
Money-laundering oligarchs bought all the real-estate to clean their oil money - Alex3917
https://boingboing.net/2019/01/27/cz-edwards.html
======
fsloth
"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-e...](https://www.amazon.com/Moneyland-Thieves-Crooks-Rule-World-
ebook/dp/B01NBWDPW8)

~~~
justaguyhere
thank you for the recommendation, it surely looks like an amazing book

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avivo
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)

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olefoo
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.

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sjjshzvuiajhz
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
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.

~~~
sjjshzvuiajhz
>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)?

~~~
michaelt
At least in London, I have heard it claimed [1] that foreign investors buy
properties and leave them vacant, as London's rising house prices represent a
sufficient return on investment and remove the inconvenience and risk of
dealing with tenants.

Of course, it's hard to measure this stuff precisely, because given the
current attitudes, if you were doing that the last thing you'd do is report
yourself to the government.

[1] [https://www.theguardian.com/society/2017/aug/01/names-of-
wea...](https://www.theguardian.com/society/2017/aug/01/names-of-wealthy-
empty-home-owners-in-grenfell-borough-revealed)

~~~
YorkshireSeason
Why on earth would somebody who's interested in profit leave a property empty,
rather than cash in on rent from tenants? In other words, why would investors
choose loosing money over getting income? It's not like its hard to get
tenants. It's not like it's hard to manage tenants, and it's even easy to get
rid of them if you need to in the UK (unlike in some other countries). There's
a whole support industry for finding and managing tenants. It's almost
effortless.

I'm afraid I don't believe stories like that quoted above. As an edge case it
may occasionally happen (especially at the high-end, e.g. flats that cost > £2
mil), but the normal case is that buyers cash in on rental income. Moreover, I
posit that the number of properties left vacant is so marginal that it doesn't
affect London's housing market.

For example there has been lots of building activity in Aldgate, near Old
Street, around Stratford (former Olympic area), and in the Docklands. They are
mostly studio flats, 1-, or 2-bedrooms, all tiny, and all quickly snapped up.
London public transport (e.g. Central Line) is insanely busy now in parts
because so many new people have moved to e.g. Stratford.

Source: Anecdotal, I speak with a lot of builders, property developers, and
architects in London.

~~~
michaelt
I've worked with letting agents as a tenant, and it gave me the impression
they're all borderline scam artists whose business model revolves around
charging BS fees and penny-pinching with shoddy workmanship.

Do you suppose, when you're a foreign landlord with a poor command of English
and no ability to visit the property in person, that the letting industry
somehow becomes honest and straightforward?

~~~
YorkshireSeason
Yes, there are a borderline scammers, I've been working with such people
myself, as a tenant and a property owner.

    
    
       foreign landlord 
    

Why on earth would you buy in London in these circumstances, why not put you
money in an ETF?

Let's quantify: what fraction of the London property market does that apply
to? My hypothesis: < 0.2%

~~~
michaelt

      Why on earth would you buy in London in these
      circumstances, why not put you money in an ETF?
    

Because you're a money-laundering oligarch (or a upper class person in an
oppressive regime, worried the state will appropriate your assets) and if
you're spending £10 million or so on a property, you can afford to conceal
your identity with an intermediary in Jersey, Guernsey, BVI, Panama...

~~~
YorkshireSeason

        conceal your identity 
    

You can also conceal your identity when buying an ETF. An EFT almost certainly
has a higher ROI than empty property.

And if you are investing via intermediaries, then they can handles the letting
process so as to maximise the ROI.

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syllogism
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?

~~~
bleriot
No, at least in the US. The Realtors have lobbied very hard to make sure that
the real estate industry doesn’t have the same reporting requirements that
banking does. So a lot of dirty money has made it into the US real estate
system. The government finally started looking into it a few years ago. “By
2017, 30 percent of cash purchases of high-end real estate by LLCs in New
York, Miami, LA, San Francisco, San Diego and San Antonio were involving
suspicious buyers, according to FinCEN.”

~~~
stephen_g
I believe that it’s even worse here in Australia. We’re actually on a
Transparency International list of countries with insufficient controls
because we have basically no reporting for real estate, whereas banks, brokers
for financial products etc. do. It’s reportedly very common for people to fly
in (mostly from Asia, just given where we are located), choose a property and
buy it in cash, and be back out of the country in two days or so. A lot of
them don’t even bother renting it out - just hold for a few years empty and
then sell it later.

The party in power doesn’t seem to care - they have a lot of property
themselves (I think the average is 2 per parliamentarian, but one National
party MP has 35) so have a vested interest in keeping money flowing in to
inflate prices. Being the conservatives, it’s also good for their base - lots
of the older/wealthy...

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sandbags
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
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.

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purplezooey
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
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
Half of flats in highrises never showing any lights at night is also a pure
conjecture. Hypothetical my ass.

~~~
mcny
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
> 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.

~~~
mcny
> 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.

This is the beauty of taxation. It is an ongoing commitment. We can use it to
our advantage. Even bumping taxes to something like 5% of value should wreak
havoc (in a good way) to the market.

> A tax high enough to change these behaviors is unsustainable if applied
> equally to everyone and all properties.

Assuming the retail market cost is as much as people can afford (that's the
entire point, right? people can't afford any higher rent?), there is no slack
which means the people in the middle have to absorb the extra cost without
passing it on. At least that is my naive position until proven otherwise.

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moltar
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.

~~~
toast0
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.

~~~
aristophenes
This is the first thing I read here, including the article, that actually
makes any sense explaining how this might increase rents

~~~
pnongrata
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.

~~~
aristophenes
This is very true. Also, not an argument made by this article.

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m-i-l
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.

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bronco21016
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?

~~~
diogenescynic
Hedge funds are also exempt from money laundering requirements:
[https://www.propublica.org/article/why-arent-hedge-funds-
req...](https://www.propublica.org/article/why-arent-hedge-funds-required-to-
fight-money-laundering)

The billionaire class has captured our government. This is just one more
consequence of their control.

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genericone
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
> 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.

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ocse01
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
It's almost as if the political and financial elites are treated differently
by the law than you or I. Oh wait.

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_Schizotypy
Why does oil money need laundering?

~~~
perfmode
In my country, government officials steal from the national budget, which is
funded by oil revenues.

~~~
C1sc0cat
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.

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

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bayesian_horse
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.

