The Treasury Department’s announcement Tuesday that it yet again extended a program to thwart money laundering by Russians and other foreigners through luxury U.S. real estate raises the question: Why isn’t it permanent?
McClatchy reported exclusively that Treasury’s Financial Crimes Enforcement Network, known as FinCEN, had continued and expanded, to include Honolulu city and county, a previous Geographic Targeting Order that was set to expire.
The Tuesday extension is timely since Special Counsel Robert Mueller, tapped to probe possible collusion between Russia and President Donald Trump’s campaign in last year’s election, reportedly is looking at purchases of Trump-branded properties, which often happen through shell companies.
The order, first announced in January 2016 and now extended three times, is designed to combat the use of limited liability companies, particularly those in offshore tax havens, to launder illicit proceeds in pricey U.S. real estate.
The Geographic Targeting Order requires disclosure of the actual owners of a shell company, in transactions that are cash purchases, meaning they don’t involve a mortgage. As of Tuesday, the order includes wire transfers.
When FinCEN last extended the order in May, it raised caution flags: Banks and other financial institutions had filed suspicious activities reports against 30 percent of the actual owners of the shell companies that purchased properties in the targeted markets it had studied.
“Thirty percent is quite a large number of people and eventually you get to the point you have to ask, ‘Why are we continuing to study this?’” Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition, said when asked about the extension of the order.
It’s unclear why FinCen officials have not made the order permanent, and they did not return calls for comment. The agency did issue an advisory Tuesday to financial institutions and real estate professionals warning about risky transactions, particularly those involving shell companies.
“The misuse of shell companies to launder money is a systemic concern for law enforcement and regulatory agencies, but it is of particular concern in the ‘all-cash’ segment of the real estate market, which currently has fewer AML (anti-money laundering) protections,” said the eight-page advisory.
The coalition has been pushing Congress to pass laws requiring greater ownership disclosures, particularly after last year’s publication of the Panama Papers. McClatchy, the Miami Herald and reporting partners with the International Consortium of Investigative Journalists revealed how politicians and powerful rich people used shell companies to shield illicit gains and skirt taxes. The problem is acute in Miami, the reporting showed.
“The Panama Papers and multiple investigations, including by McClatchy, have shown this is a problem and there is rampant money laundering through the real-estate sector,” Gascoigne said, pointing to a new report just released by his group about money laundering.
That report, penned by John Cassara, a former U.S. intelligence officer and Treasury Special Agent, warns that global anti-money laundering efforts are almost a complete failure and recommends requiring lawyers and others to conduct more checks on owners of offshore companies.
By Cassara’s calculation, law enforcement is catching less than a percentage point of global money-laundering. It is enabled, he insists, by weak ownership-disclosure requirements in the United States and abroad, making it difficult and costly to track true owners.
“We used to get requests all the time from countries and they were following their money trail and it would lead to (the United States) and there was nothing we could do to assist them,” he said in an interview. “It’s extremely embarrassing.”
And that’s where Tuesday’s order comes in. Not only was the expiring order extended for another six months, it was expanded to include Honolulu.
The original order in January 2016 was focused on Manhattan and Miami, but later expanded to included metropolitan New York City, South Florida, Los Angeles, San Francisco, San Diego and San Antonio.
There are financial thresholds for different areas, with cash sales of more than $500,000 garnering attention in San Antonio, more than $1 million for South Florida, more than $1.5 million for the outer New York boroughs, above $2 million for targeted California counties and more than $3 million for sales in Manhattan and in Honolulu.
Data obtained by the Miami Herald through the Freedom of Information Act showed how two Florida counties, Miami-Dade and Palm Beach, were particularly problematic. FinCEN examined 32 cash purchases in Miami-Dade County between Feb. 29, 2016, and March 9 of this year and exactly half of the buyers had been the subject of a suspicious activity report by a financial institution.
There are other reasons for concern about the use of shell companies to buy expensive real estate. McClatchy reported how a fugitive family from Kazakhstan, aided by former business associates of the Trump Organization, purchased Trump Soho properties in Manhattan through a network of offshore companies.
Another project involving the same former Trump associate is knotted in litigation and tax liens in Syracuse, N.Y., with the true owners of the property hard to determine.
The FACT Coaltion is supporting bipartisan legislation introduced earlier this month by Sens. Marco Rubio, R-Fla., and Ron Wyden, D-Ore. The measure, which must pass through the Senate Banking Committee, led by Idaho Republican Mike Crapo, would force greater disclosure of true ownership.
The proposed bill would require Treasury to issue rules for disclosure of true ownership to be filed either with state or federal authorities. It would also impose penalties for the submission of false or fraudulent ownership information.
Nicholas Nehamas from the Miami Herald contributed to this report