real estate

Real estate and the promise of ready money – who cares if the cash is dirty?

The UK welcomes wealthy foreign investors, but does it really care where their money comes from? Estate agents in London’s super expensive neighbourhoods are apparently agreeing to house purchases with ‘corrupt’ Russian politicians.FCA London Property

If you are in the UK, tune in to Channel 4 this evening to watch a revealing documentary about what really goes on between agents and super rich buyers. In ‘From Russia with Cash‘,  undercover reporters pose as an ‘unscrupulous’ Russian government official “Boris’ who wants to buy a house in London for his mistress, ‘Nastya’. Despite ‘Boris’ making is clear to the agents that his funds are not from a legitimate source, the estate agents he deals with are apparently happy to go ahead with the sale and even recommend ways for ‘Boris’ to keep a low profile, according to the Guardian report.

Channel 4’s reporters used hidden cameras to film meetings with estate agents, who talked openly about previous dealings with foreign clients, government ministers – politically exposed persons, and the amount of deals which are made with some degree of anonymity. Politically exposed persons (PEPS) are individuals with access to national coffers, funds which belong to the electorate. They are government officials, their families, their associates and beyond.

Property, or real estate, is widely recognised as the best way to invest. So it should be no surprise that the proceeds of crime have found a natural home in bricks and mortar. Rules on investing and moving dirty cash are well publicised. In the UK and many other countries, Financial institutions, lawyers, accountants, dealers in high value goods and real estate agents are required to report transactions of dubious origin – those which could be hiding the proceeds of crime – to law enforcement. The penalties for not reporting suspicious transactions are severe for the institution and the individual.

Corruption and billionaires  

FCA - TITransparency International’s ‘Unmask the Corrupt‘ campaign looks closely at how UK property launders funds for corrupt individuals, many of whom are politically exposed persons. Funds designated for schools and hospitals – ‘Boris’ claims his money comes from a government health budget – is sent to offshore havens, shrouded in secrecy and then passed on to ‘enablers’ or gatekeepers in the UK who advise and facilitate investment. The thing is, the practice is nothing new. This is how the big money has always moved – the only difference is that now it is under scrutiny.

Forbes, the register of all things super-rich, lists London as third in the world of ‘Billionaire Cities‘.  Five of the remaining nine are Asian cities – Hong Kong, Tokyo, Shanghai, Singapore and Mumbai sit alongside Paris, Moscow, New York and Sydney. If the corrupt are managing to get money into the UK property market, they are certainly managing it in the other countries on this list.

Will the estate agencies and law firms mentioned in this programme be investigated and will this give rise to increased scrutiny of the real estate sector in the UK? Financial Crime Asia is keen to find out.

Myanmar PEP bribery probe targets property investment

Property is, without doubt, one of the preferred tools for laundering the proceeds of crime. Where better to hide the bribe money given by the fixer of a foreign arms company, or the hoards of cash made selling off a state enterprise or historical artefact you did not pay tax on than in the construction of a brand new 14 storey condominium slap bang in the heart of a developing capital city?

From Investine.com

From Investine.com

Myanmar‘s capital Yangon is undergoing a property boom, and the Financial Intelligence Unit, part of the Ministry of Home Affairs, is working to identify and stem the flow of dirty money into the real estate sector.

Legally, property companies are not required by law to report suspicious transactions to the FIU, however the government is encouraging them to report any transaction worth more than K100m (Kyat) (USD102,000) for investigation. New money laundering regulations scheduled to pass in the Burmese parliament in October will make suspicious transaction reporting mandatory for more business sectors.

Chinese money

The move comes hot on the heels of a report in the China Securities Journal, claiming that K31.7tr (USD32.5bn) in illegal foreign currency investment was flowing into Myanmar from China annually.

Global: money laundering case review

Back to Financial Crime Asia’s roots, this month’s review of money laundering cases from around the world examines developments and prosecution trends in the UK, US, Brazil.

Enforcement in the UK

The UK’s now defunct Office of Fair Trading hit three real estate agents with a parting gift of fines for ‘significant and widespread failures’ in implementing the UK Money Laundering Regulations 2007. The firms dropped their guard in terms of customer due diligence, ongoing monitoring of business relationships, policies and procedures on record-keeping, internal controls and risk assessments, and training on recognising suspicious transactions. The UK OFT closed its doors on March 31st this year; HM Revenue and Customs picked up the reigns for supervising estate agents for AML purposes.

A court in London sentenced two Chinese citizens to 15 and 12 months behind bars FCA - Follow the money keep calmfor laundering GBP30,000 in the proceeds of cocaine trafficking. Detective Constable Andy O’Boy tracked the duo down by following the trail of transactions sent from Northern Ireland to the couple, and then from the couple onto China.

Police officers in Birmingham, UK, smashed what they believe is one of the biggest laundering operations ever to touch the UK and put 32 men behind bars for 140 years for cleaning and estimated GBP180m. The gang used several techniques to place and layer the cash. They made deposits into accounts in the name of a money service business (MSB) at banks in three different cities, totalling GBP160m between 2008 and 2011. One bank sluiced a whopping GBP44m. The money was placed into USD accounts before transfer to Asia and the Middle East; false company records created by the MSB owner hid the transaction trail. The gang also employed the ‘cuckoo smurfing’ technique (placing dirty cash into accounts of unwitting Iranian students who were expecting international transfers, in this case, and asking them to transfer the money on). Police stated the money was the proceeds of trafficking class A and class B drugs. Heroin and marijuana are class A and B drugs which come from Asia.

Interestingly, as yet there is no comment on whether the banks who sluiced the cash will be probed for not spotting the transactions, or praised because their suspicious transaction reports tipped off the police to the network.

US test AML laws against bitcoin

FCA - BitcoinA court in Florida will prosecute the first US trial for money laundering via bitcoin. Investigators arrested two men in a sting operation, after they responded to fake on-line messages from police officers posing as credit card thieves who wanted to launder their cash via bitcoin.

In March, the US Internal Revenue Service ruled that bitcoin should be treated like property and not currency for tax purposes. The recent rise in regulatory and legal interest in crypto-currencies, called convertible virtual currencies in US law, is a double edged sword. On one hand, it allows legitimate crypto-currency firms to step up to the plate and showcase their commitment to compliance with relevant laws and regulations. On the other, it threatens to stem the flow of investment and exchange in crypto-currency by penning them in with complex rules that are difficult to navigate. While the majority of crypto-currency firms are more than willing to comply, and have set up regulatory compliance as a pillar of new businesses, their best intentions could be strangled by regulation, a bitcoin community member argues in this video.

Brazilian state oil company raided in ML probe

Brazil’s Federal Police raided the headquarters of state-run oil company Petroleo Brasileiro SA in Rio de Janeiro on Friday as part of a money-laundering probe, two sources with direct knowledge of the operation FCA - Rio de Janeirotold Reuters.

In a statement Friday, the police said they were exercising 23 search and arrest warrants in the cities of Sao Paulo, Campinas, Rio de Janeiro, Macae and Niteroi as part of its operation Lava Jato (Operation Car Wash) which is an investigation of money laundering by currency exchange houses.

 

 

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Terrorist financing: Indian Maoist finances partly channelled through banks

 

The New Delhi based Institute for Security and Defence Analysis has published an insightful breakdown FCA - Naxalitesinto how the Naxalites of the Communist Party of India, aka the Maoists, acquire and spend their funding. While some of the estimated INR140cr (USD43m) they receive stays in cash, some is invested in real estate and some is deposited into bank accounts. ISDA analysts have also not ruled out the possibility of the Naxalites receiving foreign aid.

The Naxalite Maoists in India are a paramilitary group, born in West Bengal and now predominant in  poor areas of Chhattisgarh, Odisha and Andhra Pradesh and which supports a radical, left-wing, Maoist political ideology and aims to overthrow the government of India. The group is an illegal entity, banned in several states and nationally under the Unlawful Activities (Prevention) Act in 2009. The ban means that Maoists can be arrested, they are barred from holding public meetings, their offices – if found – will be sealed upon arrest and any assets will be frozen.

Despite their treatment as a terrorist organisation, the Naxalites have a rigorous structure of accountability. The Maoists adopted a protocol in 2007 called “Our Financial Policy” which lays down in detail where funding emanates from, how money is to be spent and where it is to be kept. Funds are collected from various sources, including:

  • Government Works and Schemes
  • Industry and Businesses
  • Social Institutions
  • Infrastructure
  • People
  • Membership Fees
  • Supporters/Sympathizers
  • Revolutionary Taxes in cash and kind
  • Fines on Defaulters

Corrupt officials, the Public Works Department, contractors, the mining industry and the collection of tendu leaves, which are used to make the traditional Indian “beedi” cigarette, have all generated funds for the Maoists. Maoists collect a “revolutionary tax” from people, local businesses and families. This can be in the form of extortion and people may feel threatened if they do not pay. There appear to be levies imposed on anyone who is late with a payment. This week, reports hit the Times of India about Naxalites demanding INR2lakh (USD3,226) from a doctor in Bihar  and threatening him with serious consequences if he does not pay.

To combat extortion and the payment of “revolutionary tax”, the Indian government is ran a radio campaign. In September last year,  All India Radio – the national radio station – started to play jingles and advertisements urging villagers and indigenous community groups to distance themselves from the Naxalites and join the mainstream.

There is no evidence yet to suggest that the Maoists are investing money in businesses or in the stock market. The report author claims that funds are spent on the black/gret market to acquire weapons, ammunition and explosives.

The organizations sprawling and secretive nature forces it to manage liquid assets carefully. At any one time, at any level of the organization, only two people will know where the money is stored. Cash is kept with trust-worthy “fronts” who sympathise with the group, funds are given to real estate agents presumably to invest or secure as well as hold. ISDA reports that some Maoists have bought vehicles for supporters, they have converted money into gold “biscuits”  and pack large amounts of notes into polyurethane bags which are kept in metal boxes, in tanks and stored in forests. There have also been cases of depositing funds into bank accounts, a senior military officer told ISDA.

Source: ISDA report

 

 

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The great Thai land grab under a dusty magnifying glass

Location map of Thailand Equirectangular proje...

Location map of Thailand Equirectangular projection, N/S stretching 103 %. Geographic limits of the map: N: 20.6° N S: 5.4° N W: 97.1° E E: 106.0° E (Photo credit: Wikipedia)

The Thai government is investigating the illegal acquisition and sale of some 12,000 rai of land across the Kingdom, from Chiang Mai in the north to the southern provinces, according to the regional press. One rai is the equivalent of 1,600m squared, so the total land under investigation is 19.2km2. More than one third of that land is on Phuket itself, Of the island’s 224km2,  3,600 rai or 5.76kmis under scrutiny.

The Phuket News, the island’s English language news rag has published the story. Browse through any newspaper or magazine in Thailand and you will find dozens of advertisements for real estate firms in English, Russian, Swedish and Thai. One of the first things I noticed when I turned up in south Thailand with a bag was the amount of money flying around the tourist spots, who were way removed from the traveller crowd. Much energy is spent trying to channel that money into property and land. Why spend two weeks in paradise when you can make it your home?

I have spent a little time in Thailand, exclusively in the south on paradise-like islands. A swathe of one island is a designated national park, where the lush green flora of the tropics can flourish. Visitors pay a nominal fee to walk through the park’s trails and camp on the unspoiled white sand beach. A walk right through the park leads to a secluded, bizarrely situated and eccentrically designed resort, boasting different types of accommodation including rooms in boats, half finished air conditioned apartments and tree houses. There is a small pool surrounded by plaster of paris giraffes and elephants and fake street lights. The resort is an eclectic projection of the owners’ tastes which sadly do not appeal to many tourists, aside from me perhaps. When I first stayed there, I lived in a tree house and one of the boat houses. I organised parties, promoted the resort online and took tourists on bike rides across the island to visit the place. In all, I bought in.

The owners with the strange taste in decor were a charming old Thai couple. A former state governor and a former high court judge – politically exposed persons who held influential positions and at least in the case of the ex-governor, had access to public funds. They spent their retirement between this property and the others they owned, including rubber and fruit plantations. a birds’ nest farm and homes in southern Thailand. The ex-governor and I once drove in his clapped out old Mercedes to a city on the mainland. He proudly showed me his identity badge, which showed his former minister status, and mentioned this would mean he paid no fee at toll booths and never had to bribe traffic cops.

“And if that doesn’t work,” he laughed slapping the side of his seat, “there’s always this.” He pointed to an ivory handled pistol which looked as old as the car shoved between the driver’s seat and and the gear stick.

Somewhere between Chiang Mai and the border wi...

Somewhere between Chiang Mai and the border with Myanmar. (Photo credit: Wikipedia)

Investigation?

I have no idea whether the land this man had acquired was actually a part of the national park. When I asked to see plans of the resort’s plot, none were produced. Many people on the island claim he took what he wanted from the national park to build the resort.  While I was there, at least three tourists made him offers for the land, which he declined. The man tells a romantic story of finding the land one day while exploring the jungle on the island. He staked his claim unimpeded and the local people from nearby villages brought him fish to eat while he stayed there. This bucolic image of an old man sat at the edge of a beach surrounded by tall trees and screeching monkeys and barefoot locals climbing over rocks to deliver him food is almost certainly embellished. The man’s children and employees recite the tale with ease, even the part about him using his influence to acquire identity cards for unregistered citizens. This, in fact, is what the King of Thailand did for many indigenous communities to stop them from growing heroin in the Golden Triangle. I even heard myself telling these stories in the combined voice of wisdom and naivety. Certainly, everyone was made to understand that this man, with an enormous piece of land in a protected part of the national park, an ex-governor whose wife was a high court judge, was well beloved and respected throughout. The locals, I was told once, called him ‘Phuwaa’, a term I had to research, which means ‘speaker’ and is given to the village chief.

I don’t know if this man and his wife are still alive, or where they are. Their children are running the resort as their inheritance and the deeds will no doubt be passed down to their children after them until the real title of the land is lost. I have not named the island, resort or family in question, although it would not be difficult to find out where it is. I do believe that this story is not unusual in Thailand and the sense of entitelement felt by the certain groups has filtered down to the rest of society.

The influx of organised criminals from abroad who have chosen to invest their dubiously acquired wealth in Thailand has not been accidental. Apart from the country’s stunning natural beauty, there are other appeals to someone who wants to invest without questions. Corruption in local public officials and the ability to turn a blind eye for the right price are common place and lauded by criminals. I do wonder, though, if the land I know of is under investigation, and if the probe takes any real momentum, will the losers be the foreigners who tried to cash in on cheap deals in paradise, or the national buyers.

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