New York Land Prices High From Global Dirty Money
|July 11, 2014||Posted by Staff under Corruption, Economic Principles, High Cost of Land|
This 2014 excerpt of The Nation, Jly 3, is by Michael Hudson, Ionuț Stănescu, and Sam Adler-Bell. The story is part of a joint investigation by the International Consortium of Investigative Journalists, New York magazine, and the Organized Crime and Corruption Reporting Project.
Since 2008, roughly 30 percent of condo sales in pricey Manhattan developments have been to buyers who listed an international address -— most from China, Russia, and Latin America —- or bought in the name of a corporate entity, a maneuver often employed by foreign purchasers. Because many buyers go to great lengths to hide their interests in New York properties, it’s impossible to put a number on the proportion laundering ill-gotten gains. But according to money-laundering experts as well as court documents and secret offshore records reviewed by the International Consortium of Investigative Journalists, New York real estate has become a magnet for dirty money.
Oligarchs and despots like to put their money into high-end real estate for a number of reasons: they need an escape option if things take a turn for the worse in their home countries; they want to park their assets in an investment that’s known to preserve value; and they want to be able to enjoy and flaunt their wealth.
Many walk a fine line between showing off and staying on the down-low. Instead of putting property in their own names, they may arrange to put the names of their spouses, children, lawyers or other proxies on property deeds. Often, the buyer of record isn’t a flesh-and-blood person —- it’s a limited liability company set up in a US state, or an offshore company established in the British Virgin Islands or some other overseas haven.
The name for the process of creating mazes of bank accounts and offshore companies to move and hide money is layering. When the layers are laid down skillfully, it’s often impossible to detect flows of illicit cash. The United Nations Office on Drugs and Crime estimates that as little as one-fifth of 1 percent of money that’s laundered around the world is identified and intercepted.
US authorities don’t require escrow and real estate agents to find out the true identities of property buyers. The “Patriot” Act has a loophole that gave an opening for the US Treasury to “temporarily” exempt the real estate industry from such requirements. A dozen years later, the exemption still stands.
In September, a judge approved US prosecutors’ bid to seize 650 Fifth Avenue, a commercial tower at edge of Rockefeller Center, ruling that the property’s owners had violated international embargoes by secretly siphoning profits from tenants’ rental checks to Iran’s government. US authorities said it could be “the largest-ever terrorism-related forfeiture.”
Allies of both the winner and the loser in Ukraine’s 2010 presidential election — former Prime Minister Yulia Tymoshenko and Viktor Yanukovych, the winner — have been accused of money-laundering schemes involving New York properties. So have Russian fertilizer magnate Dmitry Rybolovlev and Romanian Gabriel Popoviciu, who helped introduce his country to KFC and other American fast-food icons. He became one of Romania’s richest men by bribing government officials to gain control of valuable state-owned land and develop a huge project that includes supermarkets, restaurants, and the US Embassy.
Money laundering and New York real estate have a long history. Mafia clans bought properties around New York’s five boroughs. The former first couple of the Philippines, Ferdinand and Imelda Marcos, used a series of offshore companies to channel almost $700,000 into the purchase and consolidation of three apartments near the top of Midtown’s famed Olympic Tower, which had recently been built by Greek-Argentine shipping magnate Aristotle Onassis.
Former Mayor Michael Bloomberg said, “Wouldn’t it be great if we could get all the Russian billionaires to move here?” The massive flow of foreign money —- licit and illicit -— not only drains home countries but also inflates location values in the target nation, pricing average New Yorkers out of buying or renting.
Ed. Notes: Real estate in New York is like oil in Texas. Wherever land costs a lot (and pays off a lot), and wherever oil is deposited, you find bullies hurting people and raking in fortunes. Easy money always attracts loose morals.
It does so inside and outside government, both the bribe givers and the bribe takers. (What’s the difference between a bribe and a campaign contribution of millions? Time’s up.) The real state is real estate and always has been, from the days lords and kings to the present day of landlords and bank lenders.
The only antidote is realize natural rents belong to us all, to share them a la Singapore, and to keep promulgating that realization.