This Week in AML
In August 2021, Global Financial Integrity published Acres of Money Laundering – Why U.S. Real Estate is a Kleptocrat’s Dream. The report compares the real estate money laundering regulations across the G7 countries. John and Elliot discuss the report’s findings on the use of the US commercial real estate market to launder funds and the roles played in the transactions by various gatekeepers. They also call out some of the key recommendations in the report.
Here's a great article that discusses real estate and the need for real reforms in Australian AML regulations - https://www.amlrightsource.com/news/real-estate-and-the-need-for-real-reforms-in-australian-aml-regulations
Billions are Hidden in US Real Estate TRANSCRIPT
Elliot Berman: Hi, John, how are you this week?
John Byrne: Hi, Elliot. Doing fine, yourself?
Elliot Berman: I'm doing okay too.
So, with the Pandora papers coming out and all the articles related to that and the discussions that are going on, one of the things that's come back to the fore is the whole question around how real estate purchases are used to hide and money launder money.
There was a report that came out in early August that focused on that. Did you see that report?
John Byrne: Yeah, it came out from Global Financial Integrity, who we've talked about a number of times during these conversations and during webinars, that advocacy group, similar to Transparency International, that looks at global and US issues in the money laundering and related spaces.
So I thought that this like you said, the study is getting a little more play now because of the Pandora papers. I think you know; obviously, the analysis done sort of confirms what we in the community have known for quite a long period of time, the misuse of real estate to move illicit funds.
Elliot Berman: Yeah. The subtitle of the report is why US real estate is a kleptocrat Kratz dream.
John Byrne: Right.
Elliot Berman: Which sort of says it all, but, obviously they're getting into a pretty, deep analysis. So, what are some of your big takeaways from the report, and how it plays into this whole issue of corporate transparency?
John Byrne: Yeah, so a couple of things, one based on their report, they think at a minimum, more than 2.3 billion has been laundered through real estate, but also including alternate assets like art, jewelry, and yachts. So as we know, the art world is waiting with bated breath, whether they're going to be covered under the Bank Secrecy Act after the report.
That was the first one. The second one, what we've talked about before, gatekeepers, right? So they do believe that gatekeepers, you know, attorneys, real estate agents, have facilitated real estate money, laundered by high net worth individuals, not just in the US, but obviously throughout the G seven and around and around the globe.
Then to your point, they also point to the Corporate Transparency Act, part of the AMLA law that they believe can really improve the infrastructure once it's implemented and registry is put together.
Elliot Berman: Yes. For some of their key recommendations, they call on FinCEN to do a couple of things. Issue some guidance [and] I'm quoting here, "red flag indicators and create reporting requirements for the real estate money laundering, typologies related to commercial real estate transactions." They also call on them to issue some guidance to help define PEPs.
John Byrne: Right.
Elliot Berman: Because, as you know, and the community members know PEPs, everybody defines it a little different. The whole question is it only international? The other thing I want to be sure we point out is that this is a look at the US real estate market, but the players in that market are definitely, global.
So there are lots of bad actors looking to hide ill-gotten gains from around the world in the US real estate. So this was not a US-only problem. It's clearly a global problem.
John Byrne: Right. As the Pandora Papers showed us, there's a number of jurisdictions within the US that are as un-transparent, if that's a word, as offshore entities, like South Dakota, Delaware, Montana, Alaska, Nevada.
So a lot of these shell entities are being created in the US as well. So, clearly a global problem. The other part of it that's more US, but I thought [it] was interesting. They call for the geographic targeting orders to be made permanent. Right now, that authority gets extended during certain periods of time.
Then, if FinCEN believes that it's important to continue, they'll continue it. But, geographic targeting orders have been actually a tool that FinCEN has had since the early nineties and really wasn't implemented until the FinCEN Director, Jennifer Shasky Calvery, picked up on it and started to utilize it.
So I think the use of that is not just dramatic. I think almost everybody believes that those should be permanent. Maybe you have some provisions in there that could let them expire depending on hitting certain thresholds. But bottom line, I think for us, reporting GTL has been successful. I think that could help deal with some of the opaqueness of the real estate market in the US.
Elliot Berman: Yes. Agreed, [and] coming back to your comment earlier about the report focusing on gatekeepers. One of their recommendations, which I'm sure will get met with some resistance, is legal professionals should be made the lead reporting entity for identifying money laundering risks in commercial real estate transactions.
So, you know, almost every significant commercial real estate transaction obviously has lawyers and legal advisors involved. And, the report recommends that you take the people in the best position and you give them the biggest responses.
John Byrne: Right. So the reports, as you mentioned, Acres of Money Laundering, Why US Real Estate is a Kleptocrats Dream.
It's on the Global Financial Integrity website. It's an August report. I would also say that, relevant to what we're talking about today. We've just posted an interview I was able to do with Kevin Hall, an investigative reporter, about his take on some of the themes in [the] Pandora papers, and Kevin never holds back.
He's got some really good insight there. So that's a lengthier conversation on what we're doing today, but I would urge people if they get a chance to listen to that as well.
Elliot Berman: Yes. That went up on our website this morning. So, John, I'll do the shameless plug, and then you can do the one for the webinars.
So for our podcasts, you can find us on Spotify, Apple Podcasts, and wherever you find your podcasts, we have this weekly series, and then we have other podcasts under the AML Conversations label, and we encourage you to check those out.
John Byrne: The webinar in October will be on the audit function and financial institutions, how the BSA AML officer can work with and manage challenges and connect with inside and outside auditors. I think that's going to be a very compelling discussion. One that we don't talk about all that much.
Elliot Berman: Agreed. Well, John, thanks again for another interesting conversation. , you have a great weekend, and we'll talk next week.
John Byrne: Take care of Elliot. See you soon.
Elliot Berman: Bye-bye.