Recent DOJ Forfeiture Action Against High-End Real Estate in Notorious Corruption Scheme Underscores Issues 

We are pleased to be presenting on Money Laundering and the Real Estate Industry on May 20 before the Real Estate Services Providers Council (RESPRO), a national non-profit trade association representing businesses before federal and state policy makers, and comprised of real estate broker-owners, real estate franchisors, mortgage lenders and brokers, title insurers and agents, homebuilders, home warranty companies, and other settlement service providers.

This is a key topic on which we have blogged frequently — including just earlier this week, when we noted that FinCEN again had renewed the Geographic Targeting Orders, or GTOs, requiring U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing.  Real estate and money laundering also was the focus of our recent panel at the Practising Law Institute’s 2020 Anti-Money Laundering Conference.

Indeed, just last week the Department of Justice (“DOJ”) announced that it had reached a settlement of its civil forfeiture cases against high-end real estate acquired through funds allegedly misappropriated from 1Malaysia Development Berhad (1MDB), Malaysia’s investment development fund, and laundered through financial institutions in the United States, Switzerland, Singapore, Luxembourg, and elsewhere. According to the civil forfeiture complaints, from 2009 through 2015, more than $4.5 billion in funds belonging to 1MDB were allegedly misappropriated by high-level officials of 1MDB and their associates through a criminal conspiracy involving international money laundering and bribery.  Under the terms of the settlement, the Atlantic Property Trust, which oversees the assets at issue in these forfeiture actions, agreed to forfeit all assets subject to pending forfeiture complaints in which they have a potential interest.  The assets subject to the settlement agreement include the sale proceeds of high-end real estate acquired in Beverly Hills as well as a luxury penthouse in New York City allegedly acquired with funds traceable to misappropriated 1MDB monies.  The assets being forfeited subject to this settlement are in addition to the more than $1 billion in assets the United States previously forfeited in connection with the DOJ’s 1MDB investigation.

Generally, the real estate industry has come under increasing scrutiny by regulators and prosecutors in recent years regarding the possibility that both corporate forms and real estate professionals are being misused by bad actors to launder the proceeds of criminal schemes committed in the U.S. and abroad.  This concern has led to increased reporting obligations to the federal government for certain high-end deals — the GTOs — and to potential future regulation and legislation.  We will discuss with RESPRO these developments, enforcement trends and how real estate professionals can try to protect themselves from accusations by the government that they were “willfully blind” to deals involving tainted proceeds.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.