Don’t you be my neighbor
When my parents moved to Miami and were looking for an apartment, I jokingly offered my investigative services to make sure their rental unit wasn’t owned by a drug trafficker or a corrupt foreign leader. Miami real estate is well known for being a money laundering hub for all sorts of shady characters. In fact, from my own experience tracking dirty money, I was aware that the daughter of a prominent Congolese politician accused of corruption owned high value real estate in the Miami area. Drug cartels, mafiosi, and thieving dictators all need a safe home for their ill-gotten gains. And given the high rents they can charge, luxury real estate is not just a safe hideout for their cash, it’s a profitable investment.
A recent investigative report by our team at The Sentry, however, reveals that real estate-based money laundering is not only happening in flashy locations like Miami, Malibu, and Manhattan, with millions stashed in mega mansions. As we traced the dirty money flowing from corrupt operations in the Democratic Republic of Congo through a maze of shell companies and international banking transactions, we were surprised to discover the trail led to ordinary houses in middle-class neighborhoods, right in the city where I live. Namely, our nation’s capital, Washington, D.C.
The Biden administration recently announced a new Strategy on Countering Corruption, which reinforces countering corruption as a national priority and puts a new focus on addressing money laundering risks in the real estate market. The need for hard-hitting policy action is more urgent than ever, as the profits from corrupt acts in some of the poorest countries in the world are being used to purchase houses a stone’s throw from the White House.
The largest document and data leak in African history, obtained by The Platform to Protect Whistleblowers in Africa and Mediapart and shared with The Sentry and the media network European Investigative Collaborations, now reveal an array of massive corrupt schemes.
As we investigated the trails of dirty money, we found that the brother of then-president of the Democratic Republic of Congo, purchased four homes in the D.C. suburbs. Unlike previous cases where presidential families purchased multimillion dollar homes, he purchased more modest homes that, individually, were less likely to cause alarm. He’s now watching their value rise steadily and renting them out for added profits.
Our analysis of the documents indicated a company owned by the man’s wife embezzled $85 million from the Congolese government. Those funds are desperately needed for schools, roads, and hospitals in a country decimated by decades of mismanagement and war. In a complex scheme, the money travelled through a maze of companies and banks accounts and were then shifted to bank accounts in the U.S. where they went on a spending spree, buying up American real estate.
How did they get away with it? A simple loophole: The U.S. government doesn’t require the real estate industry to guard against dirty money. And as the proceeds of crime and corruption flow in unabated, the average American family is often priced out of the neighborhood by these shady buyers for whom money is no object.
Today, laundering dirty money through American real estate is easy. All a buyer needs to do is create a front company or trust to hide his or her identity — because real estate agents aren’t required to dig deeper to identify the true buyer. Even if a real estate agent observes obvious signs that the money involved might be the proceeds of a crime, the agent isn’t required to report those concerns to authorities. Instead, it’s simply “recommended” the agent report it. And in the fast-paced, competitive real estate business, there’s every incentive for realtors and real estate agents to plug their nose and push ahead to get a sale.
Under anti-money laundering regulations, real estate professionals should in theory be required to do basic “know your customer” due diligence and reporting, just as banks are obligated to do.
The exemption for real estate is a dangerous gap in the law, as real estate professionals can have even closer relationships with buyers than bankers do.
Moreover, money launderers can avoid the scrutiny of banks by purchasing property in cash. Most importantly, real estate professionals are in the trenches; they often spend time — in person — with their clients, and they see the patterns and warning signs that government authorities need to identify dirty-money deals.
Money launderers hunt for the cracks in the system.
Recent actions by the U.S. Department of the Treasury have been useful in addressing some of the pitfalls, but land short. In 2016, the Treasury Department imposed some stricter regulations on all-cash purchases to help prevent criminals stashing their cash in ritzy real estate markets such as Miami, New York, and San Francisco. These regulations, which have expanded to cover more cities, have proved a powerful tool to combat real estate-based money laundering, but they do not cover the whole country, and don’t cover all the professionals involved in real estate transactions. Worse yet, the regulations only stand for six months, and can easily be revoked when up for renewal. The Treasury Department recently signaled it was considering new robust requirements for the real estate sector, another opportunity to address some loopholes, but the regulation has yet to be finalized or committed to.
Corruption erodes democracies and devastates economies. The kind of massive, systematic embezzlement we’ve found in our investigations not only guts national budgets meant to provide critical services for people, but it kills confidence in those governments, and can lead to widespread suffering, political upheaval, and even armed conflict.
The threat is clear and present: According to a recent study, more than half of the U.S. cases of money laundering through real estate involve political elites and their families and associates.
In the wake of the Pandora Papers, which unmasked how some of the world’s most rich and powerful use lawyers, real estate professionals, and other enablers to launder their wealth into the U.S., lawmakers have introduced the ENABLERS Act, which would require a long list of enablers — including real estate professionals — to conduct due diligence on their clients and the sources of their wealth, and force everyone to report suspicious activity. As long as some enablers and certain parts of the country are still exempt, however, the dirty business will continue as usual.
Corrupt and criminal enterprises are, as we speak, buying up our neighborhoods.
And our rents are filling the pockets of brutal dictators and their cronies.
Given the Biden administration’s priority to counter corruption, the U.S. must bolster the real estate sector’s ability to protect itself from exploitation and criminality. The ENABLERS Act is the right tool for the job, a law to cover each and every individual involved in these massive money stashing schemes. Real estate professionals should join with financial institutions to stop the flow of blood-stained profits. That requires regulation, with no exemption.
Michelle Kendler-Kretsch is a Washington D.C.-based investigator at The Sentry (@TheSentry_Org), an investigative and policy team that tracks dirty money linked to war and mass atrocities.
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