Russian billionaire Dmitry Rybolovlev and the 18 bedroom Maison de L’Amitié in Palm Beach, Florida, which was purchased by him for his student daughter Ekaterina from Donald Trump for $95 million.
Two seemingly small and not connected to each other events that were practically unnoticed by media, but by opinion of some serious Russian observers marked extrimely important moment in Russian history took place this month.
The first event took place in the US.
On January 14, The Financial Crimes Enforcement Network (FinCEN) of The US Department of The Treasury issued a seemingly routine document in which it was reported that FinCEN is going to begin the identification and tracking of anonymous buyers of luxury real estate, starting at two points in its concentration – Manhattan, New York and Florida Miami.
New regulations * “will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high-end residential real estate in the Borough of Manhattan in New York City, New York, and MiamiDade County, Florida. FinCEN is concerned that all-cash purchases – i.e., those without bank financing – may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures.
To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County. With these GTOs, FinCEN is proceeding with its risk-based approach to combating money laundering in the real estate sector.”
The New York City’s most exclusive apartment buildings have sold over 60% of their units to shell companies.
An August 2015 report by National Association of Realtors found that 59% of purchases by international clients were made in cash.
It is widely known that huge percentage of these purchases were made by Russians.
In April 2014 Edward Mermelstein, a New York lawyer who represents foreign investors in the U.S., including many Russians, said to Voice of America (http://www.voanews.com/content/russian-investors-seek-safety-in-us-real-estate/1901378.html that “during the two-year period ending in February 2014, his office transacted over $2 billion in condominium purchases by foreign buyers, 25% of which, or $500 million, originated from Russian investors.” Mermelstein said all of these were cash deals.
In 2011 the acquisition by Russian billionaire Dmitry Rybolovlev’s for his student daughter Ekaterina of a four-bedroom New York penthouse for $88 million made a real sensation. This was a record price for an apartment in the city at the time of its purchase. Earlier, in 2008 Ekaterina Rybolovlev bought the 18 bedroom Maison de L’Amitié in Palm Beach, Florida, from Donald Trump for $95 million.
$88 million “student pad”
On January 18, 2016 a Russian information agency REGNUM published an article by Alexander Shpunt entitled: “There is nowhere place for ‘them’ to flea from Moscow anymore, ‘their’ America is no longer exists.” (http://regnum.ru/news/polit/2056094.html)
According to this article until recently U.S. was the last western country where Russians could launder their money by investing into luxury real estate.
In France a purchase of real estate is made through the State notary public, and the origin of the money is controlled by the banking industry, and the government.
Similar control of the origin of the funds from which the purchase of real estate by foreigners made exists in Spain, in Italy and in Germany.
Most recently, in December 2015, additional measures to tighten inspections of sources of financing the purchase of real estate were introduced in the UK.
Alexander Shpunt states that FinCEN program is fundamentally different from any other European programs, as it does not control the purchase of real estate at the moment of the purchase. It establishes control even of purchases made many years ago. And this is its uniqueness.
The program is monitoring not the transaction and not the real estate owner, but beneficiary of insurance, without which such property cannot be used. Since insurance is always paid in an area where property is physically located – that is, in the U.S., there is no way to hide the real owner of the real estate. Insurer always knows who actually owns a penthouse in Manhattan or a villa in Miami.
Until yesterday, property insurers were not required to disclose the names of the beneficiaries of insurance of real estate. Now, they will provide the data to FinCEN in the supervisory procedure, even without a court order.
REGNUM article declares: “The mousetrap had got shut”, meaning that Russian wealthy lost their ability to save their capital in the U.S., in case they need to flee Russia.
Another article I meant to introduce was published on January 18, 2016 by the popular Russian journalist and blogger Andrei Shipilov. The blogger drew the attention of his readers to the fact that Russia and Hong Kong finally signed an agreement on avoidance of double taxation for money placed by Russians in Hong Kong banks.
Andrei Shipilov
Shipilov writes:
“It would seem a trifle… But those, whose profession was to transfer money from Russia across the border, know how stubbornly and persistently Russia always worked to prevent any attempt to lobby the avoidance of double taxation in Hong Kong. For such a proposal one could even end up in jail.”
Lack of double taxation would give possibility to build a scheme, in which the process of the money transferring from Russia by transit through accounts in Hong Kong, would be not a subject to fiscal control, and the money could completely disappear in the vast global banking system. Therefore, in the absence of agreement on double taxation with Hong Kong, the entire Russia’s GDP, immediately will start leaking abroad, and instantly will turn up in the offshore accounts.
That’s why the news that, the agreement is secretly signed, suddenly, without any preparation and prior notification, is really shocking.
Andrei Shipilov predicts results: “all the rest of financial reserves that still were kept in Russia, now have a chance to suddenly disappear without a trace and no one will ever know where…”
Shipilov reminds his readers, that similar actions, aimed to taking money abroad took place in the Ukraine before Yanukovych fled the country.
I’d like to draw readers’ attention to several figures characterizing today’s Russian economy.
According to the Russian Central Bank, in 2013 direct investments into Russian economy amounted $79 billion, in 2014 the amount was $17 billion, and in 2015 they fell to $1.7 billion! For comparison, $384 billion were invested in 2015 into the U.S. economy. At the same time in these last two years the outflow of capital from Russia amounted $210 billion.
Shipilov writes:
“When I used to say that the moment of Russia’s ‘kaput’ is close, I was asked: ‘But when specifically it is going to happen?’ I used to answer vaguely, that it is difficult to give an exact date, which depends on many details. Nevertheless one can certainly see the Russia’s irreversible movement toward the abyss.
And now I can say that it will happen very soon. Well, just very, very soon .”
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FOR IMMEDIATE RELEASE CONTACT: Steve Hudak
January 13, 2016 703-905-3770
FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami
“Geographic Targeting Orders” Require Identification for High–End Cash Buyers
WASHINGTON – The Financial Crimes Enforcement Network (FinCEN) today issued Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami- Dade County, Florida. FinCEN is concerned that all-cash purchases – i.e., those without bank financing – may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County.
With these GTOs, FinCEN is proceeding with its risk-based approach to combating money laundering in the real estate sector. Having prioritized anti-money laundering protections on real estate transactions involving lending, FinCEN’s remaining concern is with the money laundering vulnerabilities associated with all-cash real estate transactions. This includes transactions in which individuals use shell companies to purchase high-value residential real estate, primarily in certain large U.S. cities.
“We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money,” said FinCEN Director Jennifer Shasky Calvery. “Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector.”
Under specific circumstances, the GTOs will require certain title insurance companies to record and report to FinCEN the beneficial ownership information of legal entities purchasing certain high-value residential real estate without external financing. They will report this information to FinCEN where it will be made available to law enforcement investigators as part of FinCEN’s database.
The information gathered from the GTOs will advance law enforcement’s ability to identify the natural persons involved in transactions vulnerable to abuse for money laundering. This would mitigate the key vulnerability associated with these transactions – the ability for individuals to disguise their involvement in the purchase.
FinCEN is covering certain title insurance companies because title insurance is a common feature in the vast majority of real estate transactions. Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern. The GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies. To the contrary, FinCEN appreciates the assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.
The GTOs will be in effect for 180 days beginning on March 1, 2016. They will expire on August 27, 2016.
Any questions about the Orders should be directed to the FinCEN Resource Center at 800-767- 2825.
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FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.
