March 31, 2017

How Money laundering is shaping US cities

By Joseph Lawler (@josephlawler) 3/27/17 12:01 AM

In a little-noticed statement, the Treasury bureau responsible for investigating financial crimes shared a remarkable money laundering statistic last month.

Thirty percent of the cash purchases of high-end real estate by shell companies in six major cities involved a suspicious buyer, according to an investigation conducted by the Financial Crimes Enforcement Network to find out who was behind the deals.

In other words, money laundering plays a significant role in shaping U.S. cities.

But money laundering is only one reason that foreign investors might pour money into luxury condos and exclusive addresses. Foreigners also prize expensive real estate because it allows them to evade taxes in their home countries or escape government restrictions on using their own money.

All that money being poured into U.S. real estate is contributing to affordability difficulties for middle-class families and to the loss of vitality in many of the country’s richest neighborhoods, which have seen an influx of cash but not necessarily actual residents. Even so, the U.S is mostly in the dark about the quantity of such investment or the investors behind it.

The Treasury effort

The best hope for transparency in luxury real estate markets is the probe undertaken by the Financial Crimes Enforcement Network, commonly referred to as FinCEN.

FinCEN was created in 1990 by President George H.W. Bush’s Treasury to manage anti-money laundering efforts, and the Patriot Act gave it bureau status. Over the years, FinCEN has entered the spotlight for efforts such as investigating money laundering by drug dealers and probing possible terrorist use of bitcoin, at times earning criticism from privacy advocates.

Early last year, the bureau announced that it would begin investigating money laundering through real estate in New York City and Miami. Under authority given to the bureau by the Patriot Act, it can require all financial institutions in an area to report on big transactions, for a limited period of time.