It’s ironic, considering that for decades Washington led the charge against the Swiss and others for facilitating money laundering through numbered bank accounts. Today, Switzerland has cleaned up its act and the “filthy” rich have turned to New York City, turning it into a secrecy haven to stash their cash through the use of shell companies.
The flood of dirty money of unknown origin into New York is staggering. In the past five years, about $8 billion worth of apartments worth $5 million or more have been bought, or three times higher than years previous. Most troubling is that 50 percent of these have been bought for cash, forked out by shell companies controlled by persons unknown.
The United States as a whole has become a magnet for unsavory people because its real estate developers and lawyers are not legally required to know who their clients are, as Swiss banks now must.
Finally, despite years of lobbying by law enforcement officials, the federal government is starting to crack down on this loophole.
Bipartisan legislation has been introduced in Congress to require transparency, and the US Treasury Department announced the creation of a public ownership registry in New York City and Miami — that may eventually be rolled out nationally.
But secrecy should have been made illegal years ago. Not only does it hide the identity of the crooked, violent and corrupt, it makes investigations or seizures impossible. The bad guys invest their cash in a condo or other assets through a US trust or shell company managed by another shell company in Grand Cayman or Hong Kong, owned by another trust in Guernsey or Singapore with an account in Luxembourg managed by a Swiss banker who doesn’t know who the owner is.
The United States as a whole has become a magnet for unsavory people because its real estate developers and lawyers are not legally required to know who their clients are, as Swiss banks now must.
Growing demand to “out” ownership by law enforcement officials has been ignored due to intense lobbying by the real estate, legal and accounting industries.
“We like the money,” said Raymond Baker, the president of Global Financial Integrity, a Washington nonprofit that tracks and condemns the illicit flow of money. “It’s that simple. We like the money that comes into our accounts, and we are not nearly as judgmental about it as we should be.”
It appears, however, that the tide is turning. Cases have shown that shell companies not only conceal sleazy foreigners but also have enabled American criminals who have defrauded Medicare, embezzled from public schools, scammed the elderly and made illegal contributions to American political candidates.
An end to secrecy is supported by the G7, United Nations and the Organization for Economic Cooperation and Development. The concern is that countries with hot money outflows are being destabilized, while countries inundated with illicit cash are developing real estate bubbles and high housing costs for ordinary residents.
The biggest losers are China, where $1.39 trillion left between 2004 and 2013; Russia, with $1 trillion hidden, and Mexico, with an outflow of $528 billion.
In some African nations, the outflow of funds is so sizable that it is shrinking the size of their economies and sabotaging their societies.
Meanwhile, in New York, the flood of buying by persons unknown is damaging the housing market. Between 2010 and 2015, the average square-foot price of a residence in New York City jumped from $1,000 to $1,450, an increase of 45 percent.
Identifying the buyers of luxury apartments may not lower your rent overnight. But it would certainly make foreign criminals think twice before they bought another $50 million condo.