US real estate a safe haven for billions in dirty money, report says
icij.org
icij.org
The seller was foreign, and had picked and escrow company that hadn't been in business for long. I was originally worried it was a scam and someone was trying to run off with my money, but that wasn't the gig.
The two owners of the escrow company had owned multiple other escrow companies that were shut down. No complaints against them, so it's not like they were taking people's money and running.
The escrow 'company' didn't have any sort of need for a paper trail of where money came from when buying my house. I imagine if I had shown up with a suitcase full of cash speckled with blood and coke they wouldn't have cared.
There's likely no record of where all the money came from for me, (tech money) nor any of the other foreign buyers they regularly service. They're likely shut down again and opened with a new name.
Either your agent/attorney or the seller's agent/attorney did.
And you had the legal right to choose the company providing almost all of those services. Well, in most states you do. Federal law provides that you can choose a subset of them.
The general idea is that the person that pays the fee at closing is the person that gets to choose the service provider.
I could say more about the various "incentives" that some of the service providers offer to be the "default", but, well, I don't want to do that ;)
In the US, for instance:
> financial institutions covered by the final rule must take reasonable steps to: [...] (3) determine the source(s) of funds deposited into the private banking account and the purpose and expected use of the account;
https://www.fincen.gov/fact-sheet-section-312-usa-patriot-ac...
being key...
> banking institutions;
Source: just finished renewing my AML training
Throwaway for obvious reasons.
Side note: I still can't make sense of why lenders care about the money's source being legitimate but the title company doesn't, per my experience: https://news.ycombinator.com/item?id=28163885
They care that the down payment came from legitimate savings with a documented history, to ensure it’s not from another loan they’re not aware of.
And they care that your reported income is stable (you’re reliably employed with a reasonably predictable income stream) so they can reasonably expect you’ll continue to be able to make monthly payments.
Oh yes it is - that's pretty much the definition of anti money laundering and many many people are involved in trying to figure that.
Why in the world would they? I’ve bought and sold lots of properties, and that has happened literally zero times ever. If the escrow company asked me where my money came from, I’d tell them to get fucked and I’d use a different company. It’s absolutely none of their business.
If I go deposit 500k in a TDAmeritrade account or at Wells Fargo, you can bet it's going to be sent out to the IRS or have a flag flipped somewhere and that transaction is going to be recorded.
This is all governed by laws like the Bank Secrecy Act. There's been a push in recent years to make it personal with bank personnel, who are reminded that they're subject to civil and criminal penalties if they look the other way and knowingly let the wrong kind of transaction through.
Great.
Escrow companies keep good records as well on flows in and out on a file. So checkable if needed.
The bank records usually include a file number reference, but obviously less detailed.
The escrow company generally should do proper KYC work, and does fall under AML/CFT directives.
But the where did your money come from (that some folks are used to) comes from LENDER requirements.
Lenders underwrite based on a set of facts, ideally backed up by what actually happens in escrow. So if the escrow company get's a wire from a hard money lender instead of from your bank (same $100K) that's going to be a big difference in lender eval prior to funding (they don't want you borrowing your money from another lender - usually a sign you faked your ability to save, increased DTI etc).
I'm claiming that some of the escrow companies are only in business for a short period of time, only to pop up under a different name with one or two of the owners being different. Wouldn't that mitigate a lot of the risk of non compliance?
Of course there is money laundering, but the ideas circulating Europe about restricting cash are idiotic policies for activities sake.
[1] this links his person with OH-Projekt https://politis.com.cy/politis-news/kypros/o-entimotatos-tho... - given that there's probably not that many Afghans with the same name and the 100+ Mio€ in cash to do these projects... [2] https://www.thenation.com/article/archive/how-us-funds-talib... [3] https://www.justice.gov/opa/pr/two-afghan-companies-plead-gu... [4] https://www.aljazeera.com/news/2020/8/28/exclusive-cyprus-so...
Meanwhile you have hundreds of thousands of hard-working individuals with clean tax records and no criminal history in immigration limbo for 10-20 years- many of whom never get back any of the SS or medicare tax they contribute.
It’s not quite like that. You need to create jobs. At least 10 of them [1]:
“ aliens who have invested or are actively in the process of investing $1 million (or $500,000 in targeted employment areas) in a new commercial enterprise that will benefit the U.S. economy and create at least 10 full-time positions for qualifying employees. These aliens are also called ‘EB-5 immigrant investors’ “.
[1] https://www.uscis.gov/green-card/green-card-eligibility/gree...
Let me give you an example- some investors bypass the employment provision mentioned here by presenting construction workers, or even tenants on the property as employees.
" Another concern the report outlines is that the U.S. anti-money laundering regime is focused on residential purchases, when a significant portion of the cases GFI reviewed involve commercial real estate transactions. "
Or another:
“When you talk about residential real estate, the heart of it is identifying who is the beneficial owner, [because] if you find out who the beneficial owner is, it also tells you who the criminal is,” Kumar told ICIJ. “In a commercial real estate investment, you don’t have to own the majority stake to be a criminal. You can own 2% of a $500 million property, and you are [still] laundering millions through it.”
Now
>Eric Trump in 2014: 'We have all the funding we need out of Russia'
is more questionable.
https://www.wyomingpublicmedia.org/open-spaces/2015-08-14/a-...
(I wish beyond FATCA that taxation on Americans domiciled outside of the country would be ended. Such a waste, and I say this as someone who supports taxation for public goods.)
Which they (almost) never have to do. If they need cash in America, they take out super-low-interest loans.
> the owners of it are taxed once the money moves to individuals
Again, that's technically true but only poor schnooks who keep their money in Vanguard index funds are paying those taxes. The wealthy have more sophisticated tax strategies.
As gutitout said, "the US goes so far that foreign banks would rather not deal with you at all." And the worst burden of that falls on average citizens living abroad, not on the wealthy who just move their money to a different haven.
(Note: I am pro all the reporting requirements. But the parent comment is factually true.)
Yup, can confirm - a large majority of smaller banks will not open a bank account for US citizens in Switzerland. The few larger ones will, but there's extra paperwork you need to fill out.
https://ch.usembassy.gov/u-s-citizen-services/local-resource...
That link also confirms what I said: it clearly says the reporting requirements apply to all "U.S. citizens and residents with...any foreign financial accounts", and it provides a list of some banks that still accept American account holders because many do not.
Eg. GDPR
Similar law exists in the US in California, with the difference being that it's possible for a federal court out there to claim jurisdiction if I, as a non-Californian but American resident citizen, do business with Californian customers.
So, yeah, thanks US for making our EU bureaucracy a bit stuffier!
I wonder how US Citizens would feel about filling a form for the Chinese state with each financial institution. They would say it's an insult! Because it is.
Bam, we just solved 80% of this problem.
Now, if you're specifically referring to residential properties, maybe.... although there are lots of mixed-use properties, and ownership of land can be separate from the house that's on it, etc
They probably intended to limit this to residential properties.
Second, privacy is a human right. You should not be forced to list yourself in a publicly accessible database to own real estate. Needing to pay a trustee to avoid this is bad enough.
Registering the beneficial owners of entities privately with the government is as far as makes sense. Of course then we run into the problem that government isn't terribly incentivized to do enough analysis to catch the large scale evaders.
I think there is a core of truth here - individual persons should not be forever tied to business they've worked for. Everyone should always have the right to "walk away". However - while you're executing actions on behalf of a business you should not have a right to privacy of your actions - you are actively executing them and if you're doing shady or illegal things that should be knowable.
Freedom of speech doesn't free you from the consequences of that speech - and I think it's unreasonable to demand to be free from the consequences of your actions.
I do whole-heartedly agree with your final point though - it's the beneficiaries that should be on the hook as the first point of contact - agents of the company may be shielded by the company but the beneficiaries should achieve that shield by making themselves clear points of contact.
Generally you don't. Most states require you to publicly declare managers of LLCs, and trustees of real estate.
> it's the beneficiaries that should be on the hook as the first point of contact
Nowhere did I suggest that beneficiaries should be points of contact, or otherwise available in a public database.
Only 4 states in the US allow anonymous LLCs anyways: Delaware, Nevada, New Mexico, and Wyoming.
The problem is that even with owner's identities, unless you follow the trail of money very far, it's hard to know whether the capital is clean or not.
you can form companies, do the transaction, dissolve the company or let the state dissolve it automatically eventually
the record of the title the stays as is, regardless who (or what) the property ownership passed through to
but real estate aside, I know people do political contributions this way
But increasing investigation and enforcement of money laundering laws requires the political will of state prosecutors, who are usually elected officials. Only recently have prosecutors willing to actively go after this stuff (like AG Letitia James in NY).
LLCs have a useful function (allowing business that limit their owners personal exposure to the business's liabilities, and vice versa).
Anonymity doesn't require a lack of paper trail. Only a benign paper trail.
What did you have in mind for such AG to do?
Of course, London real estate market complained loudly.
I'll help you out: the list you want is more-or-less the population of the country
That's ... an "interesting" view
How do you propose companies purchase anything if you won't let them buy it without using "[r]eal people's legal names" "on every transaction"?
Money Laundering with commercial property is no doubt happening as well—no quick and easy solutions there—but faceless LLCs driving the real estate boom in single family homes is easily correctable.
I suppose you'll be posting read-only email log in credentials for all of us too, so we can all make sure you're not doing anything illegal there.
For my safety, I only want governments and organizations with unlimited legal resources to be able to divine private information like who owns taxable property or the people who own the companies who own the companies who own the congresspeople who oh no.
Also worth mentioning exemptions were created, it's only a matter of time before some lawyer/accountant creates new methods that exploit those exemptions.
Most notably churches and charities.
And the cat and mouse game continues.
Also, most mortgages made to companies are backed some sort of Personal Guarantee by a director.
As for a guarantee by a human director... well, yes, I guess that's my point - any mortgage company is going to want personal guarantees so it's a kind of self-policing system.
Where this gets weird is when you have an LLC owned by another LLC or some other kind of corporate entity, where there really aren't humans involved. And as I originally noted, cash transaction are an entirely different matter (and it can be eye opening just how many properties are purchased with cash)
It’s sad that our leaders let America be abused like this to enrich themselves.
Additionally, the humans who fancy themselves as not flawed to the point where they are able to effectively lead and decide for others is a major red flag that they are not. Which to me is the great irony of democracy.
https://www.theatlantic.com/magazine/archive/2019/03/how-kle...
https://www.nytimes.com/2020/10/08/upshot/youth-voting-2020-...
(probably that's part of why they're the most screwed over)
>>Who cares who's buying it?
Well, that's certainly one way of looking at it, but another is that as a society we might want to take a step back and think what do we want out of our cities - if we collectively want affordable housing that people who live in a city can use, then allowing foreign investement funds to buy houses and then not live them is probably a bad idea.
If I want to own something and leave it "empty", that's my prerogative
People collectively can decide(and frequently do decide) that the values important to a town, a city or an entire state are more important than your right to buy and leave property empty. There are many places which either forbid owning property entirely if you are a foreign national and don't actually live there, or impose a heavy tax on such purchases. Vacancy tax is a thing too.
Basically if a city(and by that I mean people of the city and its representatives) don't want houses to be sitting around empty, there are laws that can be introduced to force people to either move in, rent or sell the place, or they can keep the place standing empty at a heavy financial penalty if they wish. Like I said earlier - your prerogative ends somewhere.
Yes - and YOUR prerogative ends at demanding I rent-out property I OWN
If someone wants to own 50 houses and leave them empty, more power to them
Also known as passing laws to impose a penalty on unwanted behavior. Just as GP mentioned - vacancy tax.
That's how the country works. It all depends on who has more people in agreement, and can make more of a rallying cry (and has moneyed interests on their side).
(I'm also in favor of land value tax as opposed to property tax to encourage productive use of land. And severely relaxing zoning restrictions)
while that's true in this case of vacancy laws, it is not a universally applicable rule to be followed blindly.
Just because a large number of people agreed with a certain set of actions, doesn't mean those set of actions are good to undertake for society. Look at how venezuela got to the place they did, via democratic elections. The a majority of the people wanted the gov't handouts, and wanted nationalization of private property by force.
Obviously you think that what I own is actually yours
At least we all know where you stand now
So yes, I think we know where we stand now, except that it's not where you think it is.
Increasing world inequality drives massive foreign buying of properties that are then kept empty or rented at higher values.
The staggering increase in rents across many cities in the world in the last 5 years is caused by this.
Some days I feel like the anarchists are right.
Escrow has come up several times in this discussion, as have the responsibilities of buyers and sellers... so look, at least in the two states where I do business, the selection of an escrow company is the mutual agreement of buyer and seller. In fact in some places a real estate agent can even act as your closing agent in place of an escrow company, if that's really what you want. Escrow is there to act as a neutral third party, and so long as you have proof of funds to close, it's generally irrelevant to them where those funds came from so long as it meets the conditions of the contract. Several people in this thread have voiced the opinion that escrow should have greater responsibilities related to KYC, but that would be a significant shift in their responsibilities and really opens some interesting cans of worms. If you have reason to suspect your escrow company is operating in a questionable way, there are state agencies to provide oversight.
What's maybe the more interesting angle to the topics of this article are the number of parties working to make real estate a completely automated process, IE: I click a button and I magically buy a property. As it stands, transactions generally have a lot of humans eyes on them, and when things don't look right (IE: fraud) it's that human attention that flags things, and I'm not sure (even as a former software engineer) how technology would have flagged some of the scenarios I've encountered.
Regarding people who were able to do the paperwork yourself and get the transaction through to a successful closing without issue, go buy a lottery ticket because your story is not typical - there's a reason why real estate agents and real estate attorneys exist. I spend an insane number of hours each week handholding buyers and sellers through complex transactions. The paperwork is the "easy" part, and it can still get you sued if someone forgets a checkbox. Water rights, property boundaries, zoning, feasibility, trade fixtures... it's incredible how many things I have to assist with, and there's absolutely no such thing as a "typical" transaction.
Things like public commons of human shelter do have a cost, as they require allocating and spending resources to build and maintain and to exist.
If you need to buy materials to build and/or pay someone to work on it, whether to build it or maintain it, then it has a quantifiable cost.
Because that's communism - where the state owns everything
"All the property that is necessary to a man for the conservation of the individual and his propagation of the species is his natural right, which none can justly deprive him of; but all property superfluous to such purposes is the property of the public, who by their laws have created it, and who may therefore by other laws dispose of it, whenever the welfare of the public shall demand such disposition."
- Benjamin Franklin
"Whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labour and live on. If, for the encouragement of industry we allow it to be appropriated, we must take care that other employment be furnished to those excluded from the appropriation. If we do not the fundamental right to labour the earth returns to the unemployed."
- Thomas Jefferson
There is a wide range of middle-ground between the extremes of carving up the earth into micro-fiefdoms of absolute ownership, vs. all land being controlled by apparatchiks in the State Politburo. One of the most moderate is a tax on "ground rents", as proposed by Ricardo, Paine, and many others [0], to compensate the community for their exclusion, and fairly return the profits from "proximity value" (services and infrastructure that makes land more desirable). Even Milton Friedman referred to Land Value Tax as the "least worst tax" [1], with drastically reduced (if not zero!) "deadweight loss", compared to taxes on income or sales.
The weight placed on the backs of the taxpayers is heavy enough.
Taxes are generally a good thing since they allow society to function well.
Is there one? Consumption taxes on are of course worse for the poor, but taxes on fiefdoms?
Housing scarcity makes it an investment asset. Make that not true.
There are two problems with this approach. One, a whole lot of people have the value of their home as part of their retirement plan. If you start driving that down as a deliberate policy, they aren't going to be happy. Two, we're currently facing a major shortage of building materials.