Will the District Be America’s New Money Laundering Hub?


Starting next month, anonymous sales of luxury real estate through shell corporations will be banned in New York and Miami, meaning that corrupt foreign officials and South American “farmers” will have to find other places to park their ill-gotten gains.  In Manhattan, sales over $3 million, and in Miami, sales over $1 million will be required to be reported to the government.  This could cause a serious slowdown in the luxury markets in these cities:  a recent New York Times story about a single luxury condo tower on Central Park found questionable investments by government officials from Mexico, Malaysia, and Russia, all with untraceable briefcases of cash in tow.  And in Miami last year, over half of the 1,150 sales over $1 million were made to shell corporations, which paid in all-cash;  the government still has no idea who paid $47 million in cash for a Key Biscayne mansion.

So where are these industrious buyers going to take their filthy money?  Well, why not DC?  At present, the District sees “very few purchases taking place through corporations and LLCs,” according to a principal broker at Washington Fine Properties – but that could easily change.  Aside from this pilot program in New York and Miami, the United States is still the second-easiest country in the world to launder money through shell corporations, second only to that bastion of  transparency, Kenya.  The money’s going to keep coming, and really, there’s already a huge amount of foreign money in DC real estate. And while most of it isn’t anonymous, that doesn’t mean it’s not dirty.  (The Kuwaiti royalty’s investment fund, for example, was one of DC’s top ten foreign real estate investors in 2013-2015.)  The EB-5 green card program, which offers US residency in exchange for cash investments in local development projects is another ostensibly legit, but still shady, pipeline of foreign money into the DC market – the Marriott Marquis and CityMarket at O are just two projects that benefited from millions of dollars of Chinese “investors.”

The timing is perfect; just as all this money is being locked out of New York and Miami, the DC luxury market is growing exponentially.  As recently as 2001, sales over $1 million made up only 3% of home purchases; by 2015, almost 20% of sales were over $1 million; there are now so many homes worth more than a million dollars that people are saying we have to redefine “luxury” as $2 million and up.

In fact, when you look at that steep curve, you start to think that foreign nationals may already be snapping up high-end properties in DC.  In cities like New York and London (the global capital of shady all-cash real estate deals), experts have long theorized that sky-high rent and property values are caused by a glut of ultra-rich buyers at the very top pushing “merely wealthy” buyers down into the next tier of properties, which makes things extra painful for all us regular people at the bottom.  With DC having gone from cheap to the most expensive city in the country in little more than a decade, isn’t it at least possible that our ridiculous rents are the fault of El Chapo lieutenants and Russian plutocrats forcing would-be Georgetowners and their piddly millions to decamp to neighborhoods like Shaw?

Joaquín Guzmán Loera, aka El Chapo Guzmán.jpg

The Justice Department’s crackdown on anonymous all-cash sales in New York and Miami is only a pilot program for now, set to be in effect only from March until August.  If they catch a lot of criminals, the program will become permanent, and if they don’t, well, it’s back to business as usual.  Either way, the demand is only going to grow.  According to a report on “UNHW (ultra high net worth) individuals” by Wealth-X and Sotheby’s, trillions of dollars of wealth in Europe and South America is set to be transferred between generations in the next decade.  People with inherited wealth are far more likely than self-made rich people (e.g. Chinese industrialists and Russian plutocrats) to invest in foreign real estate, and the United States is the preferred destination for purchases of second and third homes.  If New York and Miami are off the table for good, doesn’t it makes sense to split the difference and buy in, say, Georgetown?

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