16 ms·

Money-laundering oligarchs bought all the real-estate to clean their oil money

176 points by Alex3917 8y ago

bayesian_horse 8y ago
The chink in the armor of that theory is that, at least in the West, those apartments are quite well rented out. So as long the rents are paid willingly, there is no reason to think money laundering increases rents. I'd even expect the opposite because the investors would have to pay a premium while the tenants' price elasticity doesn't change.
genericone 8y ago
Compelling argument, but I wonder how much of that can ever be proven. Sure, this is enough simply to make some people believe that the 0.001% are 'bad people', but this is the difference between investigative journalism and opinion pieces. One directly links pieces of evidence to make a claim, the other is simply an explanation of their thoughts. I like where the piece is going, but its an idea rooted in one possible explanation of reality, not an idea rooted in a discovery of something within reality.
- Alex3917 8y ago
  > I wonder how much of that can ever be proven One can imagine a scenario where the Mueller report creates so much outrage that it causes reforms to real estate laws in certain markets, which creates a natural experiment that allows the affect on price to be quantified.
moltar 8y ago
What isn’t clear is how exactly is this laundering the money? How do they buy billions of RE for cash? If it’s not cash, then these must be traceable electronic transactions? Why do they need to rent it? Seems like it’d take forever to launder the amount. Can’t they just buy and sell from each other? Buyer A buys one unit from B, sell to C. B buys from C sells to A. Etc.
- olefoo 8y ago
  There are plenty of banks that operate with rather flexible attitudes towards the onerous financial regulations most US residents are familiar with. Add in the archipelago of tax havens and opaque ownership structures and for criminals operating above a certain level; accessing the global financial system is less of a problem than you might think. The problem then becomes one of legitimizing money that was obtained through criminal means. And in this case the definition of criminal extends to otherwise legitimate enterprise carried out by actors who are under sanction from the US government.
- toast0 8y ago
  Buy real estate with clean money. Raise rents frequently and rapidly; once the current tenants leave, have pretend tenants that pay with dirty money. Voila, clean rent money, no need to maintain the building. Or buy real estate for some clean money, reported as the purchase amount, but also some dirty money, under the table. If you sell it, the you've got clean money for the difference between the reported sales price and the reported purchase price. You could even give the buyer dirty money to raise the sales price.
  - expertentipp 8y ago
    > Buy real estate with clean money. Raise rents frequently and rapidly; once the current tenants leave, have pretend tenants that pay with dirty money. Voila, clean rent money, no need to maintain the building. This would explain so many empty buildings in Prague or Berlin, while skyrocketing rents in the available real estate.
  - aristophenes 8y ago
    This is the first thing I read here, including the article, that actually makes any sense explaining how this might increase rents
    - pnongrata 8y ago
      If you buy apartments and don't rent it because it doesn't matter, you take away potentially rentable places, decreasing supply which increases rent for everyone.
olefoo 8y ago
If this is actually happening on a large scale, there should be secondary evidence. Like, do a lot of REITs have financial ties to banks in low enforcement jurisdictions? If an investigative journalist were to show that there were networks of actors who share links to suspect institutions ( Cypriot banks known to be controlled by Russian oligarchs for instance ) that could form the basis for forfeiture proceedings to free up that housing stock and help fix the housing crisis. And as a note a "clean ownership" policy that requires REIT's operating in the US of A to divulge all individual owners sounds like it might be a policy win.
purplezooey 8y ago
Didn't Vancouver have to slap a big tax on non-domestic property sales because of something similar to this? Also I've heard ~20% of the BA real estate market is overseas buyers parking cash, was in a report recently.
- msie 8y ago
  It's all hypothetical. The provincial and municipal govt had to do something because of public panic due to the media. All of the stuff I've read and heard is conjecture. Quite a tragedy.
  - eps 8y ago
    Half of flats in highrises never showing any lights at night is also a pure conjecture. Hypothetical my ass.
    - mcny 8y ago
      I keep saying: 1. The land tax or property tax on everyone (so there is no need to determine occupancy) 2. Use the money for essential services like garbage and infrastructure like subways, roads, and fiber optic cable. This makes sense to me because I think it is not realistic for a government agency to accurately determine which units are unoccupied. It is much easier to raise taxes on everyone and make the market unsustainable for anyone who isn't using the real estate productively. Of course, the other side of this is reducing waste in government spending but that's a topic for another day.
      - extra88 8y ago
        > make the market unsustainable for anyone who isn't using the real estate productively That only works if the purchases are actually an investment. When real estate is a form of money laundering, you expect to lose a portion of the value to the process of making dirty money clean. Also, a portion of the purchases are by people, say from China, who just want to park their money some place in a form where it can't be seized by the government, losing some of its value is again okay. A tax high enough to change these behaviors is unsustainable if applied equally to everyone and all properties.
Nykon 8y ago
That's just stupid. What's killing rent is inheritance.
avivo 8y ago
If you want to understand more about the money laundering world, check out the Organized Crime and Corruption Reporting Project (OCCRP). They've impacted > 5B$ of assets. Great people, they accept donations, and they are often looking for technical talent. https://www.occrp.org/en/about-us https://www.occrp.org/en/about-us
syllogism 8y ago
This makes zero sense. If your money's clean enough to get it into an REIT, it's clean enough for anything isn't it?
- gammateam 8y ago
  No, not necessarily. Just because there is a paper trail doesn't mean there is a criminal consequence. Money laundering is the action of obfuscating the origin. The CRIME of money laundering is the action of obfuscating an ILLICIT origin. So when the prosecuting government can't determine if the origin is illicit, they have no crime. A third state shell company sufficiently severs that link. And the money launderer gets money from the second state sent straight to the first state. So Russian oligarch example: First Country: Has illicit money in Russia. Second Country: Wants to invest in liquid US market to clean money, and use money. Third Country: Creates British Virgin Islands company. BVI company has names on banking and brokerage accounts in any country it wants, with no name of the beneficial owner if this is what is desired. It can invest in capital formation in the US without "Russian Oligarch" appearing on any cap table. BVI company wires money to US venture. New clean money is sent to the BVI company's accounts. BVI company and Russian oligarch now has liquid cash which is usuable and reportable in US, Europe, Russia, wherever. It can be reported for US taxes, it can do whatever it wants. Now back to the third country, why do we not care about the paper trail there? Well the BVI and other countries have no reporting demands. There is no taxing authority in these cases, these countries simply don't fund their public services this way, I know its hard to relate to but its also a great service now that other countries are less competitive. The BVI and other countries may have some form of information sharing agreement, but that comes with conditions too, such as their own standard of due process and probable cause, and there also isn't any information to share. When people use words like "funnel money", there isn't anything sophisticated going on. This is as easy and clear as clicking a button between your checking and savings accounts.
  - icebraining 8y ago
    I don't see how your post answers syllogism's question, if anything you seem to agree: "Russian oligarch now has liquid cash". So why is the REIT involved?
Kozoxy 8y ago
It would be a "compelling explanation" if there was proof of their claims. If there was proof of their claims, they should take it to the courts, not Twitter or Boing Boing. It's an entrancing speculation, though.
sjjshzvuiajhz 8y ago
I don’t understand how the behavior described in the post raises rents. Clearly demand from investors would raise sale prices, but why would renters pay more to rent in buildings owned by shady oligarchs? Seems like it would just push up the price-rent ratio, which we definitely can see in the data. If anything, that indicates renters are getting a better deal, paying a smaller portion of the capital cost of living in a scarce asset. Ie. if big city real estate is a particularly good place for oligarchs to park cash illegally, they ought to be getting less real returns then they could get on normal investments like the stock market. If they are overpaying for these properties, they are transferring wealth (on net) to the domestic sellers and/or tenants.
- stubish 8y ago
  As sale prices go up, more people can no longer afford to buy but still need somewhere to live, causing the rent market to become more competitive, and the rents go up because owners charge what the market can bare. Which in turn justifies investors paying even higher prices, so it spirals up, until it plateaus when not enough people can actually afford to pay the rent. And if the behavior described in the post is real, it goes even higher because a decent investment return is not the goal.
  - deleted 8y ago
    [deleted]
  - sjjshzvuiajhz 8y ago
    >more people can no longer afford to buy but still need somewhere to live, causing the rent market to become more competitive It seems like you are double counting here. If high prices result in units becoming investor-owned and rented out instead of owner-occcupied, that means the rental supply is larger, so the foiled-owner-occupiers shouldn’t be crowding out more renters. To put it simply, we are fitting the same number of humans in the same number of buildings here, and just changing whether the person who lives there is the owner. > and the rents go up because owners charge what the market can bare Landlords always charge what the market can bear, how does the sale price of the unit move that number (other than the double counting argument above)?
ocse01 8y ago
what a perfectly crafted narrative for the a very specific audience. oil tycoon monopoly man is the reason i cant afford a condo in california or new york. peak quality at hacker news on a more serious side note: does anyone remember the panama papers? how many high profile people have been arrested?
- ChuckMeOut 8y ago
  It's almost as if the political and financial elites are treated differently by the law than you or I. Oh wait.
fsloth 8y ago
"Money Land" by Oliver Bullough is a well researched drive through through various ways global financial system facilitates money loundering. It's a fantastic read! Almost made me want to become a corrupt third world government official - the services are that good! Real estate is just one of the forms of fixed assets that can be used to store wealth after loundering. https://www.amazon.com/Moneyland-Thieves-Crooks-Rule-World-ebook/dp/B01NBWDPW8 https://www.amazon.com/Moneyland-Thieves-Crooks-Rule-World-e...
- justaguyhere 8y ago
  thank you for the recommendation, it surely looks like an amazing book
m-i-l 8y ago
Not the same as Real Estate Investment Trusts, but in the UK a lot of properties are bought by shell companies registered in tax havens. These aren't necessarily for money laundering, but if not they're for tax avoidance or evasion. There's an interactive map at http://www.private-eye.co.uk/registry http://www.private-eye.co.uk/registry which lets you zoom to street level.
_Schizotypy 8y ago
Why does oil money need laundering?
- perfmode 8y ago
  In my country, government officials steal from the national budget, which is funded by oil revenues.
  - C1sc0cat 8y ago
    And to put a tech spin on it - being the postmaster general or minister for telecoms in a third world country was a coveted position as you could divert dollars from the interconnect fees.
sandbags 8y ago
What puzzles me is why the money used to purchase the property portfolio by a foreign investor is not subject to money laundering checks? Is this just corruption/government looking the other way?
- Nasrudith 8y ago
  Historic assumptions maybe? Namely that they may not even have records to check and it was outside their domain anyway. If you were to ask someone in the 19th century to audit the legitimacy of someone from across the ocean you would certainly get an askance look - not just because of different values but because of how bizzarely involved the task is for something that /might/ be wrong.
bronco21016 8y ago
I don’t understand how the dirty money is allowed to be used in purchasing real estate to begin with. When I purchased my home there seemed to be pretty extensive checks to see where the money I was using came from. REITs are mentioned but wouldn’t the money being invested in a REIT be under similar scrutiny?
- manicdee 8y ago
  There are different rules for the rich, and different rules again for trusts and corporations. Sure they technically violate some points but they have so much money and funded my political party don’t you know?
- diogenescynic 8y ago
  Hedge funds are also exempt from money laundering requirements: https://www.propublica.org/article/why-arent-hedge-funds-required-to-fight-money-laundering https://www.propublica.org/article/why-arent-hedge-funds-req... The billionaire class has captured our government. This is just one more consequence of their control.

176 points by Alex3917 8y ago

The chink in the armor of that theory is that, at least in the West, those apartments are quite well rented out. So as long the rents are paid willingly, there is no reason to think money laundering increases rents. I'd even expect the opposite because the investors would have to pay a premium while the tenants' price elasticity doesn't change.

genericone 8y ago

Compelling argument, but I wonder how much of that can ever be proven. Sure, this is enough simply to make some people believe that the 0.001% are 'bad people', but this is the difference between investigative journalism and opinion pieces. One directly links pieces of evidence to make a claim, the other is simply an explanation of their thoughts. I like where the piece is going, but its an idea rooted in one possible explanation of reality, not an idea rooted in a discovery of something within reality.

Alex3917 8y ago
> I wonder how much of that can ever be proven One can imagine a scenario where the Mueller report creates so much outrage that it causes reforms to real estate laws in certain markets, which creates a natural experiment that allows the affect on price to be quantified.

moltar 8y ago

What isn’t clear is how exactly is this laundering the money? How do they buy billions of RE for cash? If it’s not cash, then these must be traceable electronic transactions? Why do they need to rent it? Seems like it’d take forever to launder the amount. Can’t they just buy and sell from each other? Buyer A buys one unit from B, sell to C. B buys from C sells to A. Etc.

olefoo 8y ago
There are plenty of banks that operate with rather flexible attitudes towards the onerous financial regulations most US residents are familiar with. Add in the archipelago of tax havens and opaque ownership structures and for criminals operating above a certain level; accessing the global financial system is less of a problem than you might think. The problem then becomes one of legitimizing money that was obtained through criminal means. And in this case the definition of criminal extends to otherwise legitimate enterprise carried out by actors who are under sanction from the US government.
toast0 8y ago
Buy real estate with clean money. Raise rents frequently and rapidly; once the current tenants leave, have pretend tenants that pay with dirty money. Voila, clean rent money, no need to maintain the building. Or buy real estate for some clean money, reported as the purchase amount, but also some dirty money, under the table. If you sell it, the you've got clean money for the difference between the reported sales price and the reported purchase price. You could even give the buyer dirty money to raise the sales price.
- expertentipp 8y ago
  > Buy real estate with clean money. Raise rents frequently and rapidly; once the current tenants leave, have pretend tenants that pay with dirty money. Voila, clean rent money, no need to maintain the building. This would explain so many empty buildings in Prague or Berlin, while skyrocketing rents in the available real estate.
- aristophenes 8y ago
  This is the first thing I read here, including the article, that actually makes any sense explaining how this might increase rents
  - pnongrata 8y ago
    If you buy apartments and don't rent it because it doesn't matter, you take away potentially rentable places, decreasing supply which increases rent for everyone.

olefoo 8y ago

If this is actually happening on a large scale, there should be secondary evidence. Like, do a lot of REITs have financial ties to banks in low enforcement jurisdictions? If an investigative journalist were to show that there were networks of actors who share links to suspect institutions ( Cypriot banks known to be controlled by Russian oligarchs for instance ) that could form the basis for forfeiture proceedings to free up that housing stock and help fix the housing crisis. And as a note a "clean ownership" policy that requires REIT's operating in the US of A to divulge all individual owners sounds like it might be a policy win.

purplezooey 8y ago

Didn't Vancouver have to slap a big tax on non-domestic property sales because of something similar to this? Also I've heard ~20% of the BA real estate market is overseas buyers parking cash, was in a report recently.

msie 8y ago
It's all hypothetical. The provincial and municipal govt had to do something because of public panic due to the media. All of the stuff I've read and heard is conjecture. Quite a tragedy.
- eps 8y ago
  Half of flats in highrises never showing any lights at night is also a pure conjecture. Hypothetical my ass.
  - mcny 8y ago
    I keep saying: 1. The land tax or property tax on everyone (so there is no need to determine occupancy) 2. Use the money for essential services like garbage and infrastructure like subways, roads, and fiber optic cable. This makes sense to me because I think it is not realistic for a government agency to accurately determine which units are unoccupied. It is much easier to raise taxes on everyone and make the market unsustainable for anyone who isn't using the real estate productively. Of course, the other side of this is reducing waste in government spending but that's a topic for another day.
    - extra88 8y ago
      > make the market unsustainable for anyone who isn't using the real estate productively That only works if the purchases are actually an investment. When real estate is a form of money laundering, you expect to lose a portion of the value to the process of making dirty money clean. Also, a portion of the purchases are by people, say from China, who just want to park their money some place in a form where it can't be seized by the government, losing some of its value is again okay. A tax high enough to change these behaviors is unsustainable if applied equally to everyone and all properties.

Nykon 8y ago

That's just stupid. What's killing rent is inheritance.

avivo 8y ago

If you want to understand more about the money laundering world, check out the Organized Crime and Corruption Reporting Project (OCCRP). They've impacted > 5B$ of assets. Great people, they accept donations, and they are often looking for technical talent. https://www.occrp.org/en/about-us https://www.occrp.org/en/about-us

syllogism 8y ago

This makes zero sense. If your money's clean enough to get it into an REIT, it's clean enough for anything isn't it?

gammateam 8y ago
No, not necessarily. Just because there is a paper trail doesn't mean there is a criminal consequence. Money laundering is the action of obfuscating the origin. The CRIME of money laundering is the action of obfuscating an ILLICIT origin. So when the prosecuting government can't determine if the origin is illicit, they have no crime. A third state shell company sufficiently severs that link. And the money launderer gets money from the second state sent straight to the first state. So Russian oligarch example: First Country: Has illicit money in Russia. Second Country: Wants to invest in liquid US market to clean money, and use money. Third Country: Creates British Virgin Islands company. BVI company has names on banking and brokerage accounts in any country it wants, with no name of the beneficial owner if this is what is desired. It can invest in capital formation in the US without "Russian Oligarch" appearing on any cap table. BVI company wires money to US venture. New clean money is sent to the BVI company's accounts. BVI company and Russian oligarch now has liquid cash which is usuable and reportable in US, Europe, Russia, wherever. It can be reported for US taxes, it can do whatever it wants. Now back to the third country, why do we not care about the paper trail there? Well the BVI and other countries have no reporting demands. There is no taxing authority in these cases, these countries simply don't fund their public services this way, I know its hard to relate to but its also a great service now that other countries are less competitive. The BVI and other countries may have some form of information sharing agreement, but that comes with conditions too, such as their own standard of due process and probable cause, and there also isn't any information to share. When people use words like "funnel money", there isn't anything sophisticated going on. This is as easy and clear as clicking a button between your checking and savings accounts.
- icebraining 8y ago
  I don't see how your post answers syllogism's question, if anything you seem to agree: "Russian oligarch now has liquid cash". So why is the REIT involved?

Kozoxy 8y ago

It would be a "compelling explanation" if there was proof of their claims. If there was proof of their claims, they should take it to the courts, not Twitter or Boing Boing. It's an entrancing speculation, though.

sjjshzvuiajhz 8y ago

I don’t understand how the behavior described in the post raises rents. Clearly demand from investors would raise sale prices, but why would renters pay more to rent in buildings owned by shady oligarchs? Seems like it would just push up the price-rent ratio, which we definitely can see in the data. If anything, that indicates renters are getting a better deal, paying a smaller portion of the capital cost of living in a scarce asset. Ie. if big city real estate is a particularly good place for oligarchs to park cash illegally, they ought to be getting less real returns then they could get on normal investments like the stock market. If they are overpaying for these properties, they are transferring wealth (on net) to the domestic sellers and/or tenants.

stubish 8y ago
As sale prices go up, more people can no longer afford to buy but still need somewhere to live, causing the rent market to become more competitive, and the rents go up because owners charge what the market can bare. Which in turn justifies investors paying even higher prices, so it spirals up, until it plateaus when not enough people can actually afford to pay the rent. And if the behavior described in the post is real, it goes even higher because a decent investment return is not the goal.
- deleted 8y ago
  [deleted]
- sjjshzvuiajhz 8y ago
  >more people can no longer afford to buy but still need somewhere to live, causing the rent market to become more competitive It seems like you are double counting here. If high prices result in units becoming investor-owned and rented out instead of owner-occcupied, that means the rental supply is larger, so the foiled-owner-occupiers shouldn’t be crowding out more renters. To put it simply, we are fitting the same number of humans in the same number of buildings here, and just changing whether the person who lives there is the owner. > and the rents go up because owners charge what the market can bare Landlords always charge what the market can bear, how does the sale price of the unit move that number (other than the double counting argument above)?

ocse01 8y ago

what a perfectly crafted narrative for the a very specific audience. oil tycoon monopoly man is the reason i cant afford a condo in california or new york. peak quality at hacker news on a more serious side note: does anyone remember the panama papers? how many high profile people have been arrested?

ChuckMeOut 8y ago
It's almost as if the political and financial elites are treated differently by the law than you or I. Oh wait.

fsloth 8y ago

"Money Land" by Oliver Bullough is a well researched drive through through various ways global financial system facilitates money loundering. It's a fantastic read! Almost made me want to become a corrupt third world government official - the services are that good! Real estate is just one of the forms of fixed assets that can be used to store wealth after loundering. https://www.amazon.com/Moneyland-Thieves-Crooks-Rule-World-ebook/dp/B01NBWDPW8 https://www.amazon.com/Moneyland-Thieves-Crooks-Rule-World-e...

justaguyhere 8y ago
thank you for the recommendation, it surely looks like an amazing book

m-i-l 8y ago

Not the same as Real Estate Investment Trusts, but in the UK a lot of properties are bought by shell companies registered in tax havens. These aren't necessarily for money laundering, but if not they're for tax avoidance or evasion. There's an interactive map at http://www.private-eye.co.uk/registry http://www.private-eye.co.uk/registry which lets you zoom to street level.

_Schizotypy 8y ago

Why does oil money need laundering?

perfmode 8y ago
In my country, government officials steal from the national budget, which is funded by oil revenues.
- C1sc0cat 8y ago
  And to put a tech spin on it - being the postmaster general or minister for telecoms in a third world country was a coveted position as you could divert dollars from the interconnect fees.

sandbags 8y ago

What puzzles me is why the money used to purchase the property portfolio by a foreign investor is not subject to money laundering checks? Is this just corruption/government looking the other way?

Nasrudith 8y ago
Historic assumptions maybe? Namely that they may not even have records to check and it was outside their domain anyway. If you were to ask someone in the 19th century to audit the legitimacy of someone from across the ocean you would certainly get an askance look - not just because of different values but because of how bizzarely involved the task is for something that /might/ be wrong.

bronco21016 8y ago

I don’t understand how the dirty money is allowed to be used in purchasing real estate to begin with. When I purchased my home there seemed to be pretty extensive checks to see where the money I was using came from. REITs are mentioned but wouldn’t the money being invested in a REIT be under similar scrutiny?

manicdee 8y ago
There are different rules for the rich, and different rules again for trusts and corporations. Sure they technically violate some points but they have so much money and funded my political party don’t you know?
diogenescynic 8y ago
Hedge funds are also exempt from money laundering requirements: https://www.propublica.org/article/why-arent-hedge-funds-required-to-fight-money-laundering https://www.propublica.org/article/why-arent-hedge-funds-req... The billionaire class has captured our government. This is just one more consequence of their control.