Opinion | American Real Estate Was a Money Launderer’s Dream. That’s Changing.
He has been pushing for the ENABLERS Act, which the House passed in July. It would empower the Treasury Department to require so-called “gatekeepers” to the US financial system — including certain lawyers, accountants and registered agents — to look into their clients and report suspicious activity, just as banks are required to do. It’s not clear whether the Senate will pass it, but the principle behind it is an important one: Americans who make a business model out of money laundering shouldn’t be allowed to get away with it.
Another big problem that the saga of Optima reveals is the secrecy of the US real estate industry itself, which encourages the use of limited liability companies, shell companies and land trusts that often end up protecting the privacy and the holdings of the wealthy. Jay Westbrook, a retired city councilman in Cleveland, told me that Ukrainian oligarchs aren’t the only ones who hide their identities. Mr. Westbrook, who now works with land banks to clean up abandoned and neglected properties, said it is not uncommon for out-of-town investors to buy property under the names of various LLCs and then walk away from their responsibilities at the first sign of trouble, leaving unpaid taxes and fairs behind. In many jurisdictions that have not been deemed at “high risk” for money laundering, cash buyers can essentially purchase property anonymously, without anyone involved in the transaction recording and verifying their true identities.
His solution? To hold the wealthy to the same disclosure standards that working stiffs have to go through to get a mortgage.
Congress took a small but important step in this direction when it passed the Corporate Transparency Act in the waning days of the Trump administration, overriding a presidential veto. The new law directs the financial crimes bureau of the Treasury Department, known as FinCEN, to collect information from companies about their true ownership and keep it in a massive, confidential database that can be used by law enforcement for money laundering investigations. Eventually, this law could touch millions of businesses, forcing them to file an additional form. As long as the filing process isn’t onerous, the benefits of greater transparency should outweigh the hassle.
But this database won’t be available to the public, and it’s unclear exactly how accessible it will be for people in cities like Cleveland who may want to use it to figure out if a potential investor is a deadbeat or a kleptocrat. It’s also far from clear that FinCEN has the capacity to build and manage the massive database it has been ordered to create. A Government Accountability Office report found that the agency can take years to make use of other ownership information that it collects and inform law enforcement agencies about the information’s existence. Unless this data is used effectively, there’s no point in collecting it.
To be clear, these steps to combat money laundering are important. The United States has been ranked the most secretive financial jurisdiction in the world. A 2016 report by the Financial Action Task Force, an intergovernmental group that combats money laundering, gave the United States some embarrassingly low rankings, although some improvements have been made since then. To have strong credibility on the world stage in the fight against international corruption, the United States must continue these efforts. This is especially crucial now that the Biden administration has called corruption a core national security interest.