarchs
In 2014, as widespread protests threatened Ukraine’s ruling administration, the country’s government officials and oligarchs looked westward for safe havens to park their proceeds. With its geographical proximity, political stability and relatively desirable property market, Vienna was a logical destination.
Soon after, in the wake of Russia’s annexation of the Crimean region and resulting turmoil from US and EU retaliatory sanctions, Russian investors would join their Ukrainian counterparts, reportedly leading real estate prices to increase by 30% in some areas of Vienna in 2014.
While many of the investments were no doubt legitimate, Ukrainian publications reported on a number of properties held by government officials and business magnates accused of corruption and embezzlement in the Ukraine, including some with ties to individuals sanctioned by the US, Canada and EU.
Read more here (via the Financial Times).
New York City – Global City, Global Financial Crime Risks
A recent investigation by the New York Times detailed the extensive presence of shell corporations and non-US buyers in New York City’s high-end real estate market, including a number of property owners with connections to alleged corruption or other financial crime in their home countries.
Like other cities on this map, New York’s stature as an international financial center and booming luxury property market help explain the city’s attractiveness to global buyers, along with the ability to shield ownership behind anonymous legal entities.
Buyers for high-end New York properties run the gamut from Russian oligarchs, to Indian business magnates, to Greeks fleeing that country’s financial turmoil.
Under US AML regulations, certain real estate agents and others involved in real estate transactions, such as attorneys, are required to file reports on cash transactions above $10,000, but are largely exempt from customer due diligence and suspicious activity reporting requirements.
Prompted in part by the Times investigative piece, Calvery, of FinCEN, recently stated the agency would be looking more closely at financial crime risks in the real estate sector. Read more here (via Compliance Week).
Sydney – Hotspot for Capital Flight from China
Australian real estate in general was cited by the FATF as at risk for money laundering schemes in the country’s most recent mutual evaluation. Sydney’s steep property values make it particularly appealing as a place to park illicit proceeds.
Questionable funds and capital outflows from China are a key concern, with an Australian real estate board estimating that $6 billion worth of properties were purchased by Chinese buyers in 2013.
Like Vancouver and other Canadian and US cities, Sydney has been the target of “Operation Fox Hunt,” an effort by Chinese law enforcement to flush out alleged corrupt officials, tax evaders and fraudsters who have left the country with substantial assets.
Real estate agents and lawyers involved in real estate are not subject to suspicious activity reporting requirements under Australian regulations. For more on the topic, click here (via the Sydney Morning Herald).
Panama City – A Latin American Financial Center Looks to AML Reform
The construction boom in Panama City over the past decade has led to comparisons with other fast-growing, skyscraper-filled cities like Dubai, but Miami may be a better analogy. Like Miami, Panama City’s surging property market and growth as a financial center has past connections to narcotics cartels.
More recently, the country’s opaque legal entities (like Panamanian foundations) and reputation for lax regulation and enforcement have made the country attractive to a wide range of global financial criminals, from US tax dodgers to Russian organized crime, who are thought to own a number of high-end properties in Panama City.
It’s a reputation the Panamanian government is now striving to change. This year, authorities introduced a package of new laws and regulations that expand the range of businesses covered by AML reporting and due diligence requirements, to include real estate agents. The law also creates two new enforcement agencies designed to target financial crimes.
Read more here (via The Tico Times).
Miami – Sun, Sand and Corruption Concerns
Florida’s most populous urban areas first gained notoriety as the financial center of choice for drug trafficking cartels in the 1980s.
The city has reformed its image, but its financial crime predilections also have branched out, and Miami now ranks highly for identity theft, government benefits and healthcare fraud, and securities fraud schemes out of US urban areas.
After a brief post-housing crisis lull, the city’s real estate market is hot once again, particularly luxury properties for non-US buyers. Analysts following the property markets cite an increase in investors from Brazil, Argentina, Venezuela and Russia, with concerns that proceeds from the latter two countries may have connections to political corruption, tax evasion and illicit capital flight.
US real estate agents are required to report cash transactions above a certain threshold, but are generally exempt from suspicious activity reporting requirements – in recent years new AML rules have captured non-bank residential mortgage lenders and originators, but leave others in the chain, such as attorneys and appraisers untouched – that apply to others in the financial sector.
Read more here (via the Nation).