Monday, February 9, 2015


A major investigative article came out yesterday in the New York Times, detailing the large number of multi-million dollar residences in New York City, that are being purchased through LLCs owned by foreign white-collar criminals, and corrupt PEPs. While the information was quite informative, it failed to explain how these transactions evade AML. The answer, which may surprise you, is in two parts:

(1) These eight-figure transactions are not subject to any meaningful bank AML, because there is no mortgage qualification process; the buyers are wiring in full payment for the units they purchase, and are thus not subject to bank compliance due diligence. The purchasing entities are LLCs created by attorneys specifically to keep their clients' names out of the limelight, and they are rarely known.

(2) In truth and in fact, there is NO statutory or regulatory requirement that real estate agents and brokers file Suspicious Activity Reports (SARs) on troubling transactions. In fact, they assume personal risk if they do so, so don't blame them. Here is the official warning, verbatim, from the National Association of Realtors website, on the page discussing money laundering issues:

 "It is important to note that, while the bank Secrecy Act contains a safe
   harbor, shielding financial institutions from civil liability in connection with
   the filing of a SAR, there is no precedent to suggest that the safe harbor
   would extend beyond financial institutions to real estate processionals.
   Therefore, a real estate agent should be prudent and file a suspicious
    activity report only after thoroughly evaluating the circumstances
    surrounding the suspicious activity, and additionally should consider
    consulting an attorney on the matter prior to filing a SAR. otherwise, a real
    estate agent could subject themselves to civil liability as a a result "
    Anti-Money Laundering Guidelines for Real Estate Professionals

To date, the powerful real estate lobby has prevented its industry from being subject to what we call best practices in AML. You may recall it was the US banking lobby that killed five proposed AML/CFT bills in Congress. I know this because in 1999 and 2000, I testified in favor of three of them, before Congressional committees. Those bills later became the nucleus of the US PATRIOT Act of 2001. Does real estate now need its own version ? Of course.

Can some brave souls in the US Congress now stand up, and pass legislation requiring that companies in the real estate industry operate an effective AML program, with SAR safe harbors to protect its agents ? Otherwise, foreign PEPs with dirty cash to burn will continue to drive up prices in New York, as they place, and launder, their illicit wealth in America.

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