Russia Sanctions Bill Also Targets Real Estate Deals
August 3, 2018
By Samuel Rubenfeld
Provision would make title insurers reveal owners, broadening a law that exists in some cities
New sanctions on Russia proposed by a group of U.S. senators also includes a provision that would make title insurance companies reveal the owners of shell companies when they make all-cash real-estate purchases anywhere in the U.S.
Shell-company real estate deals are legal, but are attractive to money launderers because the purchase can be made anonymously and the buyer doesn’t have to explain the origin of the funds used. Analysts say that secrecy has allowed kleptocrats, human traffickers and other criminals to exploit a hole in the U.S. financial system to legitimize their funds.
Law enforcement has seized property, ranging from Manhattan apartments to California mansions, in its pursuit of money laundering by corrupt foreign officials stashing their funds in the U.S. as part of its Kleptocracy Asset Recovery Initiative.
A requirement on title-insurance companies to disclose shell-company ownership already exists, but only in certain cities, such as New York City and Miami, and on deals above a specific value threshold. That program, known as a geographic targeting order and subject to a renewal every six months, began in 2016, following years of reporting by media organizations on the secrecy of real-estate transactions.
A push to bring the effort national began this week. Sen. Marco Rubio (R., Fla.) on Monday proposed an amendment, separate from the Russia package, that would give Treasury 180 days to provide Congress details about the data it has collected thus far, with an aim toward nationalizing the program.
The proposal on Thursday from the bipartisan group of senators is part of a laundry list of “crushing” sanctions measures targeting Russia. “The sanctions and other measures contained in this bill are the most hard-hitting ever imposed—and a direct result of [Russia President Vladimir] Putin’s continued desire to undermine American democracy,” said Sen. Lindsey Graham, (R., S.C.).
Earlier this year, the Treasury delivered a report to Congress about the potential exposure of key U.S. economic sectors, including real estate, to Russians connected to President Vladimir Putin. The full report hasn’t been made public.
The proposal announced Thursday also follows a separate push from states and federal officials to advance corporate transparency by pushing for legislation that would require shell companies to disclose their owners.
After the program involving title-insurance firms went into effect in 2016, all- cash purchases by companies dropped nationally by about 70%, even in areas not subject to the requirements, according to a working paper from economists at the Federal Reserve Bank of New York and the University of Miami. The study found a 95% drop in the cash spent by shell companies and other corporate entities on homes in Miami alone.
Buyers will still come up with another way to purchase the real estate, such as through a straw buyer or a third party, said Andrew Ittleman, a partner at the firm Fuerst, Ittleman, David & Joseph LLP whose practice focuses on anti- money-laundering compliance.
“The government will come up with a law-enforcement tool and the people impacted by it will find a way around it. And we’ll have a new discussion in about five or 10 years,” said Mr. Ittleman.