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Effective March 1, the federal government has implemented a crackdown on secret cash purchases of luxury homes in Miami-Dade County (photo) and New York City for the purpose of laundering money. (Photo: Greater Miami Convention & Visitors Bureau)
Edward H. Davis, Jr. founding partner of Miami-based Astigarraga Davis.
Wednesday, March 2, 2016

Targeting LatAm Fraudsters in Miami Real Estate

Why the government crackdown on luxury real estate hot spots is the right move.

ICC FraudNet

Edward H. Davis, Jr. founding partner of Miami-based Astigarraga Davis, one of the world’s leading asset recovery lawyers, tells ICC FraudNet’s TalkFraud about the federal government’s recent anti-money laundering crackdown on cash purchases of luxury real estate in Miami and New York City.

On January 13, the federal government announced a temporary crackdown on secret cash purchases of luxury homes in Miami-Dade County and New York City for the purpose of laundering money. The “geographic targeting order” was issued by the U.S. Financial Crimes Enforcement Network (FinCEN), and will be in effect from March 1 to Aug 27.

Under the new policy, title insurance companies must identify the real owners of shell companies that pay $1 million or more in cash for homes in Miami-Dade and $3 million or more in New York City. Insurance companies must report the names of the buyers to the U.S. Treasury Department. If the process discovers significant evidence of money laundering, the order may be extended, not only in Miami-Dade and New York, but across the nation.

How often do you see instances where shell buyers have purchased high-end real estate to launder dirty money in Miami and elsewhere?

Almost all of my cases involves a fraudster, corrupt actor, money launderer or tax cheat of some kind and in almost all of them there is Florida real estate involved including persons from Venezuela, Russia, Brazil, the UK, Canada, and the Caribbean -- you name the place they are from and we’ve likely seen an example of it. I’m not saying that every high dollar value cash real estate purchase involves a fraudulent actor but almost every fraudster has at least one high dollar value cash real estate transaction in the US – with a heavy focus in Miami and New York.

Do you think the problem is fairly significant in Miami-Dade and New York City? Why or why not?

I do think the problem is significant in South Florida and in New York City because they are very desirable places to live but for very different reasons. South Florida is where these folks go to relax, just like law abiding citizens do, and they usually have very high value real estate. The other reason they come here is that Florida is also the number one debtor’s haven in the world. Florida’s asset protection regime is like a “bat signal” (or, more appropriately “rat signal”) shining off the clouds which attracts those with money of dubious origins to come and avail themselves of the ridiculously generous asset protection laws that Florida’s legislature has given them. In Florida’s case we don’t roll out the red carpet for these folks. Instead, we roll out a green carpet with images of $100 bills imprinted on it when dirty money comes to town. In the case of New York City it is the money center of the world – bar none – and they come there to be near the center of power and to have access to that power. In both cases it is part of a power trip.

How do these shadow buyers execute the purchases?

Typically the money is moved through the bank accounts of cut-outs and offshore legal vehicles. In light of Florida’s asset protection regime there is no legitimate reason to own real estate in Florida through an opaque offshore entity or equally-opaque domestic entity. However, it is done this way to obscure the identity of the true owner. These corporate vehicles can be set up in hours and then they open a bank account offshore and wire the funds in to the accounts of title agents and other similarly situated persons or companies who really haven’t had any real reason to ask any questions about the origin of the money. Perhaps they do now.

How does this practice impact your work on behalf of victims?

If a fraudster owns real property in the US (or anywhere for that matter) – and they almost always do – asset recovery lawyers go after that real estate for two reasons: 1) to recover the proceeds from the fraud that was invested into the real estate; and 2) to allow us to flow back up the value chain to find the source of the funds which leads to more assets. This is called a “reverse asset trace” and allows us to use the asset as a starting point to trace back to where the bad guy banks or invests his money.

How difficult is it to trace and recover ill-gotten assets used to purchase a home?

If you are starting from scratch it can be quite difficult as the process is meant to be private and therefore one cannot easily obtain this information without using forms of litigation. That is why the New York Times series by Louis Story and Stephanie Saul called “Towers of Secrecy” – which directly led to this initiative – was so impressive. This is also a very poignant example of how having a vibrant press is critical to a strong democracy. Those two journalists were able to gather an impressive amount of information without resorting to legal process. Generally speaking though, once you know that the property is either directly or beneficially owned by your target then the process can move rather quickly. The beauty of chasing real estate is that it is not liquid and can’t be rapidly liquidated or moved.

What are some examples of cases where criminals attempted to launder money through purchases of pricey real estate?

In the Trinidad and Tobago Piarco Airport corruption case there were allegations of several expensive pieces of real estate that appear to have been purchased by the defendants in South Florida. In the corruption investigation arising from the Alfonso Portillo regime in Guatemala it was reported that there was direct tracing of the proceeds from corruption to a piece of real property in Miami-Dade County. In the Cohen case in Miami-Dade (that started in New York City) there was real estate purchased in Miami-Dade County with the proceeds of the bank fraud in New York City.

Do you believe the crackdown will be effective in exposing these transactions, and discouraging them in the future?

It will all depend upon how diligently FinCEN enforces compliance. It will likely have to make some examples out of recalcitrant players. Unfortunately, there will likely be a lot of push back on this from very wealthy sectors inside and outside the American economy and political system. Some will just refuse to comply as it affects what they see as an entitlement – to do whatever they want in the pursuit of their objectives. When people start going to jail – if that is possible - for filing false reports or not reporting then compliance will go up.

Any predictions about what the outcome may be? Will the federal government find the practice to be widespread enough to warrant an extension?

I think that just announcing the new initiative has to cause many to pause. Developers, title agents, lawyers, brokers and others in this high end real estate pipeline have to understand that they don’t want to be that first one who law enforcement finds and sinks their teeth into, because they will be made an example of – and properly so. This happened in the recent IRS crackdown on offshore accounts held by Americans to avoid paying their full tax obligations and once it was clear that people would be going to jail compliance skyrocketed. I think FinCEN will be shocked at how little we know about who is buying this high end real estate. I do predict that ultimately the program will be extended backwards in time and perhaps with a slightly lower dollar threshold.

According to a recent article in The Miami Herald, 60 percent of home sales of $1 million or more in Miami-Dade County were cash purchases. The real estate industry is concerned that the policy will have a chilling effect on cash sales to legitimate wealthy international or celebrity buyers who want to remain anonymous. Do you think we’re primarily dealing with legitimate buyers, and the response by FinCEN is an overreaction or is it an important step for victims? Explain.

I sure hope that they are primarily legitimate buyers. Otherwise we’ll see a collapse of the real estate industry in Miami-Dade and New York City. I don’t think that FinCEN’s new initiative is an overreaction at all. I applaud FinCEN for taking this step and for reacting to information that they may not have realized before the original New York Times series came out. I think that a lot of people “believed” that there was dirty money fueling these developments and purchases but that doubt was removed by excellent reporting. The numbers are very large and the rich – especially those that come to this country as guests – have to play by the same rules as everyone else. I think that the largest shock felt by many of the fraudsters, oligarchs and corrupt government officials that buy real estate in the US to hide their ill-gotten gains is that they are subject to a real legal system. This is shocking to them as they are used to acting with total impunity in their home countries and they are often mystified why they can’t do that here. The law still means something in the United States and while income disparity is progressing at an alarming rate the rich, super rich and ultra-rich have yet to coopt the legal system entirely. Make no mistake – when you are very wealthy you do get treated differently than the average person – even in the United States. However, it is not as pronounced here – yet – as in other countries and we still see the rich and powerful go to jail in the US when found guilty - unlike many other countries where it is virtually unthinkable. So at bottom, I think FinCEN’s new initiative is a reaffirmation of a bedrock American principle - “no one is above the law”.

Edward H. Davis, Jr. has practiced law for 28 years, and is a founding shareholder of the Miami international law firm, Astigarraga Davis. As a Certified Fraud Examiner, he heads the firm's
Asset Recovery and Financial Fraud group, representing victims of fraud and grand corruption including governments, governmental entities, corporations, hedge funds, insolvency practitioners and individuals by investigating and prosecuting civil fraud and asset recovery actions. He serves as inaugural chair of the International Bar Association’s Anti-Corruption Committee’s Subcommittee on Asset Recovery, and is a leading original member of the London-based International Chamber of Commerce Commercial Crimes Services FraudNet Network. In 2013 Davis was recognized as the first Asset Recovery Lawyer of the Year by Who’s Who Legal. He won that award again in 2014 and 2015.

ICC FraudNet is an international network of independent lawyers, who are leading civil asset recovery specialists in each country. Recognized by Chambers Global as the world’s leading asset recovery legal network, our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit.

Republished from ICC FraudNet ‘s FraudTalk with permission.

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