Commercial real estate is attractive target for billions in laundered cash, report finds

Since the days of the Cocaine Cowboys, South Florida’s high end properties have long been an attractive target for those looking to launder money.

While high-end residential real estate has long been the focus of law enforcement, leading the U.S. Treasury Department to require enhanced scrutiny of pricey real estate purchases in the region, a new report suggests that commercial real estate should be getting more attention.

The report on money laundering risks in commercial real estate from several anti-corruption groups identified 25 cases where “illegal, allegedly illicit or suspicious funds” were invested in commercial real estate in the last 20 years. The report values the properties purchased at more than $2.6 billion, and it includes several examples with ties to South Florida.

Residential real estate transactions are relatively simple, and it’s easier to identify the true individual behind a residential property purchase. Identifying who is behind a commercial property purchase is much harder because they can hide behind a number of money sources like shell companies and investment funds, among others, according to the report.

“From an anti-money laundering perspective, the commercial real estate sector is a toxic mix of complexity and opacity,” said David Szakonyi, the co-founder of the Anti-Corruption Data Collective, which authored the report, along with the organizations Global Financial Integrity and the Financial Accountability and Corporate Transparency Coalition. These groups work to understand, expose and combat corruption on an international scale.

While the Corporate Transparency Act, enacted in 2021, requires companies doing business in the U.S. to report information about the people who ultimately own or control them, the report notes that trusts, which are often used in real estate transactions, are excluded from this enhanced oversight.

The commercial real estate money laundering report found money stashed across 20 different states from 14 different countries, Florida, California and New York are some of the most frequent destinations. The money originated from Mexico, Russia, Iran and China, among other countries, and more than half of the 25 cases detailed in the report involve Politically Exposed Persons, defined as foreign government officials or their relatives, or oligarchs.

The report highlights the example of Reza Zarrab, who pleaded guilty in 2017 to helping launder Iranian funds in the U.S. After that, Zarrab, using a fake identity, acquired a multi-million dollar equestrian facility in Davie, funded by international wire transfers from suspicious companies and people in Turkey, according to financial records obtained by The Miami Herald and Organized Crime and Corruption Reporting Project (OCCRP). Zarrab has not been charged with any crimes stemming from those transactions.

Zarrab, who was living in Miami’s Coconut Grove in 2021, did not respond to requests for comment at the time from the Herald and OCCRP.

A lack of reporting requirements by professionals involved in commercial real estate sales contribute to money laundering in the sector, the report finds. The authors label these lawyers, real estate agents, title companies, registered agents and banks as “enablers” who knowingly or unknowingly facilitated the problem.

Following an influx of anonymous shell companies buying luxury real estate in major U.S. cities, the U.S. Treasury Department introduced Geographical Targeting Orders in 2016 to prevent money laundering in the residential real estate sector. Where the GTOs apply, title insurance companies must identify the true beneficial owners for cash purchases above a certain threshold. Miami was one of the first jurisdictions in the country where GTOs applied. However, the report suggests that GTOs are not an effective regulatory tool for the more complex commercial real estate industry.

Without effective anti-money laundering regulations in real estate, communities can be left devastated by its effects.

In a steel plant in Ohio, a furnace explosion in 2011 blew out bricks and windows, resulting in three workers being airlifted to burn units and two more rushed to hospitals, according to an International Consortium of Investigative Journalists investigation. One worker said his body was like a ping pong ball in the explosion. Federal inspectors found at least 17 safety violations at the plant after the explosion. The owners, Ukrainian oligarch Ihor Kolomoisky and his South Florida associates Mordechai Korf and Uri Laber, ultimately abandoned the plant.

In more than a decade, Kolomoisky, Laber and Korf purchased 22 properties, including the Ohio steel plant, using billions of dollars that Kolomoisky stole from PrivatBank, which he co-owned, U.S. federal prosecutors alleged in civil forfeiture complaints.

According to the civil forfeiture filings, Korf and Laber allegedly funneled fraudulent proceeds for Kolomoisky and laundered millions through commercial real estate, though they deny any wrongdoing and maintain that their investments helped local economies.

The ICIJ investigation additionally found that the money laundering scheme involving Kolomoisky left communities with “boarded up buildings, unpaid property taxes, dangerous factory conditions, unemployed workers and at least four steel mills that filed for bankruptcy.”

Kolomoisky has denied breaking any laws in Ukraine or the U.S. The civil forfeiture proceedings, which have been consolidated into one case, are still ongoing.

While the money laundering report demonstrates how criminal syndicates, cartels, kleptocrats and fraudsters use U.S. commercial real estate to hide and launder money, the data is not complete. The difficulty in identifying money laundering cases in commercial real estate means the true amount of suspicious funds invested in commercial real estate probably dwarfs the billions of dollars already known.

The money laundering report instead suggests that the Treasury Department should establish anti-money laundering obligations for both the residential and commercial real estate industries. This would include a reporting rule that accounts for evasion tactics and covers both ownership transfers that don’t constitute a sale and transactions by trusts. The report also suggests the Treasury extend anti-money laundering obligations to the private investment advisor sector.