The contagion has spread remarkably quickly, which is not to say steadily, in a country haunted since its founding by the perils of corruption. The United States has had seizures of conscience en route to the top of the new global order surveyed by the British journalist Oliver Bullough in his excellent book Moneyland: Why Thieves and Crooks Now Rule the World and How to Take It Back. In the months following Palmer’s testimony, the zeitgeist swerved in the direction he urged, at least momentarily. Newspaper articles in the fall of 1999 showed how billions in Russian money, some of it seemingly tied to an alleged crime boss, had landed in the Bank of New York. These sums startled Bill Clinton’s administration, which readied tough new anti-money-laundering bills, designed to stiffen banking regulations. But the administration was in its last year, and passing any new law would have required a legislative slog and bull-rushing obstreperous lobbyists, so plans stalled.
The Clinton-era proposals would have remained an unvisited curio in the National Archives had Osama bin Laden not attacked. But in the days after the Twin Towers collapsed, George W. Bush’s administration furiously scoured Washington for ideas to jam into the 342-page piece of legislation that would become the patriot Act. A sense of national panic created a brief moment for bureaucrats to realize previously shelved plans. Title III of the patriot Act, the International Money Laundering Abatement and Anti-terrorist Financing Act, was signed into law little more than a month after September 11.
This section of the bill was a monumental legislative achievement. Undeterred by the smoke clouds of crisis, representatives of the big banks had stalked the Senate, trying to quash the measure. Citibank officials reportedly got into shouting matches with congressional staffers in the hall. This anger reflected the force of the patriot Act. If a bank came across suspicious money transferred from abroad, it was now required to report the transfer to the government. A bank could face criminal charges for failing to establish sufficient safeguards against the flow of corrupt cash. Little wonder that banks fought fiercely against the imposition of so many new rules, which required them to bulk up their compliance divisions—and, more to the point, subjected them to expensive penalties for laxity.
Much of what Palmer had urged was suddenly the law of the land. But nestled in the patriot Act lay the handiwork of another industry’s lobbyists. Every House district in the country has real estate, and lobbyists for that business had pleaded for relief from the patriot Act’s monitoring of dubious foreign transactions. They all but conjured up images of suburban moms staking for sale signs on lawns, ill-equipped to vet every buyer. And they persuaded Congress to grant the industry a temporary exemption from having to enforce the new law.
The exemption was a gaping loophole—and an extraordinary growth opportunity for high-end real estate. For all the new fastidiousness of the financial system, foreigners could still buy penthouse apartments or mansions anonymously and with ease, by hiding behind shell companies set up in states such as Delaware and Nevada. Those states, along with a few others, had turned the registration of shell companies into a hugely lucrative racket—and it was stunningly simple to arrange such a Potemkin front on behalf of a dictator, a drug dealer, or an oligarch. According to Global Witness, a London-based anti-corruption NGO founded in 1993, procuring a library card requires more identification in many states than does creating an anonymous shell company.
Much of the money that might have snuck into banks before the patriot Act became law was now used to purchase property. The New York Times described the phenomenon in a series of exposés, published in 2015, called “Towers of Secrecy.” Reporters discovered that condos in the ultra-luxe Time Warner Center at Columbus Circle in Manhattan were owned by a constellation of kleptocrats. One condo belonged to the family of a former Russian senator whose suspected ties to organized crime precluded him from legally entering Canada for a few years. A condo down the hall belonged to a Greek businessman who had recently been arrested in an anti-government-corruption sweep. The family of a former Colombian governor, imprisoned for self-enrichment while in office, owned a unit he could no longer visit.
These denizens, all of whom denied wrongdoing, made their high-priced purchases in what has become a common way. Nationwide, nearly half of homes worth at least $5 million, the Times found, were bought using shell companies. The proportion was even greater in Los Angeles and Manhattan (where more than 80 percent of Time Warner Center sales fit that description). As the Treasury Department put it in 2017, nearly one in three high-end real-estate purchases that it monitors involves an individual whom the government has been tracking as “suspicious.” Yet somehow the presence of so many shady buyers has never especially troubled the real-estate industry or, for that matter, politicians. In 2013, New York City’s then-mayor, Michael Bloomberg, asked, “Wouldn’t it be great if we could get all the Russian billionaires to move here?”
The warm welcome has created a strange dissonance in American policy. Take the case of the aluminum magnate Oleg Deripaska, a character who has made recurring cameos in the investigation of Russian interference in the 2016 presidential election. The State Department, concerned about Deripaska’s connections to Russian organized crime (which he has denied), has restricted his travel to the United States for years. Such fears have not stood in the way of his acquiring a $42.5 million mansion on Manhattan’s Upper East Side and another estate near Washington’s Embassy Row.
Over time, the gap between the noble intentions of the patriot Act and the dirty reality of the property market became too wide to ignore. In 2016, Barack Obama’s administration tested a program to bring the real-estate industry in line with the banks, compelling brokers to report foreign buyers, too. The ongoing program, piloted in Miami and Manhattan, could have become the scaffolding for a truly robust enforcement regime. But then the American presidency turned over, and a landlord came to power. Obama’s successor liked selling condos to anonymous foreign buyers—and may have grown dependent on their cash.
In 2017, Reuters examined the sale of Trump Organization properties in Florida. It found that 77 of 2,044 units in the developments were owned by Russians. But that was likely an incomplete portrait. More than one-third of the units had been sold to corporate vehicles, which can readily hide the identity of the true owner. As Oliver Bullough remarks, “They might have belonged to Vladimir Putin, for all anyone else could know.” Around the time that Trump took up occupancy in the White House, the patriot Act’s “temporary” exemption for real estate entered its 15th year. Without anyone ever declaring it so, the ephemeral has been enshrined.
Originally Posted by Fragony
Re: Backroom Errata
Posting Permissions
Reply With Quote
Bookmarks