Comment by cletus | Hacker News Reader

Comment by cletus | Hacker News Reader

An article about international money laundering that doesn't mention real estate. Weird. Because real estate in the developed has been, is and will continue to be a prime vehicle for money laundering by kleptocrats.

Fun fact: all US tax residents, lawful permanent residents and citizens need to declare all foreign assets to the US government every year if they're over some pretty low thresholds. You may have to do this not once but twice if you're over slightly higher thresholds. One is or was known as FBAR and is a disclosure you need to make to the Department of the Treasury (specifically FinCEN). The other is Form 8938 and is part of your tax return (so to the IRS).

Both require you to list all assets you own, co-own or otherwise have signatory authority over... except for real estate. If you earn money from real estate (eg by renting it out) then that needs to be declared (and possibly taxed) but the ownership of the property itself does not. Why? Who lobbied for that exception?

A couple of years ago I bought a newly built apartment in a small European country. I am a European citizen, but at the time I didn't have any kind of residence or residence permit in this country. To buy and officially register the property in my name, all I needed was a copy of my passport and then to transfer the money. I didn't need to provide any shred of evidence of where the money came from.

I'm happy it was so easy, but in a way I'm also quite surprised I wasn't ask for anything more. This country has a lot of Russian expats, so called "new money". After two years you can sell a newly built property and only pay capital gains tax (if you sell before you need to pay VAT), so it does make me wonder how many people use this as a way to launder money.

> I didn't need to provide any shred of evidence of where the money came from.

Why would you need to provide such evidence? The money is being sent via bank transfer and the state knows what money is going in and out of your account, they can easily spot if your funds are illegitimate as long as your state has a semi-competent financial authority.

In this country, UK, it seems that they just ask you, at least that's been my experience when buying property.

My take on this is, it is done, so that solicitors can claim plausible deniability should the money not be 100% above board, but to be fair I've not sought to inform myself on the legislation.

I bought an apartment in Sweden and they asked me a cursory question about my deposit. Seemed incredibly innocuous and casual until my UK bank (Barclays) sent me a letter stating that my Swedish bank had requested details about large deposits and I should call the official Barclays line if I want to allow it.

So, there exists methods to check at least.

They're legally required to because of money laundering legislation.

My point is that if I say the £300K I'm using to buy a house with come from an inheritance, are they going to check further or are they going to take my word for it?

There are no hard and fast rules and they will take a risk based approach. I went through this process recently having bought a house a few months ago. My conveyancer told me for example that if any part of the money is a gift, the relatives would have to write a supporting letter explaining the purpose and source of the gift money. I’m sure similar evidence would be needed for inheritance too.

This seems to be some dated but relevant law society advice https://www.lawsociety.org.uk/support-services/advice/practi...

I'd guess they'll ask for a bit more information but it's up to them - it's their livelihood on the line if they're not doing their job properly.

I do know that I gifted someone buying a house £2k via bank transfer. The solicitor queried it, had me fill out a form saying who I was, why I'd transferred the money, where I'd got the money from and to prove it. I was able to provide them with a statement from a savings account showing a regular amount going in and then £2k being withdrawn and that satisfied them.

In the UK if you're a Normal Person buying a house with a mortgage and a 20% deposit, they want to be reasonably sure you didn't get a personal loan (or something similar) for that deposit. Because there's more risk (i.e. them charging you more interest) if you're in debt to 95% of the house's value.

Of course, if you're a Billionaire Russian Oligarch, you might don't need a mortgage so this might not apply.

> ... as long as your state has a semi-competent financial authority.

Like Cyprus?

BuzzFeed had a series of articles about a number of suspicious deaths of Russian expats who had fallen out with Putin or otherwise were persona non grata. Apparently the Home Office / upper echelons of the police were dragging their heels in investigating them - the general conspiracy theory is no one in the UK government really wants the flow of money from Russian oligarchs that is propping up the London property market to dry up. Tie that with May's speech sometime ago (little reported on) that the UK needs to be "better friends" with Russia (and this was _after_ Salisbury)...

With this and Brexit and everything else, I really want out of this country. But then I'd have to move back to the US.

As for the FBAR, it is annoying, but at least only tedious and not onerous. I will never have enough money to really justify having to fill out these forms - and the people who really ought to are the ones with enough to hire the specialists to hide it from the US government.

The FBAR limit is pretty low, around $10k isn't it? Once over that limit, are you really saying you could skip filing it on the basis of not having much money? The FACTA limit is much higher, most people wouldn't need to do that one.

It is low - my initial take was this law was written in the 1970s when US expats were rare and only the really wealthy lived overseas. I was thinking of the people I've read about who had 100k etc stashed in Swiss bank accounts and the like. The problem is the potential fines if you get caught not filling out the forms - I forget the exact numbers, but it's like 50% of the balance (or all your assets?) and a fixed fine ... It is pretty much an attempt to borderline bankrupt you.

In reality, however, enforcement is lax - the IRS is getting decimated thanks to Trump and co. and so going after the small fry is not cost effective. High profile cases, e.g. Boris Johnson who has American citizenship, are just as much for PR purposes as enforcing the law. The IRS went after him because he was selling his house, something like that, and so it was profitable to get him for avoiding US tax law.

indeed, the penalties for not filing or even making an honest mistake on the FBAR are severe.

The FBAR is not under the IRS for the enforcement though, it's FinCEN.

I think the Borris one was more for PR rather than being financially profitable. It was for less than £100k if I remember correctly. Surely there are much bigger fish to fry out there.

I'm no fan of Johnson, but he did absolutely nothing wrong in that case, and his personal connection to the US was very weak. He renounced his citizenship shortly after that episode as are record numbers of very ordinary (income wise) Americans abroad since FACTA was introduced.

The IRS makes overseas compliance for ordinary and accidental (just happening to be born on US soil, but otherwise no connection) American citizens very difficult and opaque, and the penalties are extraordinarily disproportionate when most of the time they usually owe absolutely nothing to US tax authorities other than paperwork.

It also makes access to financial products for American citizens and ex-citizens abroad difficult because local banks don't want to risk dealing with the millions on non-compliant citizens because they also face very high penalties for providing services to non-compliant citizens.

Essentially no other country taxes on the basis of citizenship instead of residency, and they are making a pig's ear of it.

>Boris Johnson who has American citizenship, are just as much for PR purposes as enforcing the law.

He renounced his American citizenship, also mentioned by another commenter, over the matter you described i.e. US Tax ($50k+) for sale of his home in the UK.

https://www.theguardian.com/politics/2017/feb/08/boris-johns...

Yeah, FBAR is about $10k. FATCA/8938 threshold is $50k last I checked.

As an American living abroad, it's kind of annoying. Filing the FBAR only takes a couple minutes though. You basically enter basic account info (bank, country, etc) and the max balance that it had during the year. It's like half a page. If you are over the $50k threshold and need to file an 8938, you probably have income abroad as well and are already having to pay a tax attorney/accountant to handle your taxes for you. Again, annoying but workable. Honestly, the simple fact that as a US citizen, I always have to file taxes in the US no matter where I live or get my income, is the bigger pain. FBAR/FATCA stuff is like 5% of the total bureaucratic BS that expats have to deal with. The more annoying part of FATCA is that because the banks also have to report back to the IRS, many non-US banks just refuse to allow US citizens to open accounts. That has more of an impact because it limits where you can bank and will affect things like buying property.

For an American living abroad the FATCA threshold is much higher, 200k or something. I've (sadly?) never had to file it which I appreciate since I do my own taxes. I've also personally never had a problem getting a bank account in the UK but I was concerned about that when shopping around for a mortgage. But I do appreciate it is worse elsewhere (Spain apparently) and it might get worse in the UK. Plenty of reasons to renounce.

Those are just the easy parts.

Things get more complex when you own a non-US ETF or mutual fund. Now you own a passive income trust that’s treated differently, with its own reporting requirements.

It can also be a headache to take advantage of your country’s non-retirement tax-advantaged savings programs (e.g.: Canada’s TFSA)

Or if you’re a director of a corporation, like being a board member of the building you live in.

It’s also headaches for a condominium if a US citizen becomes a board member, which they usually can’t stop because they were voted in. If their old bank didn’t want to deal with US persons, now they have to hang everything over to someone that does.

> no one in the UK government really wants the flow of money from Russian oligarchs that is propping up the London property market to dry up.

London residents (at least those of us without property) certainly do!

Sadly the property-owning demographic votes a lot more than the non-property-owning one.

That's probably true for the UK as a whole but I'd be surprised if the politically engaged metropolitan young professional demographic didn't have a much larger presence in London specifically.

But do you actually believe the official version of events for Salisbury?

If you buy property in the uk the money will have to be handled by a solicitor who does checks for money laundering.

In the US any property can be owned by an anonymous business which you own through deeds.

Perfectly legal (but not smart) to do conveyancing yourself.

How does the solicitor check? Gut feeling?

What resources does a solo firm that specializes in real estate have?

If they think the money is suspicious, do they have to report to anyone, or the suspicious person can just find another lawyer that will handle it without the new lawyer knowing about the last’s suspicion?

Canadian lawyers are exempt from a lot of reporting requirements, and I’m not confident in their ability to suss out international criminal money laundering out of their 1 person office...

> If they think the money is suspicious, do they have to report to anyone

Yes, a Suspicious Activity Report. But in my experience the report is filed into a black hole. I've filed SARs (unrelated to real estate but I believe the process is the same) with the UK Government before. Guess how many times they followed up? Zero.

Dont forget “art”!

Art can also be a tax shelter if you have your own museum. Launder money to your friends, then shrink your tax bill by making massive "contributions" to your private museum.

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