Feds indict Parkites on money laundering, drug charges

By Bubba Brown

Federal prosecutors indicted two Parkites on drug and money laundering charges, accusing them of using money from marijuana sales to operate a popular Salt Lake City concert venue and purchase property in Park City.

The 13-count indictment, announced Monday, names Gabriel Seth Elstein, 33, and his wife Angela Christina Elstein, 32, both of Park City, as well as St. George resident Scott Dale Gordon, 48. Prosecutors say they used multiple suppliers and drivers over a period of several years to transport more than 2,000 pounds of marijuana from California to Salt Lake City, Minnesota, Illinois and Wisconsin. Dumbles Holdings, LLC was also listed in the indictment.

Prosecutors accuse the trio of using $1.3 million from marijuana sales to build The Complex music venue, describing regular payments of $50,000 of cash in shrink-wrapped bags to the foreman of the construction project. The Elsteins and Gordon laundered at least $5 million through the venue and a music promotion business Bondad Productions, the indictment states.

The indictment also alleges that the defendants used laundered money to help purchase two properties in the Snyderville Basin, one on the 7000 block of Tall Oaks Circle in Pinebrook and the other on the 4000 block of Hilltop Drive in Jeremy Ranch.

In March, more than 600 grams of marijuana, packaged in five vacuum-sealed bags, as well as a digital scale and packaging material, were found in the Elsteins’ home on the 4000 block of Hilltop Drive, prosecutors say.

Prosecutors are seeking the forfeiture of both Snyderville Basin properties, as well as The Complex. A press release from the U.S. Attorney for Utah, John Huber, noted that the music venue will remain open.

The defendants on Friday were arraigned in federal court, where they pleaded not guilty to the charges, according to the release. They face a sentence of 10 years to life in prison if convicted on a count of conspiracy to distribute marijuana.

Gabriel Seth Elstein and Gordon were charged in February and released on pre-trial conditions. Angela Christina Elstein was added to the indictment last month and released Friday. A trial has been set for Dec. 14.

Attorneys for the defendants did not immediately respond to requests for comment.

Two Senate Dems call for investigation into money laundering in luxury real estate

By Francis Monofort

Senators Chris Van Hollen (D-Md.) and Sheldon Whitehouse (D-R.I.) have called on the Government Accountability Office to study whether vulnerabilities in anti-money laundering laws applicable to the real estate sector present increased risk of criminal activity.

The senators’ announcement noted that there has been widespread reporting on potential criminal activity in the real estate market, including between the Trump Organization and Russia.

In a letter to Comptroller General Gene Dodaro, the senators expressed concerns that transnational criminal organizations and other corrupt actors may be exploiting the gaps in US regulatory and law enforcement processes related to the laundering of money through the US real estate market.

“The luxury real estate market attracts money launderers because all-cash deals through shell corporations allow criminals to mask their ownership information. Cash-only real estate transactions are subject to fewer reporting requirements than financial institutions have to comply with. Addressing this problem is even more urgent when you consider the widespread reporting on the potential of criminal activity in the real estate market with regards to the Trump Organization and Russia,” according to the senators’ press release.

Van Hollen and Whitehouse requested the GAO to assess the results of the real estate Geographic Targeting Orders issued by FinCEN. GTOs temporarily require certain US title insurance companies to identify the persons behind shell companies used to purchase high-end residential real estate, among other requirements.


North America’s most unaffordable city cracks down on dirty money

Vancouver’s red hot housing market has prompted authorities to introduce a series of transparency measures aimed at uncovering the owners of homes in Canada’s most expensive real estate market.

One new probe will scrutinize dirty money in the province of British Columbia’s real estate, horse-racing and luxury car sales industries, according to Attorney General David Eby who announced the investigation in late September, Bloomberg reported. Finance Minister Carole James also appointed an expert panel to examine money laundering in the housing sector.

These probes, which are expected to be complete by March, follow a similar review of the province’s casinos.

“There is good reason to believe the bulk of the cash we saw in casinos is a fraction of the cash generated through illicit activities that may be circulating in British Columbia’s economy,” Attorney General David Eby told reporters late last month. “We cannot ignore red flags that came out of the casino reviews of connections between individuals bringing bulk cash to casinos, and our real estate market.”

Similar calls to action have been made south of the border. Earlier this month, two U.S. senators — Chris Van Hollen of Maryland and Sheldon Whitehouse of Rhode Island — sent a letter to the Government Accountability Office, calling for an investigation into the potential vulnerabilities of existing U.S. money-laundering provisionsas they pertain to real estate.

Last month, The Real Deal‘s quarterly magazine in South Florida dove into a $1.2 billion Venezuelan money laundering case in which federal authorities are looking to seize 16 high-end properties. [Bloomberg]—Kathryn Brenzel

Senate Democrats call for federal investigation into money laundering in luxury real estate

By Ben lane

The Treasury Department’s Financial Crimes Enforcement Network has been looking into whether foreign buyers are using shell companies to buy luxury U.S. real estate in order to launder money for almost three years, but two Democratic senators want the government to do more to figure out how much criminal activity is prevalent in these deals.

The initial FinCEN investigation delved into unknown buyers using shell companies to buy high-end real estate in Manhattan and Miami-Dade County, because the government was “concerned about illicit money” being used in the deals.

The results of that initial investigation showed more than 25% of transactions covered in the initial inquiry involved a “beneficial owner” who is also the subject of a “suspicious activity report,” which is an indication of possible criminal activity.

The initial investigation also led FinCEN to expand the probe to include all of New York City, Los Angeles, San Francisco and several other areas. The investigation was later expanded again to include wire transfers.

The expanded investigation required title insurance companies in the designated areas to identify the actual person behind shell companies used to pay all cash for high-end residential real estate.

But that investigation isn’t enough for two Senate Democrats.

This week, Sens. Chris Van Hollen, D-Maryland, and Sheldon Whitehouse, D-Rhode Island, asked the Government Accountability Office, to also look into whether money laundering is taking place in U.S. real estate.

In a letter sent to the independent watchdog agency, Van Hollen and Whitehouse say that they are concerned that “transnational criminal organizations and other illicit actors” may be taking advantage of “gaps” in the government’s regulatory and law enforcement process surrounding real estate dealings.

“The widespread money laundering risks posed by real estate transactions conducted without any financing (i.e.,“all-cash”) through the use of shell companies creates challenges for law enforcement and federal regulators seeking to safeguard the financial system from illicit use,” the senators write in their letter to the GAO.

The senators write that they are hopeful that a GAO investigation will help determine whether violations of the Bank Secrecy Act or federal anti-money laundering laws are taking place.

“FinCEN has indicated that these GTOs (geographic targeting orders, the measures FinCEN has taken to this point), which have been renewed and extended several times, are temporary measures intended to help the agency, ‘better understand the vulnerabilities presented by the use of shell companies to engage in all-cash residential real estate transactions,’” the senators write.

“To better ensure effective and consistent AML safeguards, we are requesting an assessment of the results of the real estate GTOs, including the information provided to FinCEN and any actions taken, and how it has helped FinCEN achieve its defined objectives,” they add.

Van Hollen and Whitehouse also lay out a series of questions they’d like the GAO to answer about the issue, including:

Has the information gathered by the GTOs provided useful insight about any of the above mentioned regulatory gaps or exemptions that exist regarding the BSA and the real estate industry?

Has the information gathered by the GTOs produced other tangible benefits, and in what ways will closing the above mentioned regulatory gaps or exemptions enhance financial market integrity in the United States?

How has FinCEN used the information collected from the real estate GTOs to inform its ongoing efforts to address money laundering vulnerabilities?

Has the information gathered by the GTOs improved the ability of FinCen, DOJ, the FBI and other law enforcement agencies to prevent money laundering in the real estate industry?

Based on the information it has collected from these GTOs, is FinCEN considering any regulatory changes?

Are there ways to improve upon the information gathered by the GTOs to make FinCEN more effective in the fight against money laundering?

Are there any gaps or loopholes that exist in the design of the GTO program that could be exploited by illicit actors, such as the beneficial ownership thresholds  or limiting the GTO to title insurance companies?

Are there any unintended consequences from targeting specific geographic regions while leaving other areas uncovered? The adaptive nature of illicit actors raises concerns they may shift their real estate activities from GTO areas to other regions of the United States.

Lastly, we ask that GAO identify any additional vulnerabilities and gaps in the current BSA framework, specifically as they pertain to the real estate sector, and how they might be addressed through regulatory or legislative action.


Real estate agent sentenced to 6+ years for wire fraud, money laundering

By Alcynna Loyd

A California real estate agent was recently sentenced to more than six years in prison and three years of supervised release after pleading guilty to one count of wire fraud and one count of money laundering.

According to the Department of Justice, from October 2012 through October 2013, Robert Jacobsen sold homes with unpaid mortgages on them to unsuspecting homebuyers but eventually, authorities caught wind of the scheme.

According to the DOJ, Jacobsen’s scheme involved him creating a fictitious company called “American Brokers’ Conduit Corporation,” which was not related to an already-existing mortgage originator known as “American Brokers’ Conduit,” which originated loans in the Bay Area.

The DOJ explained that Jacobsen used intermediaries to gain control of homes with mortgage liens that secured loans originated by the real “American Brokers’ Conduit,” and then Jacobsen would use intermediaries to sue the phony “American Brokers’ Conduit Corporation” in court, claiming that the legitimate mortgage liens were invalid.

From the DOJ’s announcement:

As he controlled both the plaintiff and the defendant in these lawsuits, Jacobsen then instructed the attorneys for both sides to enter into stipulated judgments, signed by the courts, resolving the lawsuits by purporting to declare the mortgage liens invalid. In so doing, he omitted to tell the courts that neither he nor any other person involved in the lawsuits was a legitimate representative of either the real “American Brokers’ Conduit” or the then-current owners of the liens. Jacobsen filed those agreements with the relevant county recorder’s offices, to give the appearance to anyone conducting a title search that the liens had been declared invalid by a court, and then sold the homes to unsuspecting buyers without paying off the original loans on the homes. 

Jacobsen was initially charged with 13 counts of wire fraud and money laundering but the remaining charges will be dropped if he maintains his part of the plea agreement, the DOJ said. As a result of his plea, Jacobsen was also ordered to forfeit a yacht he purchased with the sale proceeds and pay an undetermined restitution fee.

Former Ecuadorian oil exec forfeits six SoFla properties tied to money laundering

By Keith Larsen

A former top executive with Ecuador’s national oil company has been sentenced to more than four years in prison for allegedly laundering money through six South Florida properties.

Marcelo Reyes Lopez, a former executive with PetroEcuador, was sentenced in July to four years and five months in prison for his role in an alleged money laundering scheme involving several PetroEcuador officials and other Ecuadorian government officials.

He had pleaded guilty to one count of money laundering in October in U.S. District Court of the Southern District of Florida and agreed to forfeit six properties tied to the scheme.

The complaint for the case has remained sealed. A motion filed by the U.S. Attorney’s Office in November, however, said the U.S. “anticipates that its evidence will show the defendant participated in an extensive bribery scheme that existed to provide illicit payments to officials from Ecuador’s state-run and state-controlled oil company in order to secure and profit from contracts with that company.”

On May 8, the court entered a preliminary order of forfeiture for the six properties:

  • 11316 Northwest 79th Lane, Doral; a four-bedroom, three-bathroom house
  • 14340 Southwest 156th Avenue, Miami; a three-bedroom, two-bathroom house
  • 16711 Collins Avenue, Unit 1902, Sunny lsles Beach; a two-bedroom, two-bathroom condo
  • 605 South Ocean Drive, Hollywood; a three-bedroom, two-bathroom house
  • 609 South Ocean Drive, Hollywood; a multifamily complex
  • 345 Monroe Street, Unit 1-4, Hollywood; a multifamily complex

According to court documents, the six properties were purchased between 2013 and 2014, for a total of $3.5 million.

On Wednesday, Lopez’s sentencing documents were filed with the court, which showed he would be sentenced to a correctional facility in Georgia.

The news comes on the heels of another major money laundering case where federal officials allege top executives of Venezuela siphoned $1.2 billion from its state oil fund, PDVSA, to purchase South Florida real estate. The U.S. Attorney’s office claims at least 16 pieces of South Florida property are tied to the defendants of the scheme, one of which was a condo in the Porsche Design Tower in Sunny Isles.

Crackdown on dirty money shook Miami real estate. Now, Rubio wants to take it national


In a move with significant implications for the U.S. housing market, Florida Republican Sen. Marco Rubio is seeking to take a Treasury Department crackdown on dirty money in luxury real estate and expand it from a few high-priced enclaves to the entire nation.

Rubio says his proposal is an attempt to root out criminals who use illicit funds and anonymous shell companies to buy homes — a form of money laundering that hides the cash’s tainted origin from law enforcement and banks. The widespread practice enables terrorism, sex trafficking, corruption, and drug dealing by providing an outlet for dirty cash, according to transparency advocates.

Through an amendment to an unrelated major spending bill, Rubio will ask Treasury to study whether government regulators should force shell companies that buy homes priced at $300,000 or more in cash nationwide to disclose their owners. That could be a figure as as high as 10 percent of the nation’s real-estate deals.

A similar reporting requirement affecting transactions priced at $1 million or more has already had a chilling effect on all-cash corporate sales in Miami-Dade County, which has been under Treasury’s microscope since 2016.

“Shell companies involved in shady activities are a big problem, especially throughout South Florida,” Rubio said in a statement to McClatchy and the Miami Herald. “With this provision, a study would be conducted to look at requiring all shell companies that make cash transactions, regardless of their area, to disclose their identities.”

The amendment builds on a previous Treasury disclosure order that applied only to certain markets, including South Florida.

That order — which forced shell companies buying homes with cash to reveal their true owners to the government — has been in place in some areas since March 2016 at various price points. Its effects were immediate and stunning. As soon as the order took hold, shell companies buying homes with cash dropped off the map, a recent study by academic economists found. In Miami-Dade, the number of corporate cash sales plummeted 95 percent, although a strong overall market suggests creative buyers found ways to circumvent the rules, researchers said.

Before the crackdown, corporate cash sales accounted for roughly a third of home-sale volume in Miami-Dade, which is popular with foreign investors.

The amendment has the support of the top Democrat on the Senate Finance Committee, Oregon’s Ron Wyden, as well as Rhode Island Democratic Sen. Sheldon Whitehouse. Both have tried to widen disclosure of true owners of shell companies, which can be listed in the names of lawyers, accountants, and other fronts. The lack of corporate transparency frustrates law-enforcement officials, who say it stymies their investigations.

A vote is expected on the overall bill as soon as this week, Rubio’s office said.

The powerful real-estate industry has fought attempts from the government to have it act as a watchdog against money laundering, as banks, precious-metals dealers, money-service businesses, and other financial institutions are required to do. Many Realtors and developers say their clients are simply wealthy buyers seeking privacy, not criminals.

But over the past two years, Treasury has moved with force into what had been a largely unregulated sector of the U.S. financial system. Starting in Miami-Dade County and Manhattan two years ago, Treasury’s Financial Crimes Enforcement Network (FinCEN) began requiring anonymous shell companies to disclose their true owners when they bought pricey homes with cash.

The temporary directives — called “geographic targeting orders” or GTOs — were later expanded to other housing markets in Florida, New York, Texas, California, and Hawaii where foreign and anonymous investors are gobbling up real estate and driving up prices. The rules require title agents to identify the owners of shell companies buying homes with cash and disclose their names to the federal government.

“The GTOs are working, and it’s time they were expanded. Laundering money through real estate isn’t new, but [what is new is] an effective approach to combat dirty money,” said Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition, a watchdog nonprofit.

Rubio’s proposal to take the project national, Gascoigne added, “sends a strong message that we’re serious about protecting the U.S. financial system, the real-estate market, and communities across the country.”

Stephen Hudak, a spokesman for FinCEN, declined to comment.

Cracking down

The Rubio amendment asks Treasury to consider expanding the FinCEN directive to include all cash real-estate transactions over $300,000 anywhere in the United States.

It would give Treasury 180 days to submit a study to Congress providing details about the data that has been collected by FinCEN since 2016 and how it is being used. The agency is also being asked to determine if it needs more authority to combat money laundering and whether expanding the targeting order would be of use. In addition, FinCEN is asked if a registry of company owners — something supported by a bipartisan cast of federal legislators — would help authorities fight money laundering, tax evasion, election fraud, and other illegal activities.

Previously, the FinCEN disclosure requirement kicked in for corporate cash sales that were priced at $3 million or higher in New York City, $1 million or higher in Miami-Dade, Broward, and Palm Beach, and at different price points in other states. In May, FinCEN enacted a new directive that secretly lowered the number to $300,000 in all GTO areas. Sources familiar with the agency’s thinking say the new order was kept confidential because regulators don’t want to give money launderers a road map for structuring their transactions to avoid reporting.

Rubio’s amendment would start at that lower price point, covering a major chunk of home sales nationwide. Last year, the median U.S. home sold for a price of $247,200, according to the National Association of Realtors.

A cash transaction is one in which there is no mortgage and the property is purchased outright. Cash doesn’t just mean stacks of greenbacks; it also includes such financial instruments as wire transfers, checks, and money orders. Unlike mortgages, cash deals don’t involve heavy scrutiny from banks, which can identify potential money laundering and file suspicious-activity reports to the feds.

The 2016 publication of the Panama Papers spotlighted how anonymous shell companies in faraway tax havens were used to camouflage property purchases in the United States by politicians, drug traffickers, and financial fraudsters. Housing analysts argue that the flow of anonymous money is driving up prices.

“There’s hardly a metropolitan area in the country that is not experiencing a real public-policy issue regarding affordable housing,” said Ned Murray, a housing expert and associate director of Florida International University’s Metropolitan Center. “The whole focus of the real-estate industry is on … supplying homes for wealthy investors that we don’t know much about. It really is a factor for prices and supply.”

Much of the world has responded to the threat of corruption in real estate by requiring greater ownership disclosure. The United States has done relatively less, although Rubio’s amendment could help close the gap.

Those operating in the shadows of the real-estate market certainly seem aware of the Treasury disclosure requirements — and are working to get around them.

Take Carmelo Urdaneta Aqui, who is the former legal counsel to the Venezuelan Ministry of Oil and Mining. He was recently among those charged in a federal $1.2 billion money-laundering case involving funds stolen from Venezuela’s state oil company.

When Urdaneta prepared to close on a brand-new, $5.3 million condo at the Porsche Design Tower in Sunny Isles Beach, he was informed by paperwork from the developer that “taking title [to the unit] under a company or trust may trigger FinCEN reporting requirements,” according to a federal indictment filed last week. He was worried enough about the disclosure that he discussed how to avoid it with a government informant.

Ultimately, Urdaneta set up a company in his wife’s name to do the deal, prosecutors allege.

Dezer Development did not say why it alerts potential buyers that they might end up on Treasury’s radar.

“All language relating to legal requirements associated with closings was prepared by Dezer Development’s outside legal counsel,” a spokeswoman wrote in an email to the Herald on Monday.

The 60-story Porsche Design Tower is famous for a car elevator that allows owners to park in “sky garages” within their units. On Friday, federal prosecutors indicated that they would move to seize the unit.

Bad for brokers?

While overall home sales held steady even after the FinCEN rule went into place, the real-estate study found, luxury home prices were slightly softer in markets affected by the GTO.

That suggests that expanding the GTO could have a dampening effect on the nation’s real-estate market, said Jeff Morr, a luxury real-estate broker at Douglas Elliman and chairman of the Miami Master Brokers Forum, an industry group.

“Does it stop money laundering? Probably, yes,” Morr said. “Is it good for the real-estate market? Probably, no.”

But at least making the rule nationwide might take some of the heat off Miami, he said.

“It may make Florida less unattractive now that it’s everywhere,” Morr said. “We shouldn’t be treated differently than other areas.”

That was exactly the sentiment of the Miami-Dade County Commission when the rule was first enacted in 2016. At the time, commissioners passed a symbolic resolution asking regulators to stop singling out Miami for special scrutiny. The industry still feels the same way.

Legitimate buyers need privacy, too, said Ron Shuffield, president and CEO of EWM Realty International.

“There are wealthy people who don’t want everyone to know that they live at the end of the block,” Shuffield said. “If someone is determined to launder money, they can pick anywhere in the country to do it, from the smallest city in the Midwest to Miami or New York City. It’s only fair that every area have to report. Otherwise, the rules could be scaring people away from certain markets.”

Report describes Dubai real estate as money-laundering haven

By Jon Gambrell

War profiteers, terror financiers and drug traffickers sanctioned by the U.S. in recent years have used Dubai’s real-estate market as a haven for their assets, a new report released Tuesday alleges.

The report by the Washington-based Center for Advanced Defense Studies, relying on leaked property data from the city-state, offers evidence to support the long-whispered rumors about Dubai’s real-estate boom. It identifies some $100 million in suspicious purchases of apartments and villas across the city of skyscrapers in the United Arab Emirates, where foreign ownership fuels construction that now outpaces local demand.

The government-run Dubai Media Office said it could not comment on the report.

For its part, the center known by the acronym C4ADS said Dubai has a “high-end luxury real estate market and lax regulatory environment prizing secrecy and anonymity above all else.” That comes as the U.S. already warns that Dubai’s economic free zones and trade in gold and diamonds poses a risk.

“The permissive nature of this environment has global security implications far beyond the sands of the UAE,” the center said in its report. “In an interconnected global economy with low barriers impeding the movement of funds, a single point of weakness in the regulatory system can empower and enable a range of global illicit actors.”

The properties in question include million-dollar villas on the fronds of the man-made Palm Jumeirah archipelago to an apartment in the Burj Khalifa, the world’s tallest building. Others appear to be one-bedroom apartments in more-affordable neighborhoods in Dubai, the UAE’s biggest city.

Among the highest-profile individuals named in the report is Rami Makhlouf, a cousin of embattled Syrian President Bashar Assad and one of that country’s wealthiest businessmen. The U.S. has sanctioned Makhlouf, who owns the largest mobile phone carrier Syriatel, for using “intimidation and his close ties to the Assad regime to obtain improper financial advantages at the expense of ordinary Syrians.”

Makhlouf and his brother, also sanctioned by the U.S., own real estate on the Palm Jumeirah, according to the report. They also have ties to two UAE-based free-zone companies. The UAE, a federation of seven sheikhdoms led from oil-rich Abu Dhabi, has opposed Assad in his country’s yearslong war.

The UAE also opposes Hezbollah, the Lebanese political party and militia group backed by Iran. However, C4ADS’ report identified at least one property directly linked to Lebanese businessmen Kamel and Issam Amhaz, who the U.S. sanctioned in 2014 for helping Hezbollah “covertly purchase sophisticated electronics” for military drones. The report identified another nearly $70 million in Dubai properties owned by two other shareholders in Amhaz’s sanctioned firms.

Separately, the report identified some $21 million in real estate still held by individuals associated with the Altaf Khanani money laundering organization, a Pakistani ring that aided drug traffickers and Islamic extremists like al-Qaida through its currency exchange houses.

The report identified Dubai properties owned by Hassein Eduardo Figueroa Gomez, a Mexican national indicted in the U.S. for importing mass quantities of chemicals needed to make methamphetamine. It also identified properties owned by two Iranians previously sanctioned for their work on Iran’s missile program.

Dubai, an Arabian Peninsula entrepot, long has been a favorite port of call for those skirting the law. Gold smuggling into India served as one of the emirate’s most lucrative trades for the decades after the pearling industry collapsed. Guns, drugs and other illicit cargo also moved through the city-state.

Over time, however, Dubai itself became a haven. The emirate’s decision in 2002 to allow foreign ownership of so-called “freehold” properties drew a rapid construction boom that attracted developers from across the world, including President Donald Trump, whose name is on two golf course projects and villas.

Dubai’s easily flipped luxury properties offered an opportunity for those wanting to park money they otherwise couldn’t spend. The Federation of American Scientists warned based on news reports in 2002 that “money-laundering activity in the UAE may total $1 billion annually.”

Money quickly flowed in from all corners, especially those now involved in the U.S. wars in Afghanistan and Iraq, likely topping that.

From Kabul, the Afghan capital, over $190 million in physical cash left for Dubai in three months in 2009 on commercial flights, according to an October 2009 U.S. diplomatic cable published by WikiLeaks. In 2008, some $600 million, as well as 100 million euros and 80 million British pounds, made the trip, according to the cable.

A banking scandal in Afghanistan in 2010 saw regulators demand that a banker turn over 18 Palm Jumeirah villas and two business properties. The brother of former Afghan President Hamad Karzai also profited from the sale of a Palm Jumeirah villa at the time.

In Pakistan, authorities believe citizens invested $8 billion in Dubai’s property market over four years, possibly to evade taxes, officials said in 2017. Alleged Australian drug kingpins arrested in Dubai last year also owned real estate in the city, while the governments of Nigeria and South Africa also have launched investigations into alleged money laundering involving Dubai.

Unlike in the U.S., where property records are public, Dubai does not offer an accessible database of all its transactions, instead requiring specific details only individual buyers and sellers would have. C4ADS said it relied in part on “private UAE data compiled by real estate and property professionals” offered by a confidential source for its reporting.

The U.S. State Department as recently as this year issued a warning about money laundering in the UAE in its annual International Narcotics Control Strategy Report, noting the country’s money-exchange shops can allow for “bulk cash smuggling.” The UAE’s economic free zones, real estate sector and its trade in gold and diamonds also pose risks.

“The UAE has demonstrated both a willingness and capability to take action against illicit financial actors if those actors pose a direct national security threat or present a reputational risk to the UAE’s role as the leading regional financial hub,” the State Department said. “However, the UAE needs to continue increasing the resources devoted to investigating, prosecuting and disrupting money laundering.”

Property Professionals & Unusual Money Laundering Cases

By Jonathon Fisher

As pressure from regulators and law enforcement intensifies, and property professionals develop their risk assessments, the need for greater publicly available information about money laundering techniques and practices remains unmet. Sometimes, the factors which trigger suspicions will be obvious. Where, for example, a purchaser or seller seeks anonymity, or funds supporting a purchase are received through an unnecessarily circuitous offshore route, red lights will start to flash. The UK Government’s National Risk Assessment published in October 2017 revealed that in an analysis of suspicious activity reports linked to property, 27% highlighted the presence of companies and trusts, 36% highlighted use of professional intermediaries, and 17% reported high cash payments. However, in other cases, the money launderers’ techniques may be more subtle and sophisticated, making it difficult for the property professional to spot. This article relates the circumstances of six suspected money laundering cases which do not fit the traditional mould. As I have been professionally instructed in each of these cases, the facts have been anonymised for obvious reasons.

Exchange controls and false declarations

The first case is interesting because it involved a string of out-of-London residential property purchases. Today, when the link between the property sector and money laundering is made, invariably attention focuses on prime, and super-prime, property in London. The recent work undertaken by Transparency International points to investment in the London property market of the illegal fruits of grand corruption emanating from a basket of leading figures based in Eastern European and African countries. This perception was reinforced in the National Risk Assessment in 2015 when it reported that 75% of investigations involving real estate had been handled by the Metropolitan Police Corruption Unit. In fact, the risks of money laundering are much wider. In the case in point a cohort of Chinese investors had decided to purchase multiple residential properties outside London of relatively low value. Customer identification presented certain difficulties, but the challenge for the property professionals was to grapple with the investors’ source of funds. The monies were coming from China, and although a breach of exchange controls does not always enliven the money laundering offences, if funds are transferred out of China on the back of a false declaration made to the Chinese authorities, a money laundering issue would arise. Typically, the false declaration would indicate that the purpose of the transfer was to pay for educational fees when in fact the true purpose was property investment.

Sidestepping the conveyance solicitor

The second case was entirely different in nature. A single property transaction was involved, but again, the residential property was located outside London. The purchaser was seeking to acquire the leasehold interest of a medium sized flat in a seaside town which he intended to occupy as a second home. So far so good, but matters became complicated when the purchaser informed the estate agent that if he instructed a solicitor to look after the conveyancing aspects, the purchase monies would be transferred directly into the vendor’s bank account. Although there was no suggestion that the purchaser was intending to use cash to settle any part of the purchase price, nevertheless the case raised certain issues. Normally, purchase funds would be paid by the purchaser to his solicitor, and subsequently transferred to the vendor’s solicitor’s account on exchange, and then completion. The fact that the purchaser wished to circumvent his solicitor raised a concern about the provenance of the monies, but it did not mean that the monies were necessarily tainted as criminal property. A question arose as to whether the vendor’s estate agent should make enquiries of the purchaser to see whether the concern about the provenance of the monies could be assuaged. It would certainly be helpful if a purchaser could put forward an explanation which was credible, coherent, and consistent, however unlikely this might seem at first blush. Today, following the introduction of the Money Laundering Regulations 2017, the legal exposure for the vendor’s estate agent is much sharper than it was at the time when this case arose. This is because regulation 4(3) imposes a new obligation on an estate agent to regard himself as entering a business relationship with the purchaser as well as the seller, thereby triggering an obligation to undertake customer due diligence on the purchaser as well as the vendor. Hitherto, it was only the vendor who fell to be treated by the estate agent as his customer for the purposes of entering a business relationship. As an aside, it should be noted that regulation 4(3) raises an issue as to exactly when in terms of timing an estate agent is required to undertake due diligence on a purchaser, in addition to the pre-existing question—which has never been properly addressed—of when a business relationship is established by an estate agent in relation to the vendor who is unquestionably his client.

Swiss bank accounts

The next four cases involve central London properties, and three of the purchases involved “politically exposed persons” (PEP) from Eastern European and African states. Suspicions about money laundering screamed out from the facts of the first London case, which did not involve a PEP. The purchaser offered to acquire a super-prime residential property, but he had an arrangement in mind. The buyer said he would proceed with the transaction if the vendor agreed to raise the purchase price by £2 million, and then arrange for £2 million to be placed in a Swiss bank account established to the vendor’s order. No more needs to be said.

Politically exposed persons

The three cases involving PEPs were more sophisticated. In the first of these cases, the purchaser exchanged contracts on an incredibly high value super-prime residential flat in central London. Shortly thereafter he informed his counterparties that he was not proceeding with the purchase because the developer had decided to buy out the purchase contract by purchasing back the freehold immediately following completion, giving the purchaser a tidy six figure sum as part of the process. The concern was that the purchaser and vendor were acting in concert, using the purchase and buy-back agreements to launder illegally obtained monies through the London property market. If asked about the source of his monies at a later stage, the PEP purchaser could confidently and truthfully assert that he had derived the funds from the sale of high value residence in central London, where “top-end” estate agents and firms of solicitors had been involved.

The second PEP case also involved the purchase of a prime residential flat in central London. In a classic sign of potential money laundering, shortly before exchange of contracts the purchaser informed his property professionals that a third party should be named as the purchaser. It is true that the third party, who was also a PEP, had been named as an individual and it was not a company which was being substituted, but the explanation for the change was unconventional. The purchaser explained that he was buying the flat as a present for the third party, in return for a similar present located in a foreign country which the third party had given the purchaser at an earlier time. It is impossible to know in this type of situation the true position. Sometimes, independent evidence can be obtained to corroborate unusual or unexpected explanations, but the property professionals are left in a dilemma. The low threshold meaning of suspicion in the money laundering legislation is especially challenging. In terms, a suspicious activity report will need to be filed in circumstances where there are reasonable grounds for recognising that the monies have been derived from criminal conduct. The nature of the criminal conduct does not need to be identified.

The third PEP case can be differentiated from the first two PEP cases since in this case the PEP was a person who was clearly identifiable as a person who was holding office in an African state. Often, an individual is classified as a PEP because he is a family member or close associate of a person holding office. In this regard, property professionals will always need to have systems in place to enable them to identify whether a party to a transaction is a PEP. Failure to identify a PEP constitutes a breach of the money laundering regulations, and it may lead to the property professional undertaking customer due diligence at the wrong level. Although the African officer holder had been open about his identity, his suspected money laundering modus operandi was clever. Instead of acquiring a single high value property, the purchaser divided his resources and purchased five smaller residential properties, using different estate agents and solicitors for each purpose. The property professionals did not know of each other’s existence, although if customer due diligence had been undertaken properly, it would have become obvious that his income as an office holder in the African state could not have sustained one of these purchases, let alone five. The property professionals were vulnerable to criminal prosecution in this case.

Unquestionably, property professionals remain in the sights of regulators and law enforcers. The National Crime Agency considers the number of suspicious activity reports made by estate agents to be “relatively low” (National Risk Assessment 2017, paragraph 8.16), and as widely report, HM Revenue & Customs has been imposing substantial fines on estate agents for failing to comply with anti-money laundering legislation. The most serious contravention will involve a failure to spot suspicious circumstances, and the message is clear. Property professionals must keep their eyes peeled not only for obvious signs of money laundering but also for more subtle indications.


Rindge, NH man indicted in Massachusetts for money laundering

A Rindge man has been indicted in Massachusetts after allegedly laundering millions of dollars generated by fraudulently billing the state’s Medicaid program through his former business.

Michael Davini, 57, was indicted by a Worcester County grand jury on Wednesday on three counts of money laundering, according to a press release issued by the Massachusetts Attorney General’s Office. Davini is accused of attempting to hide $3 million in cash and two homes under his wife’s name.

“We allege this individual made clear attempts to disguise millions of dollars in illicit funds obtained through a massive Medicaid false billing scheme,” said Massachusetts Attorney General Maura Healey, in the release. “We will continue to take steps to protect the integrity and success of our MassHealth program and not allow taxpayers and patients to be taken advantage of for personal profit.”

Davini is the former owner of Rite Way LLC, a Westminster, Massachusetts-based company that used to primarily provide non-emergency transportation services to methadone clinics. The company had offices throughout the state, according to the release.

The company was incorporated in May of 2010, according to a Better Business Bureau profile, and ceased operations in 2015.

Rite Way, along with Davini and three former managers, were indicted by a statewide grand jury in September 2016 in connection with fraudulent bills sent to MassHealth for services that were never provided.

Rite Way is also accused of submitting fraudulent claims for non-emergency wheelchair van transportation when most of the members did not require the service and were not transported in wheelchair vans, and offering and paying cash to MassHealth members to recruit others to use their services.

Davini and Rite Way are each facing two counts of larceny over $250, four counts of Medicaid false claims, and one count of kickbacks. The three managers are also facing their own charges.

The press release said bills were submitted for services not provided, or for patients that were hospitalized or deceased during the billing dates.

The Attorney General’s Medicaid Fraud Division further investigated the situation and found that Davini allegedly laundered millions of dollars and transferred multiple properties that had been illegally financed or obtained through the Medicaid scheme. Davini allegedly transferred more than $5.5 million from Rite Way’s operating accounts at an investment brokerage firm.

When MassHealth notified Rite Way that it was suspending further payments in September 2015, Davini allegedly moved $3 million in cash and securities from two accounts held at the brokerage firm into a new account under his wife’s name “in an apparent attempt to shield ill-gotten gains from recovery by the Commonwealth,” said the release.

The Attorney General’s Office has also alleged that Davini transferred the title of two homes he owned to his wife around the same time.

The original investigation began in 2013 after the matter was referred to the Attorney General’s Office by MassHealth.

Davini is scheduled to be arraigned at the Worcester Superior Court on April 24.