Michael Hudson, Ionut Stanescu and Samuel Adler-Bell, Secrecy for Sale: Inside the Global Offshore Money Maze: Hidden in Plain Sight: New York Just Another Island Haven. International Consortium of Investigative Journalists. 3 July 2014. “Lax U.S. rules and real estate industry’s no-questions-asked approach make it easy for dodgy characters to funnel wealth through high-end Manhattan apartments…. Government officials and their families and associates in China, Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Mongolia and other countries have embraced the use of covert companies and bank accounts. The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.” Winner of the 2014 George Polk Award for Business Reporting.
Many of the world’s top’s banks – including UBS, Credit Suisse and Deutsche Bank – have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways.
High-end New York real estate is an alluring destination for corrupt politicians, tax dodgers and money launderers around the globe.
New York is among an elite group of destinations — along with Miami, London, Dubai and a few other cities around the world — that attract large numbers of international property buyers. Manhattan condos are popular with wealthy Chinese, Russians and South Americans. Since 2008, roughly 30 percent of condo sales in pricey Manhattan developments have been to buyers who listed an international address or bought in the name of a limited liability company or some other corporate entity, a maneuver often employed by foreign purchasers….
[I]t’s clear that New York’s public officials and its real estate industry embrace the wealthy and powerful without much thought to where their money comes from.
During his time in office, former Mayor Michael Bloomberg was a cheerleader for encouraging the mega-wealthy to relocate to the city. “Wouldn’t it be great if we could get all the Russian billionaires to move here?” he told New York magazine in September [2013].
Combine that give-us-your-rich ethos with state and local policies that lavish tax breaks on Manhattan’s wealthiest homeowners and federal policies that allow real estate agents to close their eyes to whether their clients are trafficking in illicit money, and the results are predictable: New York is a magnet for the super-rich homebuyers from other lands bearing money of sometimes dubious provenance. The flood of foreign capital pouring into New York properties makes it easy for suspect figures to hide their fortunes amid Manhattan’s residential gold rush, according to interviews with money laundering experts and court documents and secret offshore records reviewed by the International Consortium of Investigative Journalists….
Many walk a fine line between showing off and staying on the down low. Instead of putting property in their own names, they may arrange to put the names of their spouses, children, lawyers or other proxies on property deeds. Often, the buyer of record isn’t even a flesh-and-blood person — it’s an anonymous limited liability company set up in a U.S. state, or an offshore company established in the British Virgin Islands or some other overseas haven….
Financial crime experts have a name for the process of creating mazes of bank accounts and offshore companies to move and hide money: layering. When the layers are laid down skillfully, it’s often impossible for authorities to detect flows of illicit cash. The United Nations Office on Drugs and Crime estimates that as little as one-fifth of 1 percent of money that’s laundered around the world is identified and intercepted….
Other than the occasional after-the-fact legal action — often sparked by investigations in other countries — U.S. authorities don’t put up many roadblocks for foreigners who want to launder money through American real estate. Escrow and real estate agents aren’t required to find out the real identities of property buyers and, unlike bankers, stockbrokers and other financial middlemen, they aren’t required to report suspicious transactions to law enforcement….
Louise I. Shelley, director of the Terrorism, Transnational Crime and Corruption Center at Virginia’s George Mason University, believes that money laundering into real estate has increased since 9/11 as scrutiny of other kinds of transactions has increased….
Money laundering and New York real estate have a long history.
For much of the 20th century, Mafia clans put money squeezed from gambling and other rackets into properties around New York’s Five Boroughs — often low-end, low-profile addresses rather than high-end ones….
The massive flow of foreign money — licit and illicit — into New York real estate helps deprive the buyers’ home countries of wealth and tax revenues. Housing advocates say it also helps inflate property values, pricing average New Yorkers out of buying or renting and helping increase the city’s huge homeless population.
Critics say tax and development policies have been skewed to favor the rich because New York’s real estate interests are skilled at wielding clout. “It’s like the oil industry in Texas,” Jaron Benjamin, executive director of New York’s Metropolitan Council on Housing, says. “They have so much power and so much money. They’re going to make sure they have the best lobbyists at the state Capitol and City Hall, pulling our elected officials one way or the other.”
Last August [2013] the New York Daily Newsreported that a state anti-corruption commission had subpoenaed New York developers to determine how they won tax breaks for luxury projects through language “mysteriously placed” in state legislation. Four developers benefiting from the bill contributed $1.5 million to state politicians in recent years, the paper said….
Shelley, one of the few academics who [has] studied real estate-based money laundering, says many real estate operatives don’t check or don’t care about whether the cash sustaining big deals is clean or dirty.
In recent years, many of the world’s biggest banks have paid huge settlements with the U.S. government to settle claims that they helped rich clients hide their money. In May Credit Suisse agreed to pay $2.6 billion to settle criminal charges that it used secret accounts and shell companies to help Americans evade taxes. Shelley believes that the real estate industry should be forced to follow the same standards as other big financial players….
The story is part of a joint investigation by the International Consortium of Investigative Journalists, New York magazine and the Organized Crime and Corruption Reporting Project.
Rick Edmonds, Meet ICIJ–The biggest, toughest investigative unit you may never have heard of. Poynter, 24 February 2015.