Money Laundering 101
January 27, 2019 5:00 AM Subscribe
What supports high housing prices when the market's in the toilet? Money laundries. A Twitter thread (unrolled) by @CZEdwards, found linked by @CStross (MeFi).
I'm not clear on the real estate logistics either, but I've looked at a lot of listings that are cash-only and pondered how any working folk could save a few hundred thousand dollars up. Would have to be laundering or inheritance.
posted by PistachioRoux at 5:23 AM on January 27, 2019
posted by PistachioRoux at 5:23 AM on January 27, 2019
Are they buying the real estate with cash or depositing the cash along with the real rent or is this just a second stage after the actual dollar bills have been turned into electronic money?
I think the real estate is a way to invest and further clean the money after the initial laundering - another layer to make tracing the money harder.
posted by EndsOfInvention at 5:39 AM on January 27, 2019 [4 favorites]
I think the real estate is a way to invest and further clean the money after the initial laundering - another layer to make tracing the money harder.
posted by EndsOfInvention at 5:39 AM on January 27, 2019 [4 favorites]
Back in 2016 the feds found about a quarter of all cash luxury real estate investments in New York were "suspicious". I don't think anyone knows what percentage of those were money laundering but I'll bet that no one is very motivated to find out. Tanking the New York or London high end real estate market would be very unpopular with rich people.
posted by rdr at 5:44 AM on January 27, 2019 [13 favorites]
posted by rdr at 5:44 AM on January 27, 2019 [13 favorites]
NYLON real estate is as dirty as dirty gets and filled to the brim with some of the richest, most corrupt, evilest motherfuckers the planet can throw up. We’ve let it get so bad for so long that unless they’re some kind of massive change or the grift finally runs out of steam I’m not sure they might exist as citities as we know them in so many years.
I used to think it had to eventually change cause soon you’d have places where no one can live or support the infrastructure but now I’m not sure it can’t just keep going on, on paper legal, gaming the system, until Manhattan has a resident population of 325 surrounded by crumbling tosses still valued in the multi billions.
And part of me thinks that’s been the goal all along. The future is walled communities surrounded by refugee camps and all.
posted by The Whelk at 5:50 AM on January 27, 2019 [23 favorites]
I used to think it had to eventually change cause soon you’d have places where no one can live or support the infrastructure but now I’m not sure it can’t just keep going on, on paper legal, gaming the system, until Manhattan has a resident population of 325 surrounded by crumbling tosses still valued in the multi billions.
And part of me thinks that’s been the goal all along. The future is walled communities surrounded by refugee camps and all.
posted by The Whelk at 5:50 AM on January 27, 2019 [23 favorites]
She's not saying that the real estate launders the cash. She's saying that the unholy concentrations of wealth that have pushed real estate prices into the stratosphere are laundered cash, and explaining why the criminals use real estate.
posted by Pope Guilty at 5:51 AM on January 27, 2019 [7 favorites]
posted by Pope Guilty at 5:51 AM on January 27, 2019 [7 favorites]
Which is why the biggest project we can take on as a species, aside from combating climate change, is combating global ogliarch corruption like this.
posted by The Whelk at 5:53 AM on January 27, 2019 [32 favorites]
posted by The Whelk at 5:53 AM on January 27, 2019 [32 favorites]
NYS corruption is all finance and real estate, and the nexus between the two. Financial crimes are sort of...theoretical, and abstract, and very classy, and the people who get hurt are numerous and far away. Real estate is often dirtier and uglier and closer to the ground and much more likely to deal with avowed actual criminals and sometimes actual bodies. And we welcome it all in the Empire State, where Russian mafia meets high finance and everyone gets rich together!
Seriously, Cuomo just intervened in a long-planned repair-related shut down of the L train with, like, no apparent plan. He just decided it shouldn’t actually be shut down. As near as anyone can figure (that I’ve seen?) this is entirely at the behest of real estate developers and landlording interests, all of whom were set to take a bath when the highly gentrified yet still developing Williamsburg became a train desert.
A multi billion dollar emergency city infrastructure project single handedly thrown into chaos by one man at the behest of real estate developers.
That’s some juice.
We need...Christ. I honestly don’t even know what could uproot the corruption in NYS. Because it’s not like the New York FBI, the NYPD, the Manhattan DA, the actual fucking Governor, and like a million other law enforcement entities haven’t themselves been thoroughly corrupted. It’s going to take, like, the Avengers of law degrees to do this, and they’re maybe going to need actual Avengers for protection.
posted by schadenfrau at 5:56 AM on January 27, 2019 [27 favorites]
Seriously, Cuomo just intervened in a long-planned repair-related shut down of the L train with, like, no apparent plan. He just decided it shouldn’t actually be shut down. As near as anyone can figure (that I’ve seen?) this is entirely at the behest of real estate developers and landlording interests, all of whom were set to take a bath when the highly gentrified yet still developing Williamsburg became a train desert.
A multi billion dollar emergency city infrastructure project single handedly thrown into chaos by one man at the behest of real estate developers.
That’s some juice.
We need...Christ. I honestly don’t even know what could uproot the corruption in NYS. Because it’s not like the New York FBI, the NYPD, the Manhattan DA, the actual fucking Governor, and like a million other law enforcement entities haven’t themselves been thoroughly corrupted. It’s going to take, like, the Avengers of law degrees to do this, and they’re maybe going to need actual Avengers for protection.
posted by schadenfrau at 5:56 AM on January 27, 2019 [27 favorites]
Yeah it’s not like the Manhattan DA is some massively corrupt shitstan in bed with everyone - let’s not even get into the billions Cuomo was sucked out of upstate and captain region problems. They don’t even try to be coy about the corruption anymore.
IDK making white collar crimes a priority with an army of lawyers and accountants sounds like a good first step but I’d like to see some housing and transport justice mandate - everyone is entitled to a apartment with reasonable rent (percentage of income? Fixed to a rate? Idk) and fast, efficient public transportation - that’s it. Start seizing some investment prpteries that have been empty for years , some storefronts too - we literally have more empty apartments then homeless people in this sixty, This is like, last days of empire insane.
posted by The Whelk at 6:02 AM on January 27, 2019 [13 favorites]
IDK making white collar crimes a priority with an army of lawyers and accountants sounds like a good first step but I’d like to see some housing and transport justice mandate - everyone is entitled to a apartment with reasonable rent (percentage of income? Fixed to a rate? Idk) and fast, efficient public transportation - that’s it. Start seizing some investment prpteries that have been empty for years , some storefronts too - we literally have more empty apartments then homeless people in this sixty, This is like, last days of empire insane.
posted by The Whelk at 6:02 AM on January 27, 2019 [13 favorites]
I wrote DeBlasio twice urging him to close the non-residency loophole. I don't know whether he got the memo.
posted by EmpressCallipygos at 6:06 AM on January 27, 2019 [4 favorites]
posted by EmpressCallipygos at 6:06 AM on January 27, 2019 [4 favorites]
“I wrote DeBlasio twice ...”
Try WNYC’s Ask The Mayor segment on Friday’s Brian Lehrer Show.
posted by xtian at 6:20 AM on January 27, 2019 [4 favorites]
Try WNYC’s Ask The Mayor segment on Friday’s Brian Lehrer Show.
posted by xtian at 6:20 AM on January 27, 2019 [4 favorites]
Try WNYC’s Ask The Mayor segment on Friday’s Brian Lehrer Show.
....Oooooooh. I will have time to do that in the next coming weeks.
posted by EmpressCallipygos at 6:27 AM on January 27, 2019
....Oooooooh. I will have time to do that in the next coming weeks.
posted by EmpressCallipygos at 6:27 AM on January 27, 2019
Tanking the New York or London high end real estate market would be very unpopular with rich people.
Yeah, well fuck those people, they are theives. Nothing to be scared of it you are legit, right?
posted by Meatbomb at 7:02 AM on January 27, 2019 [7 favorites]
Yeah, well fuck those people, they are theives. Nothing to be scared of it you are legit, right?
posted by Meatbomb at 7:02 AM on January 27, 2019 [7 favorites]
So, yes, there are lots of luxury buildings in Manhattan that sit empty because the units are all bought by Russian oligarchs and guys from Dubai. But not every cash sale is a scam. We put our life savings into a down payment on a really beat-up house in Brooklyn, rented one floor while we lived in/fixed up the other. The neighborhood gentrified, the house appreciated, and when we had to move due to family circumstances, we sold the house for a lot more than we bought it for and bought our next house (outside of NYC) with cash. Then there are lots of people doing old-fashioned house flipping. All of which contribute to rising real estate prices in cities, not to mention that the suburbs are just less appealing to young people who want to live someplace interesting and are willing to live in otherwise unappealing conditions (lots of roommates, slumlords, etc). And AirBnB seems to be a big player in housing availability in lots of markets too, now.
Certainly money laundering is a big factor at the high end of the scale. It would be interesting to know just how big a factor it is at the scale of working-people-just-trying-to-rent-an-apartment.
posted by rikschell at 7:10 AM on January 27, 2019 [4 favorites]
Certainly money laundering is a big factor at the high end of the scale. It would be interesting to know just how big a factor it is at the scale of working-people-just-trying-to-rent-an-apartment.
posted by rikschell at 7:10 AM on January 27, 2019 [4 favorites]
I swear to god, at least 50% of the entire world economy is just money laundering scams of one form or another.
posted by tobascodagama at 7:11 AM on January 27, 2019 [23 favorites]
posted by tobascodagama at 7:11 AM on January 27, 2019 [23 favorites]
The rest is MLM and not paying workers.
posted by The Whelk at 7:17 AM on January 27, 2019 [23 favorites]
posted by The Whelk at 7:17 AM on January 27, 2019 [23 favorites]
I'm sure money laundering plays a part - potentially a really big one - but don't forget that rising inequality is a thing, and there's lots of really rich people around who haven't done anything illegal. The reality of modern cities is that they're attractive to the rich. I personally know of at least 3 high end flats in central London that are owned by quite wealthy (in the tens of millions, I guess) people who leave them empty most of the year. I'm somewhere in the middle class spectrum, but I'm not rich. I'm sure once you get into those circles you'd realise that there's *a lot* of people sitting on a barely used London flat. Every flat which is purchased but not used is another ratchet in house prices.
And then once you've got scarcity, you just need banks to readdress their lending criteria (because house prices never fall, and interest rates will never go up!) and you've got hordes of middle class professionals who can borrow 5x their joint income. Quantitative easing is basically giving money to banks for mortgages.
Which is to say, house prices are complicated.
posted by leo_r at 7:18 AM on January 27, 2019 [2 favorites]
And then once you've got scarcity, you just need banks to readdress their lending criteria (because house prices never fall, and interest rates will never go up!) and you've got hordes of middle class professionals who can borrow 5x their joint income. Quantitative easing is basically giving money to banks for mortgages.
Which is to say, house prices are complicated.
posted by leo_r at 7:18 AM on January 27, 2019 [2 favorites]
Certainly money laundering is a big factor at the high end of the scale. It would be interesting to know just how big a factor it is at the scale of working-people-just-trying-to-rent-an-apartment.
This is covered in the linked thread. Most of the big money laundering doesn’t happen with high end real estate, it happens with real estate investment trusts that buy up things like apartment buildings and rentals, driving up prices for the little guy. (According to the thread, anyway, I am not a money laundering expert.)
posted by schadenfrau at 7:20 AM on January 27, 2019 [6 favorites]
This is covered in the linked thread. Most of the big money laundering doesn’t happen with high end real estate, it happens with real estate investment trusts that buy up things like apartment buildings and rentals, driving up prices for the little guy. (According to the thread, anyway, I am not a money laundering expert.)
posted by schadenfrau at 7:20 AM on January 27, 2019 [6 favorites]
there's lots of really rich people around who haven't done anything illegal
Citation needed
posted by schadenfrau at 7:21 AM on January 27, 2019 [41 favorites]
Citation needed
posted by schadenfrau at 7:21 AM on January 27, 2019 [41 favorites]
Who has written about this issue who has garnered institutional credibility? If no one, what's the reason?
posted by Baeria at 7:26 AM on January 27, 2019 [1 favorite]
posted by Baeria at 7:26 AM on January 27, 2019 [1 favorite]
I mean it’s not “illegal” for hedge funds to buy up huge swaths of real estate in the post 08 era and just sit on it forever cause no one has any vested interest in having rents drop cause they’re just an abstract series of numbers and not something people need to live and without those people the city ceases to exist. It’s not illegal to buy what are basically investment lockboxes in towers that will sit empty cause your money has to go SOMEHWERE and real estate is considered safe on paper cause everyone has agreed to never, ever let prices drop.
It’s not illegal for private equity groups to turn every single thing in the world into a bullshit Economic device they can max out, crash out, and strip for profit before moving on the next industry like swarm of locusts..
But maybe it should be.
posted by The Whelk at 7:28 AM on January 27, 2019 [55 favorites]
It’s not illegal for private equity groups to turn every single thing in the world into a bullshit Economic device they can max out, crash out, and strip for profit before moving on the next industry like swarm of locusts..
But maybe it should be.
posted by The Whelk at 7:28 AM on January 27, 2019 [55 favorites]
I guess if any MeFite knows about laundries, it's CStross.
posted by Faint of Butt at 7:33 AM on January 27, 2019 [18 favorites]
posted by Faint of Butt at 7:33 AM on January 27, 2019 [18 favorites]
Lol @ Burn Notice. Leverage and White Collar too.
posted by the man of twists and turns at 7:38 AM on January 27, 2019
posted by the man of twists and turns at 7:38 AM on January 27, 2019
Ah if I only had some nice (wicked) tasty crisp illicit money to launder.
posted by sammyo at 8:00 AM on January 27, 2019
posted by sammyo at 8:00 AM on January 27, 2019
"Lots of really rich people around who haven't done anything illegal."
To put some numbers here, (for my own imagining) 1% of 350 million is still 3.5 million people, who are presumably concentrated in metro areas, and/or own multiple homes spread across multiple cities. Which isn't an insubstantial number of people...
posted by kaibutsu at 8:19 AM on January 27, 2019 [1 favorite]
To put some numbers here, (for my own imagining) 1% of 350 million is still 3.5 million people, who are presumably concentrated in metro areas, and/or own multiple homes spread across multiple cities. Which isn't an insubstantial number of people...
posted by kaibutsu at 8:19 AM on January 27, 2019 [1 favorite]
Yet another reason to have a very progressive pied-à-terre tax.
posted by slkinsey at 8:35 AM on January 27, 2019 [6 favorites]
posted by slkinsey at 8:35 AM on January 27, 2019 [6 favorites]
Or another way to look at numbers: figure that legitimately-rich techbros have seven figures in wealth (1M to 10M), and figure that the oligarchs have eleven figures in wealth (10B to 100B).
So for the two to break even in making a difference, you either need 10,000 legitimately-rich techbros working in perfect unison, or the whims of a single oligarch.
And, hell, there are thousands of oligarchs. I remember reading somewhere last year that something like $60T in dark money floating around.
I wouldn't spare a thought for the "normal", "legitimate" rich. They're like five leagues away from being in the same league as the oligarchs.
posted by ragtag at 8:44 AM on January 27, 2019 [10 favorites]
So for the two to break even in making a difference, you either need 10,000 legitimately-rich techbros working in perfect unison, or the whims of a single oligarch.
And, hell, there are thousands of oligarchs. I remember reading somewhere last year that something like $60T in dark money floating around.
I wouldn't spare a thought for the "normal", "legitimate" rich. They're like five leagues away from being in the same league as the oligarchs.
posted by ragtag at 8:44 AM on January 27, 2019 [10 favorites]
Yet another reason to have a very progressive pied-à-terre tax.
I'm talking to people about a gig in, say, Jersey City, and I am NOT HAPPY about not the lack of WFH from where I live, Albany. So, I'm looking at how to spend M - F ( alternatively , if I can get them to go 4x10, M - Th, being back home in Albany Fri, Sat, Sun PM, Mon AM... )
So that said, I am still behind a very progressive pied-à-terre tax.
posted by mikelieman at 8:51 AM on January 27, 2019 [1 favorite]
I'm talking to people about a gig in, say, Jersey City, and I am NOT HAPPY about not the lack of WFH from where I live, Albany. So, I'm looking at how to spend M - F ( alternatively , if I can get them to go 4x10, M - Th, being back home in Albany Fri, Sat, Sun PM, Mon AM... )
So that said, I am still behind a very progressive pied-à-terre tax.
posted by mikelieman at 8:51 AM on January 27, 2019 [1 favorite]
I don't think this is about people looking for sympathy for the rich, but just a question of whether or not the problems we have with house prices are down to just money laundering (as the linked article seems to suggest) or a whole host of complicated interdependent factors, including rising inequality, quantitative easing, historically low interest and the rise of china as an economic force. I've seen people blame the concentrated rising house prices of the last decade on each of those, but it's probably a combination of factors.
It might feel good to blame money laundering and other illegal activity for the unaffordability of housing, but I think that would be a very black and white view which wouldn't really help in identifying areas which we can change.
posted by leo_r at 8:54 AM on January 27, 2019
It might feel good to blame money laundering and other illegal activity for the unaffordability of housing, but I think that would be a very black and white view which wouldn't really help in identifying areas which we can change.
posted by leo_r at 8:54 AM on January 27, 2019
Is the premise here that laundries buy up whole buildings and leave them vacant so they can collect “rent” in cash - which is the laundered money?
Because the cities that I know - SF, Portland, Seattle - that’s not really probable. There aren’t large swaths empty apartment complexes around here, because if there were we’d know about it.
Sounds like it could be a problem for Vancouver though. And who knows about LA. But this still seems like an over-simplification - to launder 1 billion dollars per month at 2k per apartment is 500,000 units. That’s more empty housing stock than the entire city of SF - and only for 1 billion. That just doesn’t seem to add up. Am I missing something?
posted by weed donkey at 8:57 AM on January 27, 2019 [1 favorite]
Because the cities that I know - SF, Portland, Seattle - that’s not really probable. There aren’t large swaths empty apartment complexes around here, because if there were we’d know about it.
Sounds like it could be a problem for Vancouver though. And who knows about LA. But this still seems like an over-simplification - to launder 1 billion dollars per month at 2k per apartment is 500,000 units. That’s more empty housing stock than the entire city of SF - and only for 1 billion. That just doesn’t seem to add up. Am I missing something?
posted by weed donkey at 8:57 AM on January 27, 2019 [1 favorite]
weed donkey, the article isn't saying that the apartment building is doing the laundering. It's saying that the laundered cash is buying the buildings, which then provide a clean income stream.
posted by MythMaker at 9:01 AM on January 27, 2019 [6 favorites]
posted by MythMaker at 9:01 AM on January 27, 2019 [6 favorites]
"the gym owner deposits the $1000 the laundry want him to wash, then he writes the friendly shell company a check for $800, for “web services” or “promotional materials” or “social media influencing.”
There are many ways to launder money but I think a common route is for the illicit money to be placed in an offshore account and then used to buy expensive real estate in the U.S.
They then borrow money against the property giving them 'clean' cash and rent out the property to cover the interest charges. If the property is overvalued they don't care, that just allows them to launder more cash.
I doubt they are doing this $1000 at a time, more like $100,000+
posted by Lanark at 9:06 AM on January 27, 2019 [5 favorites]
There are many ways to launder money but I think a common route is for the illicit money to be placed in an offshore account and then used to buy expensive real estate in the U.S.
They then borrow money against the property giving them 'clean' cash and rent out the property to cover the interest charges. If the property is overvalued they don't care, that just allows them to launder more cash.
I doubt they are doing this $1000 at a time, more like $100,000+
posted by Lanark at 9:06 AM on January 27, 2019 [5 favorites]
I don’t think so. You can’t buy buildings in suitcases full of cash anymore than you can buy new cars. The premise here is to slowly launder the money via artificial cash receipts.
In the example they give, they say 75 million is laundered in a REIT of six buildings bringing in 96k per month. (Of which the client gets 76k). Their exact words are “Your money laundry clients get $76K per month of clean money- it all came from legal, legit rent investment income property.”
According to the math, it would take over 65 years for that scheme to work out.
Unless I’m missing something really big, something doesn’t add up in this twitter thread.
posted by weed donkey at 9:06 AM on January 27, 2019 [1 favorite]
In the example they give, they say 75 million is laundered in a REIT of six buildings bringing in 96k per month. (Of which the client gets 76k). Their exact words are “Your money laundry clients get $76K per month of clean money- it all came from legal, legit rent investment income property.”
According to the math, it would take over 65 years for that scheme to work out.
Unless I’m missing something really big, something doesn’t add up in this twitter thread.
posted by weed donkey at 9:06 AM on January 27, 2019 [1 favorite]
weed donkey: note that you're collecting rent but you still own the property (and probably at an inflated value, too). You can always sell it again. That 65 years is how long it'll take to double your money.
And, as the thread notes, you don't care about making money—you care about turning the money you can't spend into money you can.
posted by ragtag at 9:12 AM on January 27, 2019 [7 favorites]
And, as the thread notes, you don't care about making money—you care about turning the money you can't spend into money you can.
posted by ragtag at 9:12 AM on January 27, 2019 [7 favorites]
to launder 1 billion dollars per month at 2k per apartment is 500,000 units. That’s more empty housing stock than the entire city of SF
It also assumes that you really need to "launder" that much money, i.e. you have a ton of outright illegal income. That might be the case if you're a Mexican drug cartel or if you're trying to funnel money in from China, I guess, although in the latter case it's not like the US cares too much about hot Chinese money coming in; the trick is getting it out of China typically. Once it's out and in the global financial system you don't really need to launder it anymore.
I just don't buy that the super rich have that much actual illegal income. At that level of the game, you generally don't have to do anything illegal, because the laws are written for your protection. For a few million bucks you can get a law crafted to your liking, if it's not too controversial and nobody's paying too much attention, and that's at the U.S. Federal level. At the state levels it's peanuts, comparatively.
I'm skeptical largely because it seems a bit... just-so. There's a desire to believe that the oligarchs are operating in the black market, because that's a more pleasant thing to imagine than the truth as I suspect it is, which is that they might dabble in the black market but exist largely on the legitimate side of the line once their fortunes have been amassed. There's just no reason not to; the laws and the entire global financial system are so favorable to them. Money makes more money, and money buys legitimacy. There's almost no way someone with billions upon billions of dollars to spend is a criminal in the literal sense, it's practically a tautology; they can't be a criminal because they're in the class of people who write the laws, or rather they have laws written for them. They can either venue-shop for a place where the laws are to their liking (tax havens, etc.), or push to have the laws bent where they are (traditional corruption, e.g. Russia).
Also I'm not sure how using an apartment building to launder money would work. In a city where there's a high vacancy rate and a lot of apartments that sit empty due to low demand, I could see buying a building and claiming it was more full than it is, and using the difference between the actual occupancy and the claimed occupancy to launder illegitimate income. But that doesn't make sense when you could actually fill the building at market rate, which is true in NYC and SF. Not filling the building is just leaving money on the table--legitimate money, which is worth more than money that needs to be laundered. You don't throw away the opportunity to make $100k in clean money so you can launder $100k in dirty money. And an apartment building is pretty easy to estimate the legitimate possible income from, so you can't easily take a building that generates, say, $100k/mo in clean income, and claim that you're making $500k/mo, in order to launder $400k; it's going to be too easy to detect that building is making way more than it should for the neighborhood and size / number of units.
You can launder a lot more money in a much more difficult to detect way by creating a fake export business. Persian rugs or caviar or whatever, and claim a lot of nonexistent orders from foreign customers. That's the traditional route and it works pretty well, because short of actually inspecting shipments it doesn't look that odd on paper. If you do it with obscure intermediate goods it's even better. Hell, you can tack it onto an entirely legitimate business just by changing where you book the value-add in the supply chain.
The reason to buy an apartment building is likely just as a place to park capital and generate income, which is to say the same reason anyone buys an income generating property. It would be attractive to oligarchs proportionally to the amount of money they control, which is to say a lot, but the problem is more structural than some sort of AML issue.
posted by Kadin2048 at 9:21 AM on January 27, 2019 [6 favorites]
It also assumes that you really need to "launder" that much money, i.e. you have a ton of outright illegal income. That might be the case if you're a Mexican drug cartel or if you're trying to funnel money in from China, I guess, although in the latter case it's not like the US cares too much about hot Chinese money coming in; the trick is getting it out of China typically. Once it's out and in the global financial system you don't really need to launder it anymore.
I just don't buy that the super rich have that much actual illegal income. At that level of the game, you generally don't have to do anything illegal, because the laws are written for your protection. For a few million bucks you can get a law crafted to your liking, if it's not too controversial and nobody's paying too much attention, and that's at the U.S. Federal level. At the state levels it's peanuts, comparatively.
I'm skeptical largely because it seems a bit... just-so. There's a desire to believe that the oligarchs are operating in the black market, because that's a more pleasant thing to imagine than the truth as I suspect it is, which is that they might dabble in the black market but exist largely on the legitimate side of the line once their fortunes have been amassed. There's just no reason not to; the laws and the entire global financial system are so favorable to them. Money makes more money, and money buys legitimacy. There's almost no way someone with billions upon billions of dollars to spend is a criminal in the literal sense, it's practically a tautology; they can't be a criminal because they're in the class of people who write the laws, or rather they have laws written for them. They can either venue-shop for a place where the laws are to their liking (tax havens, etc.), or push to have the laws bent where they are (traditional corruption, e.g. Russia).
Also I'm not sure how using an apartment building to launder money would work. In a city where there's a high vacancy rate and a lot of apartments that sit empty due to low demand, I could see buying a building and claiming it was more full than it is, and using the difference between the actual occupancy and the claimed occupancy to launder illegitimate income. But that doesn't make sense when you could actually fill the building at market rate, which is true in NYC and SF. Not filling the building is just leaving money on the table--legitimate money, which is worth more than money that needs to be laundered. You don't throw away the opportunity to make $100k in clean money so you can launder $100k in dirty money. And an apartment building is pretty easy to estimate the legitimate possible income from, so you can't easily take a building that generates, say, $100k/mo in clean income, and claim that you're making $500k/mo, in order to launder $400k; it's going to be too easy to detect that building is making way more than it should for the neighborhood and size / number of units.
You can launder a lot more money in a much more difficult to detect way by creating a fake export business. Persian rugs or caviar or whatever, and claim a lot of nonexistent orders from foreign customers. That's the traditional route and it works pretty well, because short of actually inspecting shipments it doesn't look that odd on paper. If you do it with obscure intermediate goods it's even better. Hell, you can tack it onto an entirely legitimate business just by changing where you book the value-add in the supply chain.
The reason to buy an apartment building is likely just as a place to park capital and generate income, which is to say the same reason anyone buys an income generating property. It would be attractive to oligarchs proportionally to the amount of money they control, which is to say a lot, but the problem is more structural than some sort of AML issue.
posted by Kadin2048 at 9:21 AM on January 27, 2019 [6 favorites]
I'm missing a step. Let's say Medium Freddie, a drug dealer, has $500K in suitcases of cash. He hands his suitcases to his pal Tiny Teddy, who launders money through real estate. Teddy mixes up the cash with other people's cash, maybe including his own, and uses it to buy a normal apartment building from Bob Pancakes with help from an agent, inspector, lawyers, and all that. Then Teddy rents the units out to randos, and gives Freddie a chunk of the rental income. This seems plausible, if Freddie is a partial owner or employee of Teddy's real estate business or whatever.
But at no point do Bob et al. go "where'd you get this money and why is it all actual cash?" Really? And Bob's bank lets him deposit it all?
posted by bagel at 9:31 AM on January 27, 2019 [1 favorite]
But at no point do Bob et al. go "where'd you get this money and why is it all actual cash?" Really? And Bob's bank lets him deposit it all?
posted by bagel at 9:31 AM on January 27, 2019 [1 favorite]
Kadin2048 - exactly! This twitter thread makes it seem like money laundering via real estate is the cause of skyrocketing rental rates, via empty REITs.
As my handle implies, I come from an industry that knows a bit about money laundering. At the global oligarch scale, it's just not possible to do what this thread is suggesting. 10 billion dollars is just too much to launder through vacant buildings - let alone the 60T figure mentioned above.
At that level it's institutional. It's not "laundering", it's Deutsche Bank. The money is likely being used to buy property after it's clean, but the cleaning itself is a much simpler process. Just call up Justin Kennedy or Wilbur Ross; those people can launder billions with an email.
posted by weed donkey at 9:32 AM on January 27, 2019 [5 favorites]
As my handle implies, I come from an industry that knows a bit about money laundering. At the global oligarch scale, it's just not possible to do what this thread is suggesting. 10 billion dollars is just too much to launder through vacant buildings - let alone the 60T figure mentioned above.
At that level it's institutional. It's not "laundering", it's Deutsche Bank. The money is likely being used to buy property after it's clean, but the cleaning itself is a much simpler process. Just call up Justin Kennedy or Wilbur Ross; those people can launder billions with an email.
posted by weed donkey at 9:32 AM on January 27, 2019 [5 favorites]
By the time someone buys real estate the money is already relatively clean. It's been passed through layers of shell companies to obscure it's origin but the money has to go somewhere. Real estate in a stable country is a pretty good choice. Up until 2016 LLCs could purchase real estate in cash in the United States without revealing who was behind them. Why wouldn't someone park their ill gotten lucre in apartment buildings?
posted by rdr at 9:33 AM on January 27, 2019 [1 favorite]
posted by rdr at 9:33 AM on January 27, 2019 [1 favorite]
I have definitely heard people talk about money laundering via real estate before, and usually the story was that it's a way to get overseas money into the US financial system, not a way to get bags of $5 bills into a bank account.
Real estate transactions aren't subject to KYC requirements, so you can pay for a house with a corporation in the Cayman Islands or whatever and the broker has no obligation to figure out who you actually are. Presumably it is easier to get the $5 bags of money into the Cayman Islands account, and also there may be a need to launder non-cash money that comes from bribes, sanctioned countries, etc.
The money launderer in this case would basically look like a house flipper, buying houses and selling them for a quick profit.
posted by vogon_poet at 9:35 AM on January 27, 2019 [4 favorites]
Real estate transactions aren't subject to KYC requirements, so you can pay for a house with a corporation in the Cayman Islands or whatever and the broker has no obligation to figure out who you actually are. Presumably it is easier to get the $5 bags of money into the Cayman Islands account, and also there may be a need to launder non-cash money that comes from bribes, sanctioned countries, etc.
The money launderer in this case would basically look like a house flipper, buying houses and selling them for a quick profit.
posted by vogon_poet at 9:35 AM on January 27, 2019 [4 favorites]
The Twitter thread (thanks for the threadreader link!) is saying society needs more forensic accountants and financial detectives; for the FBI to to have an army lawyers rather than SWAT; to fund the SEC, FinCEN and other financial crime enforcement units. That shouldn't be controversial, regardless of the specifics of the numbers used. Until white collar crime is taken seriously (by voters!) as hurting society, then the SEC will continue to be underfunded and legal-on-paper corruption will continue to run rampant.
One way to help sell (which, we're all victims here) the damage from white collar crime is to link it to problems all except the richest of us face, and the unaffordability of housing is one of them.
Where does that "legit"-rich techbro, with $10 million, park their $10mm though? A Bank of America checking account? If they chose to invest in real estate and buy a duplex or small apartment complex, at an inflated price thanks to money launderers, rent on those apartments are going to be higher to compensate.
Holy hell, 1 billion dollars/month is a lot of money! Somewhere between, 500k empty apartments in SF (at $2k/month in SF, which is cheap rent! in sf :/ ), and less than a billion dollars a month, is a place where, logically, this must be true, if accusations of corruption in New York City real estate are to be believed. The criminal class also has wealth brackets, and below the "three comma" oligarch class of oil baron criminals are criminals with 10's of millions. Given how much real estate deals with large amounts of money, broadly, they're an attractive target despite (or perhaps because of) anti-money laundering laws. Thanks to those laws you can no longer bring a briefcase full of cash in anywhere without FinCEN reporting, but if you had large amounts of illicit cash, and legit company A never ever deals in large (enough) amounts, and legit company B deals with large amounts multiple times every single day, company B is going to warrant some consideration.
posted by fragmede at 9:38 AM on January 27, 2019 [2 favorites]
One way to help sell (which, we're all victims here) the damage from white collar crime is to link it to problems all except the richest of us face, and the unaffordability of housing is one of them.
Where does that "legit"-rich techbro, with $10 million, park their $10mm though? A Bank of America checking account? If they chose to invest in real estate and buy a duplex or small apartment complex, at an inflated price thanks to money launderers, rent on those apartments are going to be higher to compensate.
Holy hell, 1 billion dollars/month is a lot of money! Somewhere between, 500k empty apartments in SF (at $2k/month in SF, which is cheap rent! in sf :/ ), and less than a billion dollars a month, is a place where, logically, this must be true, if accusations of corruption in New York City real estate are to be believed. The criminal class also has wealth brackets, and below the "three comma" oligarch class of oil baron criminals are criminals with 10's of millions. Given how much real estate deals with large amounts of money, broadly, they're an attractive target despite (or perhaps because of) anti-money laundering laws. Thanks to those laws you can no longer bring a briefcase full of cash in anywhere without FinCEN reporting, but if you had large amounts of illicit cash, and legit company A never ever deals in large (enough) amounts, and legit company B deals with large amounts multiple times every single day, company B is going to warrant some consideration.
posted by fragmede at 9:38 AM on January 27, 2019 [2 favorites]
Yeah, this writer doesn't really seem to know what she is talking about. There has been asset inflation because there is so much money chasing yield and so much cheap money available to borrow. Maybe a lot of that money is from illegal sources, maybe culturally the people with the illegal money like real estate but the bottom line is that there is a lot of cash out there. What she says doesn't really make any sense in terms money laundering if her argument is that somehow a REIT can soak up large currency transactions like some kind of giant bodega.
I have read plenty of articles that explain that working in compliance at a bank is to be out in Siberia. You are just a cost not a producer. If you can bring in an account worth 100 million dollars you are a star, I get the impression a lot of banks are flexible and helpful if there are some "issues" with where the money came from.
The real estate market is quite international now, you have people who want to get there money out of China, you have people who feel like there money is much safer in US real estate than in there own country because of political risk etc. You had the big vacuuming up of foreclosed neighborhoods by Black Rock. There has been wage stagnation at the same time.
Also who says you can't by a new car with cash?
posted by Pembquist at 9:48 AM on January 27, 2019 [3 favorites]
I have read plenty of articles that explain that working in compliance at a bank is to be out in Siberia. You are just a cost not a producer. If you can bring in an account worth 100 million dollars you are a star, I get the impression a lot of banks are flexible and helpful if there are some "issues" with where the money came from.
The real estate market is quite international now, you have people who want to get there money out of China, you have people who feel like there money is much safer in US real estate than in there own country because of political risk etc. You had the big vacuuming up of foreclosed neighborhoods by Black Rock. There has been wage stagnation at the same time.
Also who says you can't by a new car with cash?
posted by Pembquist at 9:48 AM on January 27, 2019 [3 favorites]
The laundry (fast food, car wash, laser tag, etc) is where the criminals DEPOSIT the money. after the laundry cleans it and buy real estate, that's where the criminals can WITHDRAW it, for example. And all the price inflation that makes housing unaffordable is then a price the rest of us pay.
posted by radagast at 10:07 AM on January 27, 2019 [3 favorites]
posted by radagast at 10:07 AM on January 27, 2019 [3 favorites]
IIRC, turning the sacks of cash into legitimate (i.e. in the financial system) money is where Casinos and other gambling venues tend to come into the picture. At least in BC oversight has been... lacking.
That said, basically anything where you can buy something valuable in cash and then sell it can be an opening for money laundering. Weather that thing is chips in a casino, cars, artwork, hell, I wouldn't be too surprised if even if people aren't buying real property in cash, you still had partial cash sales.
If I were trying to launder money through real-estate, my plan would be this: Offer the seller of a house a cash "down payment" that doesn't get recorded as part of the price. This reduces the sellers tax obligations, and can still be a huge amount of money, so they'll likely go for it. Then I pay cash to have the place renovated, something like putting in a basement suite would be ideal (basically all contractors are a: sometimes working for cash in hand and b: cheating on their taxes). I then sell the house. If anyone looks at the paperwork, I got a good deal buying a house and, sold it at a profit. What's actually happened is I've broke even or made a small loss, but turned a big chunk of 'dirty' money into the proceeds of a legitimate transaction.
Locally we may actually get action on this, because the NDP is smelling blood. Basically the actually center-right BC Liberal party ran the province for 16 years without any meaningful action on either money laundering or housing prices. So the NDP would very much like to make sure people blame the Liberals for the typical BC "sleazy backroom corruption" escalating over the past two decades into shitshow German's report details above. I don't know the situation elsewhere, or if there's simmilar hope for a cleanup.
posted by Grimgrin at 10:07 AM on January 27, 2019 [3 favorites]
That said, basically anything where you can buy something valuable in cash and then sell it can be an opening for money laundering. Weather that thing is chips in a casino, cars, artwork, hell, I wouldn't be too surprised if even if people aren't buying real property in cash, you still had partial cash sales.
If I were trying to launder money through real-estate, my plan would be this: Offer the seller of a house a cash "down payment" that doesn't get recorded as part of the price. This reduces the sellers tax obligations, and can still be a huge amount of money, so they'll likely go for it. Then I pay cash to have the place renovated, something like putting in a basement suite would be ideal (basically all contractors are a: sometimes working for cash in hand and b: cheating on their taxes). I then sell the house. If anyone looks at the paperwork, I got a good deal buying a house and, sold it at a profit. What's actually happened is I've broke even or made a small loss, but turned a big chunk of 'dirty' money into the proceeds of a legitimate transaction.
Locally we may actually get action on this, because the NDP is smelling blood. Basically the actually center-right BC Liberal party ran the province for 16 years without any meaningful action on either money laundering or housing prices. So the NDP would very much like to make sure people blame the Liberals for the typical BC "sleazy backroom corruption" escalating over the past two decades into shitshow German's report details above. I don't know the situation elsewhere, or if there's simmilar hope for a cleanup.
posted by Grimgrin at 10:07 AM on January 27, 2019 [3 favorites]
It works like this: You borrow "clean" money to buy a house with, then repay the loan with "dirty" money...if you are lucky, you can even earn money, when you re-sell the property, at a later date.
Lenders don't seem to mind this practice.
posted by littlejohnnyjewel at 10:45 AM on January 27, 2019
Lenders don't seem to mind this practice.
posted by littlejohnnyjewel at 10:45 AM on January 27, 2019
Where do property taxes fit in to all this? You own real estate, you have to pay based on its value on a regular basis. If your municipality has lots of people (or corporations) spending lots of money on high-cost real estate that nobody lives in, this seems like the kind of thing a high property tax with a homestead exemption could take care of.
Maybe Texas (high property taxes, no income tax, near-unlimited land supply) is too different in too many ways to see if the same things happen there. And I don’t know about the tax structure in Florida, but that could be weird in other ways.
posted by Huffy Puffy at 10:55 AM on January 27, 2019
Maybe Texas (high property taxes, no income tax, near-unlimited land supply) is too different in too many ways to see if the same things happen there. And I don’t know about the tax structure in Florida, but that could be weird in other ways.
posted by Huffy Puffy at 10:55 AM on January 27, 2019
When i did work for an online casino basically a third of the IT department only did work in implementing obscure payment solutions. So, every other staff meeting was some big announcement about how we now accepted MyFacePay-checks or some other weird as shit obscure transfer-your-money-into-transferable-money-scheme-shit. It was so obviously money laundering and that paired with the your normal run-of-the-mill preying on gamling addicts made that gig my most hated job ever. Fuck fuck fuck I hate casinos.
posted by uandt at 10:56 AM on January 27, 2019 [8 favorites]
posted by uandt at 10:56 AM on January 27, 2019 [8 favorites]
I am nthing that I am confused about the gist of the argument here. Not helped by people explaining it here saying things that strike me as contradictory about the main point.
My attempt to connect dots sort of got me here: You can clearly launder money through inflating occupancy rates and rents. But purchases of new buildings need to be with 'clean' money. This makes owning real estate a good way to launder money but this does not apply to buying real estate (through an REIT or not); in fact you need large chunks of clean money. However, bank loans (which are easier to get on your investment with inflated income streams) could reduce the 'clean' money requirements so maybe it ties together? OTOH the whole point of laundering money requires actually renting out apartments at no more than "market rate" and pretending to charge more so the impact on rental prices should be blunted--it'd be like subsidized housing?
In the end I dunno; I'm not convinced it's wrong but I also definitely feel more confused than enlightened by the thread.
In general my instincts on inequality and dirty play are still "What's outrageous is not that people do illegal things, but that so many of the things they do turn out to be perfectly legal."
posted by mark k at 11:03 AM on January 27, 2019 [2 favorites]
My attempt to connect dots sort of got me here: You can clearly launder money through inflating occupancy rates and rents. But purchases of new buildings need to be with 'clean' money. This makes owning real estate a good way to launder money but this does not apply to buying real estate (through an REIT or not); in fact you need large chunks of clean money. However, bank loans (which are easier to get on your investment with inflated income streams) could reduce the 'clean' money requirements so maybe it ties together? OTOH the whole point of laundering money requires actually renting out apartments at no more than "market rate" and pretending to charge more so the impact on rental prices should be blunted--it'd be like subsidized housing?
In the end I dunno; I'm not convinced it's wrong but I also definitely feel more confused than enlightened by the thread.
In general my instincts on inequality and dirty play are still "What's outrageous is not that people do illegal things, but that so many of the things they do turn out to be perfectly legal."
posted by mark k at 11:03 AM on January 27, 2019 [2 favorites]
I think one thing folks are losing sight of, perhaps, is that if you have "dirty" money to the extent you need to launder it, it's probably coming from a dirty income stream and you understand there is an exchange rate to make it clean. You probably won't particularly care, even if that rate is very high, because your stream keeps generating more dirty coin.
Think of dirty money as an inert lump of whatever. If you want $1M in "real" money, you might need $2M or whatever in dirty money to get that $1M, but you don't care because getting the $2M in dirty lucre isn't a problem, getting the $1M you can spend within the system is.
And often I imagine these transactions are indirect. If, for example, you want to bribe an elected official, you could pay many tens of millions over market for their Florida mansion. You don't care how much money you "lose" on that transaction, because you're not buying a house, you're buying the official, and you knew what the price was. The house was just a vehicle to get the politician the money in a way which, because our society looks the other way on white-collar crime (is, indeed, thrilled to do so), looks legit.
posted by maxwelton at 11:53 AM on January 27, 2019 [1 favorite]
Think of dirty money as an inert lump of whatever. If you want $1M in "real" money, you might need $2M or whatever in dirty money to get that $1M, but you don't care because getting the $2M in dirty lucre isn't a problem, getting the $1M you can spend within the system is.
And often I imagine these transactions are indirect. If, for example, you want to bribe an elected official, you could pay many tens of millions over market for their Florida mansion. You don't care how much money you "lose" on that transaction, because you're not buying a house, you're buying the official, and you knew what the price was. The house was just a vehicle to get the politician the money in a way which, because our society looks the other way on white-collar crime (is, indeed, thrilled to do so), looks legit.
posted by maxwelton at 11:53 AM on January 27, 2019 [1 favorite]
And often I imagine these transactions are indirect. If, for example, you want to bribe an elected official, you could pay many tens of millions over market for their Florida mansion. You don't care how much money you "lose" on that transaction, because you're not buying a house, you're buying the official, and you knew what the price was. The house was just a vehicle to get the politician the money in a way which, because our society looks the other way on white-collar crime (is, indeed, thrilled to do so), looks legit.
I think you are misunderstanding the problem. Paying extra for real estate is not laundering money, because the money needs to be in the banking system to begin with for a transaction of that size. You can't take the stacks of $100 bills from your drug deals and buy a house with that.
What you are describing is a way of using "clean" money for an illegal/immoral purpose (a bribe) which is 100% a thing but not what the original thread is discussing or what is leaving some of us scratching our heads a bit.
posted by mark k at 12:06 PM on January 27, 2019
I think you are misunderstanding the problem. Paying extra for real estate is not laundering money, because the money needs to be in the banking system to begin with for a transaction of that size. You can't take the stacks of $100 bills from your drug deals and buy a house with that.
What you are describing is a way of using "clean" money for an illegal/immoral purpose (a bribe) which is 100% a thing but not what the original thread is discussing or what is leaving some of us scratching our heads a bit.
posted by mark k at 12:06 PM on January 27, 2019
We need...Christ.
He'd probably just say something along the lines of "render unto Caesar that which is Caesar's".
posted by Greg_Ace at 12:14 PM on January 27, 2019
He'd probably just say something along the lines of "render unto Caesar that which is Caesar's".
posted by Greg_Ace at 12:14 PM on January 27, 2019
The Panama Papers outline how the mid-to-super-rich use shell companies for money laundering and tax evasion, then park the laundered cash in high-end real estate in London, Miami, New York, Paris, Vancouver and San Francisco.
posted by ryoshu at 12:26 PM on January 27, 2019 [12 favorites]
posted by ryoshu at 12:26 PM on January 27, 2019 [12 favorites]
Buying into the pre-IPO market is also a good way to clean money. Facebook and Twitter were juiced for years by sketchy international funds. Some with the almost-mandatory-by-now Kushner connections.
posted by meehawl at 1:01 PM on January 27, 2019 [1 favorite]
posted by meehawl at 1:01 PM on January 27, 2019 [1 favorite]
This is awfully stupid.
A REIT is quite possibly the worst vehicle for money laundering one can imagine. It is as hard to get cash into a REIT as it is to get it into a bank. Because they are investment vehicles and have a tax preference, their books are subject to an exceptionally high degree of government scrutiny. If you are a non-US person, or hold your money off-shore (for legal tax deferral/avoidance, or illegal tax evasion) their dividends are subject to an incremental layer of tax and reporting specific to you, the shareholder.
posted by MattD at 1:51 PM on January 27, 2019 [5 favorites]
A REIT is quite possibly the worst vehicle for money laundering one can imagine. It is as hard to get cash into a REIT as it is to get it into a bank. Because they are investment vehicles and have a tax preference, their books are subject to an exceptionally high degree of government scrutiny. If you are a non-US person, or hold your money off-shore (for legal tax deferral/avoidance, or illegal tax evasion) their dividends are subject to an incremental layer of tax and reporting specific to you, the shareholder.
posted by MattD at 1:51 PM on January 27, 2019 [5 favorites]
The author said all of these laundries will fall apart if/when the feds catch up to them. For the launderers, it's a matter of adding layer on layer to the shell game to stay steps ahead. What if the investor in the REIT is a company, and the shareholders of that company are themselves companies, several layers deep... and what if the REIT is created by people who are in on the corruption? It doesn't last forever as a safe haven. It might last just long enough for the next swap of the shells in the shell game, another transaction for the feds to unravel, assuming they are (hopefully) on the case.
posted by Former Congressional Representative Lenny Lemming at 3:03 PM on January 27, 2019 [1 favorite]
posted by Former Congressional Representative Lenny Lemming at 3:03 PM on January 27, 2019 [1 favorite]
"You can't take the stacks of $100 bills from your drug deals and buy a house with that."
You can in the Rust Belt! But the houses will not cost very much nor will they make you much either.
Really enjoying reading this thread.
posted by zdravo at 3:21 PM on January 27, 2019
You can in the Rust Belt! But the houses will not cost very much nor will they make you much either.
Really enjoying reading this thread.
posted by zdravo at 3:21 PM on January 27, 2019
Shell companies cost money to set up, and are subject to the same scrutiny as any other legal entity. Successful money laundering requires breaking the audit trail. Any cash-heavy business with a side-gig of laundering is vulnerable to being audited. At some point they'd have to explain to suspicious accountants where all the extra cash is coming from. Auditors aren't stupid: they know what the ledgers of fully-legitimate cash business look like.
Money laundering isn't just used by crooks to hide their income. It's also used by people with completely lawful incomes who wish to use their money in illegal ways. For example, financing terrorism. Cutting off the money supply to terrorist groups has by far been the most successful method for reducing their effectiveness. I strongly believe that by implementing stricter financial controls and reporting we could reduce corruption in business and government and seriously hurt terrorist groups. At least until they all buy bitcoin.
posted by um at 5:27 PM on January 27, 2019 [5 favorites]
Money laundering isn't just used by crooks to hide their income. It's also used by people with completely lawful incomes who wish to use their money in illegal ways. For example, financing terrorism. Cutting off the money supply to terrorist groups has by far been the most successful method for reducing their effectiveness. I strongly believe that by implementing stricter financial controls and reporting we could reduce corruption in business and government and seriously hurt terrorist groups. At least until they all buy bitcoin.
posted by um at 5:27 PM on January 27, 2019 [5 favorites]
At least until they all buy bitcoin.posted by adamsc at 6:18 PM on January 27, 2019 [3 favorites]
Public record, irrepudiable, and you have the perp’s full history and links to their partners — I’m pretty sure every financial crime unit is quietly hoping “take the bait, take the bait”.
I just don't buy that the super rich have that much actual illegal income.
I don't necessarily adopt the full argument of the article, but tax evasion is as urgent an imperative as hiding illegal sources of income.
Shell companies cost money to set up, and are subject to the same scrutiny as any other legal entity.
There are still several friendly-accounting jurisdictions out there. If you think anyone is scrutinizing the books of 53 CPS 386 Acquisition LLC, a small company wholly owned by Fair Sailing Inc. which is located in the Cayman Islands but domiciled in Ireland, when it buys a piece of one of the supertalls...you're unfortunately mistaken.
posted by praemunire at 8:54 PM on January 27, 2019 [5 favorites]
I don't necessarily adopt the full argument of the article, but tax evasion is as urgent an imperative as hiding illegal sources of income.
Shell companies cost money to set up, and are subject to the same scrutiny as any other legal entity.
There are still several friendly-accounting jurisdictions out there. If you think anyone is scrutinizing the books of 53 CPS 386 Acquisition LLC, a small company wholly owned by Fair Sailing Inc. which is located in the Cayman Islands but domiciled in Ireland, when it buys a piece of one of the supertalls...you're unfortunately mistaken.
posted by praemunire at 8:54 PM on January 27, 2019 [5 favorites]
Shell companies cost money to set up, and are subject to the same scrutiny as any other legal entity. Successful money laundering requires breaking the audit trail.
Yes, through an entity like Mossack Fonseca, who was creating shell companies for 300,000 companies internationally to launder money and help evade taxes for 40 years. The only reason this break in the audit trail was uncovered was because of an internal leak. The documents are out there. Laundering money and then parking the proceeds in real estate is not theortical. How many other Mossack Fonsecas exist?
posted by ryoshu at 9:11 PM on January 27, 2019 [5 favorites]
Yes, through an entity like Mossack Fonseca, who was creating shell companies for 300,000 companies internationally to launder money and help evade taxes for 40 years. The only reason this break in the audit trail was uncovered was because of an internal leak. The documents are out there. Laundering money and then parking the proceeds in real estate is not theortical. How many other Mossack Fonsecas exist?
posted by ryoshu at 9:11 PM on January 27, 2019 [5 favorites]
Which is why the biggest project we can take on as a species, aside from combating climate change, is combating global ogliarch corruption like this.
I think they're actually the same challenge.
posted by Just this guy, y'know at 3:52 AM on January 28, 2019 [5 favorites]
I think they're actually the same challenge.
posted by Just this guy, y'know at 3:52 AM on January 28, 2019 [5 favorites]
For the launderers, it's a matter of adding layer on layer to the shell game to stay steps ahead.
And to me this is what needs to be illegal. The whole concept of "shell companies", there is no good honest reason for such a thing. Having your money in the Cayman Islands, if you are not a citizen or involved directly in investments there, is also bogus.
Time to just call the rich people on all this bullshit, seriously.
If you cannot set up your corp in a way that it is easy to understand who owns it, who is liable, etc., then it is too big or too sleazy and needs to be changed.
posted by Meatbomb at 6:48 AM on January 28, 2019 [2 favorites]
And to me this is what needs to be illegal. The whole concept of "shell companies", there is no good honest reason for such a thing. Having your money in the Cayman Islands, if you are not a citizen or involved directly in investments there, is also bogus.
Time to just call the rich people on all this bullshit, seriously.
If you cannot set up your corp in a way that it is easy to understand who owns it, who is liable, etc., then it is too big or too sleazy and needs to be changed.
posted by Meatbomb at 6:48 AM on January 28, 2019 [2 favorites]
Oh, and after edit: also your corp needs to have a clearly understandable reason why it exists, beyond, "it is a vehicle for deferring profits carried forward from our supplier org in order to restructure tax obligations when processed in the Netherlands and..."
Stop right there, fuck that, such things should just plain not be allowed.
posted by Meatbomb at 6:51 AM on January 28, 2019 [1 favorite]
Stop right there, fuck that, such things should just plain not be allowed.
posted by Meatbomb at 6:51 AM on January 28, 2019 [1 favorite]
Here is an article that describes this kind of money laundering in more depth, written after the Panama Papers leak. One example is a Brazilian politician who was indicted for taking bribes, so he used a Virgin Islands shell company to buy property in Miami. That kept his illegal money stream beyond the reach of Brazilian authorities and below the radar of US authorities.
It's very weird that people in this thread seem to be adamantly denying that this is a real thing, despite it making headlines around the world just a few years ago.
posted by parallellines at 7:53 AM on January 28, 2019 [5 favorites]
It's very weird that people in this thread seem to be adamantly denying that this is a real thing, despite it making headlines around the world just a few years ago.
posted by parallellines at 7:53 AM on January 28, 2019 [5 favorites]
By the way, can we just shoot down the "they already have a lot of money, why would they?" argument for good? Whether or not it makes sense to you, it's empirically what happens. Most of the great corporate crimes of the past half-century were carried out by people who were already comfortable. If breaking the law gets you 1% bigger return on just $10m, that's $100K.
posted by praemunire at 8:28 AM on January 28, 2019 [2 favorites]
posted by praemunire at 8:28 AM on January 28, 2019 [2 favorites]
In my opinion, even if there is money laundering through property occurring, the only reason it's a problem in the US is because construction is so constrained due to local to the US choices. IE: money laundering demand + local demand should be creating excess local supply, which lowers prices, not constraining the market.
Every NIMBY working to constrain housing makes the assumption that they are the money. The global economy is showing them the truth.
posted by The_Vegetables at 8:38 AM on January 28, 2019 [1 favorite]
Every NIMBY working to constrain housing makes the assumption that they are the money. The global economy is showing them the truth.
posted by The_Vegetables at 8:38 AM on January 28, 2019 [1 favorite]
parallellines, everyone in this thread is in agreement that this is a real thing. Money is being laundered via shell corps and entities like Mossack Fonseca - likely in scale of trillions of dollars.
The disagreement was that TFA states that money laundering is primarily happening via uninhabited REITs. That's demonstrably not true. A lot of this capital ends up in real estate, but the premise that REITs are being used as a filter is not true. Shell corps are being used as the filter - REITs are where the money ends up.
Even if that seems like a minor quibble, I think it's important because we need to cut the actual laundering mechanism - like the Magnistky Act tries to do. So we need to precise about what is actually happening here.
posted by weed donkey at 8:51 AM on January 28, 2019 [2 favorites]
The disagreement was that TFA states that money laundering is primarily happening via uninhabited REITs. That's demonstrably not true. A lot of this capital ends up in real estate, but the premise that REITs are being used as a filter is not true. Shell corps are being used as the filter - REITs are where the money ends up.
Even if that seems like a minor quibble, I think it's important because we need to cut the actual laundering mechanism - like the Magnistky Act tries to do. So we need to precise about what is actually happening here.
posted by weed donkey at 8:51 AM on January 28, 2019 [2 favorites]
If you cannot set up your corp in a way that it is easy to understand who owns it, who is liable, etc., then it is too big or too sleazy and needs to be changed.
Before this gets too off the rails I wanna remind everybody that sometimes legal provisions that enable fuckery also protect people, primarily women (women with the means to take advantage of these tools), from stalkers, harassers, the exes that tried to kill them, etc etc.
There do exist valid reasons to need an anonymous LLC that hides ownership and assets, is what I’m saying.
Just fucking fund the IRS and the SEC into a small army of lawyers and accountants. The forensic accountants can tell the difference between “sketchy as fuck” and “hiding from people who want to murder me.” Let them do their jobs.
posted by schadenfrau at 9:26 AM on January 28, 2019 [6 favorites]
Before this gets too off the rails I wanna remind everybody that sometimes legal provisions that enable fuckery also protect people, primarily women (women with the means to take advantage of these tools), from stalkers, harassers, the exes that tried to kill them, etc etc.
There do exist valid reasons to need an anonymous LLC that hides ownership and assets, is what I’m saying.
Just fucking fund the IRS and the SEC into a small army of lawyers and accountants. The forensic accountants can tell the difference between “sketchy as fuck” and “hiding from people who want to murder me.” Let them do their jobs.
posted by schadenfrau at 9:26 AM on January 28, 2019 [6 favorites]
IE: money laundering demand + local demand should be creating excess local supply
That's really not how it would work, even if there were zero development restrictions.
If I leave Metafilter having gotten people to understand that no development of meaningful size will ever get built by the market unless its projected ROI is higher than the returns available through investments in other assets (thus, quite high in the present environment), I will feel I've accomplished something. No one wants to make "just enough profit," particularly at that scale. That's not how it's done.
We have excess local supply in new construction in NYC; landlords are having to offer 2- and 3-month concessions to fill apartments. It's just excess local supply in $4.5K one-beds, because that's all any market developer is willing to build, because that's all that will get financed.
posted by praemunire at 9:42 AM on January 28, 2019 [6 favorites]
That's really not how it would work, even if there were zero development restrictions.
If I leave Metafilter having gotten people to understand that no development of meaningful size will ever get built by the market unless its projected ROI is higher than the returns available through investments in other assets (thus, quite high in the present environment), I will feel I've accomplished something. No one wants to make "just enough profit," particularly at that scale. That's not how it's done.
We have excess local supply in new construction in NYC; landlords are having to offer 2- and 3-month concessions to fill apartments. It's just excess local supply in $4.5K one-beds, because that's all any market developer is willing to build, because that's all that will get financed.
posted by praemunire at 9:42 AM on January 28, 2019 [6 favorites]
So if I'm getting this right (I've never understood money laundering from any of the many times it's been mentioned here):
1. I have a shady business that makes me a bunch of cash. Now I have a problem. Say, 150k in various small denominations.
2. I also set up a business doing shitty "web consulting".
3. Now I give my cash to the casino. The casino mixes it into their shit so it looks like they had a good day.
4. The casino hires me for 100k worth of shitty web consulting, for which I do very little. Now I have 100k that's somewhat clean. The casino hired me for a job, what? But that's pretty fragile.
5. I do this a bunch of times. And that's when I... do something involving real estate?
posted by ctmf at 5:13 PM on January 28, 2019
1. I have a shady business that makes me a bunch of cash. Now I have a problem. Say, 150k in various small denominations.
2. I also set up a business doing shitty "web consulting".
3. Now I give my cash to the casino. The casino mixes it into their shit so it looks like they had a good day.
4. The casino hires me for 100k worth of shitty web consulting, for which I do very little. Now I have 100k that's somewhat clean. The casino hired me for a job, what? But that's pretty fragile.
5. I do this a bunch of times. And that's when I... do something involving real estate?
posted by ctmf at 5:13 PM on January 28, 2019
There are a couple of main classic ways to do this. The idea is to pick a business with significant legitimate cash receipts into which your funds can be mingled. The goal is to go from cash without an obvious source to cash with a provenance.
Scenario A: You own the business. Say an actual laundry. You hand over your cash to the laundry and the laundry reports it as receipts. Since there are no corresponding expenses, the entire value accrues to the laundry, which you are 100% owner of. This is old school. They used to have cops staking out businesses to try to prove the cash couldn't have come from legitimate transactions.
Scenario B: You go to a casino and get issued chips for cash. Maybe you gamble a little. Eventually, you trade those chips back for cash, either directly with the casino or in other ways. The casino may or may not report your "income." Either way: gambling winnings! Quite legitimate.
Scenario C: You secretly hand over cash to a business (again, one that can report it as receipts). The business hires you to do a nonjob for cash-cut. W2 income!
Scenario D (how real estate is useful): buy an apartment from someone who isn't very particular about the sources of your income. Later, sell the apartment. Buy whatever you like with the proceeds: you have cash from your recent real estate sale.
posted by praemunire at 7:36 PM on January 28, 2019 [2 favorites]
Scenario A: You own the business. Say an actual laundry. You hand over your cash to the laundry and the laundry reports it as receipts. Since there are no corresponding expenses, the entire value accrues to the laundry, which you are 100% owner of. This is old school. They used to have cops staking out businesses to try to prove the cash couldn't have come from legitimate transactions.
Scenario B: You go to a casino and get issued chips for cash. Maybe you gamble a little. Eventually, you trade those chips back for cash, either directly with the casino or in other ways. The casino may or may not report your "income." Either way: gambling winnings! Quite legitimate.
Scenario C: You secretly hand over cash to a business (again, one that can report it as receipts). The business hires you to do a nonjob for cash-cut. W2 income!
Scenario D (how real estate is useful): buy an apartment from someone who isn't very particular about the sources of your income. Later, sell the apartment. Buy whatever you like with the proceeds: you have cash from your recent real estate sale.
posted by praemunire at 7:36 PM on January 28, 2019 [2 favorites]
Look, I'm not an expert on money laundering but you don't need the casino to pay you for non-existent services. All the casino has to do is ignore people who come in, buy chips, and don't gamble very much, or gamble in ways that are not likely to produce big wins or losses. If Joe money launderer can find a crooked casino like that, he hires a crew of people to buy under $10,000 in chips. Then they either gamble a bit and cash out or they deliver the chips to Joe. Either way the money you get out is a bit less dirty than the money that went in. BTW, guess whose casino was fined for inadequate anti money laundering controls.
posted by rdr at 7:39 PM on January 28, 2019 [4 favorites]
posted by rdr at 7:39 PM on January 28, 2019 [4 favorites]
Playing casino games comes in handy when you want to move money across international borders. Not so much to launder it, at least in large quantities, within a market.
The casinos in Macau, for instance, are notorious for facilitating the movement of capital out of China. There are some complexities involving "junket agents" (money smugglers), but basically, you can buy chips using yuan, but get cashed out in dollars. So you go to the casino, bringing with you a ton of CNY (junket agents facilitate this), you do some gambling, probably lose a little, and then you cash out into EUR or USD or whatever, which you deposit in a bank outside Chinese government reach. And from there you go park it in real estate or whatever, entirely legitimately, however crappy it may be for the people whose property markets you're overheating (oh hai Vancouver).
This isn't new—my understanding is that in the pre-Euro Europe, you went to Monaco or Monte Carlo and could do basically the same thing: have French francs but want Swiss ones so you can dodge those annoying French taxes? Buy chips, play some baccarat (which has a low house edge), cash out in the other currency. Deposit away. Note how frequently you find casinos on current or past borders of financial markets.
But if you had that sort of money from a criminal operation and need to clean it, staying in the same market, it'd look pretty fucking fishy to claim it as gambling winnings over and over—nobody goes to the casinos and repeatedly comes back with more money than they started with. (At least not while still being welcomed by the casinos.) It's not a good explanation for a significant ongoing income stream. Maybe fine for a one-off thing (like if you're a politician who takes a big bribe or whatever) but not a good way to paper over a source of income on a continuous basis.
However, owning a casino is a good way to launder money. Because it's a cash business (at least in part), probably one of the biggest cash businesses of them all, it's theoretically easy to inflate receipts—the traditional "pizza shop" model writ large. (Well, easy only if the gaming regulators aren't on the ball or are bought off.) Hence all that stuff in The Godfather Part II about Vegas—the mob's interest in the casinos wasn't sitting at tables, it was owning them.
My guess is the regulators are now onto the obvious schemes for laundering money through casinos (e.g. comping rooms to guests but booking income as though the hotel is full at the rack rate), but one can't help but notice that casino ownership is still an attractive business for crooked people.
posted by Kadin2048 at 9:41 PM on January 28, 2019 [2 favorites]
The casinos in Macau, for instance, are notorious for facilitating the movement of capital out of China. There are some complexities involving "junket agents" (money smugglers), but basically, you can buy chips using yuan, but get cashed out in dollars. So you go to the casino, bringing with you a ton of CNY (junket agents facilitate this), you do some gambling, probably lose a little, and then you cash out into EUR or USD or whatever, which you deposit in a bank outside Chinese government reach. And from there you go park it in real estate or whatever, entirely legitimately, however crappy it may be for the people whose property markets you're overheating (oh hai Vancouver).
This isn't new—my understanding is that in the pre-Euro Europe, you went to Monaco or Monte Carlo and could do basically the same thing: have French francs but want Swiss ones so you can dodge those annoying French taxes? Buy chips, play some baccarat (which has a low house edge), cash out in the other currency. Deposit away. Note how frequently you find casinos on current or past borders of financial markets.
But if you had that sort of money from a criminal operation and need to clean it, staying in the same market, it'd look pretty fucking fishy to claim it as gambling winnings over and over—nobody goes to the casinos and repeatedly comes back with more money than they started with. (At least not while still being welcomed by the casinos.) It's not a good explanation for a significant ongoing income stream. Maybe fine for a one-off thing (like if you're a politician who takes a big bribe or whatever) but not a good way to paper over a source of income on a continuous basis.
However, owning a casino is a good way to launder money. Because it's a cash business (at least in part), probably one of the biggest cash businesses of them all, it's theoretically easy to inflate receipts—the traditional "pizza shop" model writ large. (Well, easy only if the gaming regulators aren't on the ball or are bought off.) Hence all that stuff in The Godfather Part II about Vegas—the mob's interest in the casinos wasn't sitting at tables, it was owning them.
My guess is the regulators are now onto the obvious schemes for laundering money through casinos (e.g. comping rooms to guests but booking income as though the hotel is full at the rack rate), but one can't help but notice that casino ownership is still an attractive business for crooked people.
posted by Kadin2048 at 9:41 PM on January 28, 2019 [2 favorites]
But if you had that sort of money from a criminal operation and need to clean it, staying in the same market, it'd look pretty fucking fishy to claim it as gambling winnings over and over—nobody goes to the casinos and repeatedly comes back with more money than they started with. (At least not while still being welcomed by the casinos.)
I have some informations for you!
posted by praemunire at 12:36 AM on January 29, 2019
I have some informations for you!
posted by praemunire at 12:36 AM on January 29, 2019
From that article:
posted by Kadin2048 at 12:32 PM on January 29, 2019 [1 favorite]
Peter German’s first report, made public in June, outlined how the scheme worked and linked the practice to wealthy Chinese citizens seeking to circumvent their own country’s currency controls.That's the Macau model, basically. It's sustainable as long as nobody is looking too hard, which they usually don't because there's an incentive for the recipient country (the one where the casino is located) not to.
Before traveling to Canada, ostensibly to gamble, these individuals would arrange to have someone deliver cash to them in Vancouver or the surrounding regions. In exchange, they transferred money from their bank account in China to another account in China.
German shied away from blaming the gamblers at the heart of the scheme. “It must be remembered, however, that many of the high limit gamblers who used dirty money to feed their gambling activities were dupes,” he noted. “Others were simply attempting to remove their own money from China, in order to make a life for themselves in Canada.”The thing attracting the enforcement attention seems to be the 'back end' CNY/CAD flow; obviously for the whole thing to work, you need someone in Canada willing to give you CAD for CNY 'trapped' in China. (I'm not entirely sure how this works in Macau; they have a credit/margin side to the junket system that complicates things.) But apparently someone discovered that you can balance the CNY-CAD accounts by smuggling opiates from China (presumably purchased in CNY). Not smart, since now the Canadians have a reason to close the door.
posted by Kadin2048 at 12:32 PM on January 29, 2019 [1 favorite]
Man if that’s true about encouraging the illegal import of opiates as the solution for a currency imbalance there is some incredible irony.
posted by vogon_poet at 3:37 PM on January 29, 2019 [1 favorite]
posted by vogon_poet at 3:37 PM on January 29, 2019 [1 favorite]
nobody goes to the casinos and repeatedly comes back with more money than they started with
When I played poker at casinos there were Russians who would “stake” low level semi-pros / pros for a hefty percentage of their profits, and then some other dude would immediately lose a lot of money to the staked pro. The pattern was noticeable because those guys weren’t really that good, and they weren’t particularly stressed about possibly losing.
I always knew it was sketchy but I think I just realized exactly *how* it might have been sketchy
posted by schadenfrau at 4:00 PM on January 29, 2019 [5 favorites]
When I played poker at casinos there were Russians who would “stake” low level semi-pros / pros for a hefty percentage of their profits, and then some other dude would immediately lose a lot of money to the staked pro. The pattern was noticeable because those guys weren’t really that good, and they weren’t particularly stressed about possibly losing.
I always knew it was sketchy but I think I just realized exactly *how* it might have been sketchy
posted by schadenfrau at 4:00 PM on January 29, 2019 [5 favorites]
The Cost of Dirty Money
posted by the man of twists and turns at 1:00 PM on January 30, 2019 [1 favorite]
posted by the man of twists and turns at 1:00 PM on January 30, 2019 [1 favorite]
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