US set to unveil long-awaited crackdown on real estate money laundering | Hacker News Reader

US set to unveil long-awaited crackdown on real estate money laundering

reuters.com

103 pointseatonphil89 comments

Apparently there is a lot of this in the Vancouver market in BC, Canada:

> In their review of the sector, the Expert Panel estimated that more than $7 billion in dirty money was laundered in B.C. in 2018, and between $800 million and $5.3 billion was laundered through the real estate market, raising housing prices by an estimated 5%.

https://www2.gov.bc.ca/gov/content/housing-tenancy/real-esta...

At least 5%. Even though the laundering has "supposedly" (cough cough) stopped here in Vancouver, the momentum it created likely still carries on.

Canada's utopian conditions for most types of crime are something of an open secret. Most of these crimes then rely on Canada's national industry - money laundering - to clean the money or move it out of the country.

Anyone interested in the tip of the iceberg should read Wilful Blindness by Sam Cooper. And that's relatively old. And mostly just the CCP's part. You still have a rich diaspora of organized crime operating in virtually every corner and geography of Canada, including First Nations, some of which are conveniently located in just the right places to facilitate smuggling of all things between the US and Canada.

And the absoltue best part? It's almost guaranteed that this involves even the Prime Minister's Office. Or at least it seems very clear Trudeau has something to hide due to his absolutely willingness to sacrifice all things in order to avoid a public inquiry into CCP election interference.

Maybe it's no coincidence that Tse Chi Lop, the alledged leader of the Sam Gor crime syndicate is Canadian Chinese.

Hey now, there is still a part of Canada that makes an honest living (at least until the feds finish destroying the oil industry) money laundering is more an eastern and west coast pass time

> read Wilful Blindness by Sam Cooper

All Canadians should read it. It should be part of the high school curriculum.

This will be a significant boost to London, already home to vast amounts of money laundering via real estate, all facilitated by well established networks involving thousands of middle class professionals and the UK's crown dependencies with convenient secrecy laws, nominee directors etc. to conceal beneficial ownership. 70% of the apartments in most premium developments are owned offshore, many with concealed ownership -- 11% of all of the properties in Westminster alone.

I recommend the following books by Oliver Bullough:

Moneyland https://www.amazon.co.uk/Moneyland-Thieves-Crooks-Rule-World...

Butler to the World https://www.amazon.co.uk/Butler-World-Britain-Empire-Found-e...

and, by Tom Burgis

Kleptopia https://www.amazon.co.uk/Kleptopia-Dirty-Money-Conquering-Wo...

and this YouTube video

https://www.youtube.com/watch?v=4n3txSCoKn0

Doesn’t solve the problem of LLCs owning property. I buy a property with an LLC. I then sell the LLC to another individual. Property remains owned by the LLC. No title transfer tax, no fees, etc.

What's the problem with this exactly?

In some areas, properties get a tax reassessment after a sale. The LLC abstraction avoids the reassessment.

California, at least, treats as a change in property ownership when a more than 50% interest in the legal owner (i.e. corporation, LLC, trust, etc) changes.

The rules don't completely address the problem. For example, I think some buildings are owned by consortiums so that nobody has more than a 50% stake. But that limits their ability to easily make management decisions; there's a cost to that structure. You definitely still see buildings sold out-right, so it's not like every building in California is owned by an LLC just to avoid reassessment.

The last time I checked, the 50% change in ownership had to be within one year in order to trigger the prop 13 revaluation (at least for commercial real estate). So, you transfer your corporate campus to an LLC, then sell 33% of it to a buyer this year, and agree to let them "run" the LLC, effective immediately. Next year, you sell another 33% of the LLC, and the year after, the last 33%.

What I don't understand is why this isn't standard practice for residential properties owned by individuals.

I assume you could use a combination of escrow accounts and collateralized loans to make the transaction mostly indistinguishable from wiring 100% of the money on the day of the sale. (I am not a lawyer or an accountant.)

Prop 13 in California. Its purpose was to lower the tax burden on commercial real estate in perpetuity, and they did this by throwing in a bone for Grandma.

Off the top of my head: value is tied to appraisal which happens during a sale. Land values wouldn't change to reflect local demand and this could depress tax revenue. You'd probably be able to get away with some foolishness regarding the building condition.

This is only true for very few markets that have ridiculous subsidies for land owners via laws that limit property tax, such as California.

Most other places re-assess all property values on an ongoing basis and charge you accordingly.

>Most other places re-assess all property values on an ongoing basis and charge you accordingly

Those reassessments are based on market activity over the preceding year. Property changing hands without actually being a real estate transaction does not generate market data for the assessors to use

Title transfer/recordation is taxed in lots of jurisdictions, this is a tax loophole that only people savvy enough to buy properties with LLCs can use.

This is highly dependent on which state you're in though.

> this is a tax loophole that only people savvy enough to buy properties with LLCs can use

? Tennis is a sport that only people savvy enough to buy tennis balls can play

It's a tax dodge.

LLCs with untraceable owners. Ask Delaware why their laws encourage thousands of anonymous corporations to hide shady behavior world wide.

The Corporate Transparency Act passed in 2020 ended anonymous LLC ownership in the US.

Which helps, but look at the list of exempt companies which don't have to report.

https://www.jdsupra.com/legalnews/congress-passes-corporate-...

Or just transfer shares of the LLC to the new beneficial owner.

> The U.S. Treasury Department will soon propose a rule that would effectively end anonymous luxury-home purchases, closing a loophole that the agency says allows corrupt oligarchs, terrorists and other criminals to hide ill-gotten gains.

Almost good enough. How about we make it harder for non-citizens to buy any homes too? Citizens should get first pick of any dwelling. Many countries do this, even in the west, and it would go a long way in stopping the crazy house prices in the west/southwest. It could even be extended to give preference to people who have established residency in a region. My original low COL hometown was overrun during the California exodus and housing jumped 3x in 5 years. The average house is now well over 6x average income. No resident could dream of affording even the shittiest starter home in this double-whammy environment.

Even better would be stopping any entity other than a real person from owning residential property. Companies can invest in and profit from commercial real estate.

Leave houses for people.

This would likely over time make apartment complexes the number one thing built in residential zones, since there's probably no way to not have companies/businesses owning apartment complexes.

That might be fine because that's probably what the market needs most right now. The law can be changed later if it's having a negative effect.

Ya I'd be perfectly fine with this, though it's a pretty superficial suggestion with all kinds of externalities to consider.

Then just have individual people own individual apartments. Easy enough.

If we’re talking about ideal housing policies, why not extend it to say that individuals seeking primary residence should get priority over investors or secondary purchasers. AirBNB operators are just as predatory if not more in these markets than non-citizens.

How would you implement "get priority"? I think there's already some prioritization in terms of being easier to get loans for a primary residence, and better tax treatment, etc.

But I'm not sure how you'd prevent an investor from outbidding an individual looking to buy a primary residence. You'd have to force the seller to accept a worse offer, and even if such a law was passed I don't think it would survive scrutiny from the courts.

I think the easiest way would be to change local property taxes in a way that disincentivizes investors. For example: a “cap” on property taxes for purchasers who declare the home as their primary residence, and a substantially higher tax rate for secondary homes that compounds per home owned by the investor in the jurisdiction (e.g. Primary Resident owner gets capped property taxes at 3% while AirBNB investor who owns 4 homes would get taxed at 15% on investment house 1, 30% on house 2, 45% on house 3 and 60% on house 4).

You could still have each property be a primary residence for a different family member, but it might still help.

If you are going to do this, it needs to be paired with price controls on rental housing. Otherwise the expense is passed on and becomes a de facto regressive tax on (usually poor) renters.

With respect to short term rentals in particular, outright bans are the easiest and most effective policy. Some cities allow for 30 days of short-term renting as long as the unit is a primary residence for the property owner for the other 335 days of the year. I think that's a fair compromise that achieves the ostensible goal of the "sharing economy" without hotel-ifying the entire city's housing stock.

I don't know how effective this is in encouraging home ownership. The primary goal for tax incentives on primary residence vs investment property is that it makes owning a home cheaper than renting. Rent controls have the opposite effect, and so create a situation where nobody is incentivized to own property at all.

>If you are going to do this, it needs to be paired with price controls on rental housing. Otherwise the expense is passed on and becomes a de facto regressive tax on (usually poor) renters.

I would expect a jurisdiction progressive enough to have a scheme as previously described to also probably have rental price controls/subsidies/etc to assist with high rents. That said, the market price for a rental will be what it is. Landlords charge exorbitant rents because people pay them.

If the landlords' taxes cause their cost basis to be too high to make the rent hit the market, the landlords will get out of the market. Which is kind of the whole goal.

That seems to be how it works in Vegas, 3% cap on owner occupied houses and 8% cap for non-owner occupied houses. Maybe that's not steep enough to discourage companies gobbling up houses though and the rates would need to be higher.

> It could even be extended to give preference to people who have established residency in a region

How do you propose establishing residency if you cannot buy a house? Be forced to rent even if you can buy a house?

Basically what you’re proposing if citizens not being able to have mobility in the country. If you’re born in the economic centers or scenic places, good for you, but in case you were born in middle of Montana, good luck because you can’t go anywhere else.

No, no need to rent. The solution is pretty trivial, and even battle-tested because the problem has already been solved for mortgages (lenders really care whether a piece of property is your primary residence) and for income tax (your primary residence really matters).

Simply require people to attest that they are purchasing the property as their primary residence, with significant penalties for fraud. You can make enforcement and public accountability even easier by ublishing both owner info and a boolean "is_primary_residence" flag in every county's plat maps/parcel database.

I suggest lawmakers could additionally add an x-month grace period, for x =~ 3*<average time on market for like properties in the past 12 months>, which allows people to have a generous period of overlapping ownership while they are moving. Perhaps even allow an auto-appeal process that adds x more time if you can show that you listed the property for sale at around the assessed value and had no offers within say 10% of your asking price.

I say a worse problem than foreigners buying real estate is large private equity groups like Blackstone buying up homes across the country and turning them into rentals.

So, maybe this is to ensure that foreign buyers do not compete with PE?

Exactly. I could give a fuck who owns the houses in an area, as long as it's lots of individuals vs a single mega-corp that can then singlehandedly influence inventory and pricing.

I think it's more like foreign private equity firms, local private real estate investment trusts, local private equity firms, foreign individuals with money that came from _somewhere_, and then local individuals with boomer parents' money, depending on country, area, and age group perhaps.

> It could even be extended to give preference to people who have established residency in a region

Not consistent with the Constitution. If you take a peek at the Privileges and Immunities clause of Article IV and the associated case law you will see we are all allowed to move to new States and be on “equal footing” with residents of that state after a reasonable delay.

Canada started doing this this year: non-citizens cannot buy residential properties for 2 years:

https://www.cmhc-schl.gc.ca/professionals/housing-markets-da...

…in certain areas which could generally be characterized as “urban”, meaning outside of census agglomerations or whatever they call them in Canada, houses are fair game.

aha - good to know, thank you!

Makes sense - huge prices for junk in Vancouver or Toronto, while mansions in outport Nova Scotia are empty and towns in Newfoundland are forced to resettle.

Phoenix, AZ?

There are an unbelievable number of homes in my area that are "investor"-owned empty shells. Walking down the street on a quiet night, I can hear smoke detectors beeping low battery alarm every 3 seconds or so. I'd say about 25% of the properties are this way. These aren't massively-expensive things either. 300-500k range in TX market.

That's more than I would spend on a smoke detector battery.

I'd be nervous owning property in a market like that. When times get tough markets like that will get hit hard as investors pull out.

I'm going to take a wild guess, are you in the suburban Houston area? I've got friends and family there and they've mentioned the same thing. I thought they might be exaggerating but I keep hearing it from different sources. I never hear the same thing about DFW or Austin.

> I'd be nervous owning property in a market like that.

A major reason for living in the HTX suburbs is to make the cost of the home so irrelevant that you don't worry much about the surrounding market conditions. If you are 100% WFH tech employee and your employer isn't a raging asshole, this is tantamount to turning on economic cheat codes.

When a home is so cheap to start with, you can start saving for the next step much sooner. Even if I lost half the value in this home, I would be fine. I'd be pissed, but it wouldn't dramatically alter the strategic path I have planned on.

I grew up in a community like this, in a family operating on your set of assumptions.

The problem isn't losing half the value of your property. The problem is that after 20 years, moving on isn't as easy as it sounds. More importantly, selling at any price is way more difficult that it sounds. If you don't GTFO early enough, the muni has lost a ton of revenue without right-sizing so the remaining owners on are on the hook for huge property taxes just to service the debt (further suppressing demand at literally any price).

And there are all sorts of reasons you might not GTFO in time. Just two more years until the first kid is done with HS. And now just two more years for the next kid; still seems unfair to move them. And so on. And then just 2 more years until you've saved up enough for that dream place in the mountains. And then it's too late.

So you are stuck with this albatross that you literally cannot sell. Property values, even at $1, are totally hypothetical. There is no buy side of the market. At all. Enjoy your property taxes, or figuring out how to abandon the property.

It's the suburban muni equivalent of a condo unit that is attractively priced but won't ever move because a contingent of geriatric owners have managed to run up $2k/mo HOA fees by unwittingly turning the condo association into an assisted living facility (but not making it far enough to actually be an assisted living facility).

i'm currently wandering the nyc streets around evenings, making notes about the buildings with the largest concentrations of dark windows in areas i want to live in

someone realizing they cant sell a 'hot' property is probably my best bet at getting an affordable 'starter apartment'...

Real estate is not that big of a money laundering channel. It's mostly the most unsophisticated mobs.

The absolute majority of laundry is happening in 100% legal banks, and investment funds. Any baddie who can launder few billion dollars, can buy a bank completely legally.

> Real estate is not that big of a money laundering channel.

I don't have numbers but I'll suggest that even if real estate is a small fraction of all money laundering (and I agree with you about banks), if even a percent or two of manhattan real estate supply is held up in schemes that could make a big impact on price. I know AirBnB always catches blame for skyrocketing rent, while in any city they represent a vanishly small portion of housing stock, for sure outnumbered by vacant units. [actually it occurs to me that renting units for exorbitant prices on airbnb to ghost clientele would be a decent money laundering scheme, no?]

(For example, in San Francisco there are ~5000 listings on AirBnB [0], while ~40,000 homes sit vacant [1], for a population of what, 800,000 ?)

So a small change in housing supply can have a big effect on cost of housing, which is why I expect people are clamoring for a crack down.

[0] https://web.archive.org/web/20210720175121/https://www.magni...

[1] https://www.sfgate.com/bayarea/article/how-many-vacant-homes...

Why make notes when you can automate the task ;)

https://www.movesmartly.com/articles/condo-units-sitting-emp...

that's fantastic! for a second i was thinking facetiously about zipping a camera-equipped drone up and down the streets as fast as it can to hoover this up automatically...

but you could probably get an entire city's worth of information at once using a private small craft at altitude with a good lens?

this would be an expensive capture, but if there are enough people interested, the costs could be split...

Do it on a consistent enough basis and you could sell the data to hedge funds no problem.

Find the NYC assessors office's website and dig around until you find where they're dumping scheduled exports from their ancient cores. The format might be tab-delimited ebcdic but the data will be up to date. See if you can cross-reference dark windows with anything. Or just ask a commercial real estate agent.

interesting, i've been combing the permits and dept of health sites but I didn't think to check the assessors office... will do :)

yup the real estate agent will always be the last step anyway, there's just so many I want to be really targeted with my approach

A good Commercial Real Estate (CRE) agent will understand why the lights are out and know if there's anything in the data that'd let you predict or make use of that information. There could literally be a column called MiscExplns that flags what you're looking for but you'll never know.

Find a CRE who'd enjoy breaking their domain down for you over dinner or a beverage, or find one who also wants to ask questions about your domain and hang out a bit. It's difficult to self-educate in this area thanks to all the noise online.

if you are offering or know someone, i'm always down for beverages :) my emails in my bio

It's really a local profession and their ideas about data views will be personalized for their specific clients, regions, or niches.

If you're actually physically going around to each building and collecting data not available online, someone nearby will be interested in having that data and will have suggestions on what else you can collect while you're there. Driving around and eyeballing properties is a large part of some CRE agent's jobs, and they would pay you to avoid it if they could.

From my perspective your best bet would be walking in to local CRE offices and seeing if anyone's available to talk about new data sources. It's a personality-driven field and they value face-to-face interactions quite a bit. Maybe throw out a few lines in your local facebook area or subreddit?

In NY, do units pay for their own electricity? The utility company could look at the consumption rates and suss out what addresses are occupied pretty easily without having to do any extra work like flying drones/planes. One wonders if they already package up and sell such data..

There is a small cottage industry around submetering. Generally a unit has to include utilities in the rent or it has to be metered. The billing companies all have the data you want. But very unlikely they sell it.

You should post that as it's own link, the concept is cool.

Are you taking actual photographs in people's windows?

Not me but my understanding is yes, they are taking photos of people's windows from the vantage point of their home or office.

it's the only way to keep young people working: https://twitter.com/goodworkmb/status/1662129051601891332

This crackdown is targeted at the Middle Kingdom. With the pandemic behind us and Russia at war, the political environment is finally right to turn this on. It can be considered an escalation in the cold war/trade wars

Don't forget the drug war. Miami wasn't built up just for local Floridians.

Yeah. If they get serious about this, real estate in Miami, and in Florida in general, is going to be seeing some troubled times ahead.

There is (recently) already significant restriction on real estate ownership in Florida. Decent breakdown here: https://www.bipc.com/new-florida-real-estate-law-restricts-c...

What do you mean by Middle Kingdom? I googled it and everything I could find was about a period in Egypt's history.

中国 (Zhōngguó) literally means "middle kingdom" and is China's endonym.

Thank you for the helpful reply!

They mean China: https://en.wikipedia.org/wiki/Names_of_China

Thank you for the helpful reply!

It is not, or, if it is, it's completely not serious.

As I said in the other comment, the majority of global money laundering happens in banks, and investment funds completely legally. And it's also happening primarily in US because US financial markets are world's largest.

Why to go after money laundry clients, when they should really go after the bank laundry owners?

Western governments never needed KYC AML for that, because they already knew perfectly well who is laundering money and where.

Chinese and Russian mafia members lived openly in the West in tens of thousands for decades, and its absolutely impossible that no Western counterintelligence agency ever checked them. The ill famed Andrei Guriev literally lived in Vauxhall.

If US government was serious about Chinese/Russian infiltration of American financial system, Blackrock would've been sent to Guantanamo years ago. I find it absolutely implausible that the White House don't know it.

> 7% of GTO reports identified individuals or entities connected to ongoing FBI cases

So... 93% of people had their privacy violated for no reason. And that was with the current highly targeted measure. When it is applied to all real estate purchases it'll be more like 99.9%. But sure, we should be willing to give anything to satisfy a handful of "transparency activists" who don't do anything besides complain all day (read about the scandals at Transparency International and you'll find that perhaps these people are not the saintly do-gooders they are reported to be).

No, >99.9% of people will never have their privacy violated because they aren't afforded the ability to hide their ownership. Check out your county's plat maps -- if you own property, you're probably in there.

TBH? I don't think anonymously owning land should be allowed, full stop. If you want police and courts to recognize your arbitrary stat-granted right over a piece of dirt, then own up to what you own.

There is a difference between there being a record of it in some county's database and a team of Treasury department and federal law enforcement members scrutinizing the sale (and being given additional records on it from the intermediaries involved).

Right. The difference is that you don't NEED a whole damn team to do financial forensics on the sale if the actual owner is recorded on the fucking plat map.

For normal people docs with equivalent or more info are definitely provided to tons of intermediaries and available to the gov.

Only took them almost a full generation of potential home buyers getting screwed to start to do something about it. Anybody with a brain has known this for 20 years.

Will it take another 20 years for them to do something about large investment groups buying up 20% of the housing stock in some cities?

waiting for the steam one...

Now i'm imagining some secret money-laundering scheme involving steam locomotives :D

What's crazy is the mafia losing 30% to valve in the process.

Surely there won't be any loopholes that politicians will promise to close in about ten years' time...?

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