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U.S. Treasury Cracks Down On Luxury-Home Money Laundering

Jan 13, 2016
Originally published on January 15, 2016 10:51 am

Want to launder $20 million in illicit drug money? Buy a fancy penthouse in Miami with cash. It turns out, secretively purchasing luxury real estate is a popular way for the world's super-criminals to clean their dirty money.

"You can spend a lot of money to buy a house, and then you can sell that house a year later," says Heather Lowe, a lawyer with Global Financial Integrity. "And all of a sudden, all of that money is completely clean money." Her group tracks the transfer of illicit money out of developing countries.

The Treasury Department has a new approach to step up oversight of such cash sales.

When drug kingpins from South America or organized crime figures from places like Russia buy these luxury properties with cash, they set up shell companies to purchase them. So nobody knows who is actually buying that penthouse overlooking Central Park in New York.

"That shell company might be owned by another shell company — might be a Panamanian shell company — which might be owned by a Singapore trust," Lowe says. She adds that it's often easy to conceal who is buying these properties. And, she says, "That is a very common way to move illegal money and illegal assets around the world."

Now, at least in Manhattan and Miami-Dade County, Fla., during this temporary and exploratory phase of the program, the government will require that title insurance companies involved in real estate sales get the shell companies to reveal who are the actual owners of the shell companies. The title companies will then report that to the Treasury Department's Financial Crimes Enforcement Network. That's the plan. But will it work?

"Well, that's what we're going to find out through this process," says Michelle Korsmo, the head of the American Land Title Association. She supports the effort. But she acknowledges that if a major drug kingpin is buying a mansion through a string of shell companies all over the world, that might be a bit much for a title insurance company to figure out.

"We're not sure we're going to be able to have access to enough information," she says. "But we're going to give [the government] the information that we have."

Lowe says it would be a good thing if investigators get more information than they have now, even if it's just loose bits that still need to be pieced together.

For its part, the National Association of Realtors is supporting the move by the Treasury Department as a "reasonable" approach to combat the problem of money laundering.

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DAVID GREENE, HOST:

We are seeing a crackdown on secretive purchases of luxury real estate. New rules are aimed at preventing money laundering. And right now, this effort is focusing on Manhattan and Miami. Here's NPR's Chris Arnold.

CHRIS ARNOLD, BYLINE: You probably understand the concept of money laundering from watching Hollywood movies.

(SOUNDBITE OF FILM, "LETHAL WEAPON 2")

JOE PESCI: (As Leo Getz) All I did was I laundered a half a billion dollars in drug money, OK?

DANNY GLOVER AND MEL GIBSON: (As Roger Murtaugh and Martin Riggs, in unison) Half a billion dollars?

ARNOLD: As as Joe Pesci's talking about, criminals need to take large amounts of money that they made illegally and make it look legitimate. They need to clean the dirty money. And it turns out, a great way to do that is buying multimillion dollar homes in the United States with cash.

HEATHER LOWE: Real estate is a really good vehicle for this.

ARNOLD: Heather Lowe is a lawyer with the group Global Financial Integrity.

LOWE: You can spend a lot of money to buy a house. And then you can sell that house, you know, a year later. And all of a sudden, all of that money is completely clean money.

ARNOLD: Lowe's group focuses on the movement of illicit money out of developing countries - say, politicians accused of corruption who look to be stashing embezzled money abroad.

LOWE: So Teodoro Obiang, the son of the leader of Equatorial Guinea, for example, bought a Malibu mansion for $35 million. And I think his salary at the time was something like 4,000 U.S. dollars a month.

ARNOLD: And Lowe says the same thing is done by drug kingpins from South America, organized crime figures from places like Russia. And when they buy these properties, she says they set up shell companies to purchase them. So nobody knows who's actually buying that luxury penthouse overlooking Central Park in New York.

LOWE: That shell company might be owned by another shell company. It might be a Panamanian shell company, which might be owned by a Singapore trust. And so it can be very easy to disguise who is actually - who actually owns that company that owns that real estate. And that is a very common way to move illegal money and illegal assets around the world.

ARNOLD: So going forward, the government will require that title insurance companies involved in these real estate sales get the shell companies to tell them who are the actual owners of the shell companies. The title companies will then report that to the Treasury Department's Financial Crimes Enforcement Network. And least, that's the plan. But will it work?

MICHELLE KORSMO: Well, that's what we're going to find out through this process.

ARNOLD: Michelle Korsmo is the head of the American Land Title Association, which represents title insurers. She supports the effort. But she acknowledges that if a major drug kingpin is buying a mansion through a string of shell companies that are all over the world, that might be a bit much for a title insurance company to figure out.

KORSMO: And that's something for all of us to explore because we're not sure we're going to be able to have access to enough information. But we're going to give them the information that we have.

ARNOLD: Heather Lowe says it would be a good thing if investigators get more information than they have now, even if it's just loose bits that still need to be pieced together. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.