An article about international money laundering that doesn't mention real estate. Weird. Because real estate in the developed has been, is and will continue to be a prime vehicle for money laundering by kleptocrats.
Fun fact: all US tax residents, lawful permanent residents and citizens need to declare all foreign assets to the US government every year if they're over some pretty low thresholds. You may have to do this not once but twice if you're over slightly higher thresholds. One is or was known as FBAR and is a disclosure you need to make to the Department of the Treasury (specifically FinCEN). The other is Form 8938 and is part of your tax return (so to the IRS).
Both require you to list all assets you own, co-own or otherwise have signatory authority over... except for real estate. If you earn money from real estate (eg by renting it out) then that needs to be declared (and possibly taxed) but the ownership of the property itself does not. Why? Who lobbied for that exception?
A couple of years ago I bought a newly built apartment in a small European country. I am a European citizen, but at the time I didn't have any kind of residence or residence permit in this country. To buy and officially register the property in my name, all I needed was a copy of my passport and then to transfer the money. I didn't need to provide any shred of evidence of where the money came from.
I'm happy it was so easy, but in a way I'm also quite surprised I wasn't ask for anything more. This country has a lot of Russian expats, so called "new money". After two years you can sell a newly built property and only pay capital gains tax (if you sell before you need to pay VAT), so it does make me wonder how many people use this as a way to launder money.
> I didn't need to provide any shred of evidence of where the money came from.
Why would you need to provide such evidence? The money is being sent via bank transfer and the state knows what money is going in and out of your account, they can easily spot if your funds are illegitimate as long as your state has a semi-competent financial authority.
In the UK if you're a Normal Person buying a house with a mortgage and a 20% deposit, they want to be reasonably sure you didn't get a personal loan (or something similar) for that deposit. Because there's more risk (i.e. them charging you more interest) if you're in debt to 95% of the house's value.
Of course, if you're a Billionaire Russian Oligarch, you might don't need a mortgage so this might not apply.
In this country, UK, it seems that they just ask you, at least that's been my experience when buying property.
My take on this is, it is done, so that solicitors can claim plausible deniability should the money not be 100% above board, but to be fair I've not sought to inform myself on the legislation.
I bought an apartment in Sweden and they asked me a cursory question about my deposit. Seemed incredibly innocuous and casual until my UK bank (Barclays) sent me a letter stating that my Swedish bank had requested details about large deposits and I should call the official Barclays line if I want to allow it.
My point is that if I say the £300K I'm using to buy a house with come from an inheritance, are they going to check further or are they going to take my word for it?
There are no hard and fast rules and they will take a risk based approach. I went through this process recently having bought a house a few months ago. My conveyancer told me for example that if any part of the money is a gift, the relatives would have to write a supporting letter explaining the purpose and source of the gift money. I’m sure similar evidence would be needed for inheritance too.
I'd guess they'll ask for a bit more information but it's up to them - it's their livelihood on the line if they're not doing their job properly.
I do know that I gifted someone buying a house £2k via bank transfer. The solicitor queried it, had me fill out a form saying who I was, why I'd transferred the money, where I'd got the money from and to prove it. I was able to provide them with a statement from a savings account showing a regular amount going in and then £2k being withdrawn and that satisfied them.
BuzzFeed had a series of articles about a number of suspicious deaths of Russian expats who had fallen out with Putin or otherwise were persona non grata. Apparently the Home Office / upper echelons of the police were dragging their heels in investigating them - the general conspiracy theory is no one in the UK government really wants the flow of money from Russian oligarchs that is propping up the London property market to dry up. Tie that with May's speech sometime ago (little reported on) that the UK needs to be "better friends" with Russia (and this was _after_ Salisbury)...
With this and Brexit and everything else, I really want out of this country. But then I'd have to move back to the US.
As for the FBAR, it is annoying, but at least only tedious and not onerous. I will never have enough money to really justify having to fill out these forms - and the people who really ought to are the ones with enough to hire the specialists to hide it from the US government.
That's probably true for the UK as a whole but I'd be surprised if the politically engaged metropolitan young professional demographic didn't have a much larger presence in London specifically.
The FBAR limit is pretty low, around $10k isn't it? Once over that limit, are you really saying you could skip filing it on the basis of not having much money? The FACTA limit is much higher, most people wouldn't need to do that one.
Yeah, FBAR is about $10k. FATCA/8938 threshold is $50k last I checked.
As an American living abroad, it's kind of annoying. Filing the FBAR only takes a couple minutes though. You basically enter basic account info (bank, country, etc) and the max balance that it had during the year. It's like half a page. If you are over the $50k threshold and need to file an 8938, you probably have income abroad as well and are already having to pay a tax attorney/accountant to handle your taxes for you. Again, annoying but workable. Honestly, the simple fact that as a US citizen, I always have to file taxes in the US no matter where I live or get my income, is the bigger pain. FBAR/FATCA stuff is like 5% of the total bureaucratic BS that expats have to deal with. The more annoying part of FATCA is that because the banks also have to report back to the IRS, many non-US banks just refuse to allow US citizens to open accounts. That has more of an impact because it limits where you can bank and will affect things like buying property.
Things get more complex when you own a non-US ETF or mutual fund. Now you own a passive income trust that’s treated differently, with its own reporting requirements.
It can also be a headache to take advantage of your country’s non-retirement tax-advantaged savings programs (e.g.: Canada’s TFSA)
Or if you’re a director of a corporation, like being a board member of the building you live in.
It’s also headaches for a condominium if a US citizen becomes a board member, which they usually can’t stop because they were voted in. If their old bank didn’t want to deal with US persons, now they have to hang everything over to someone that does.
For an American living abroad the FATCA threshold is much higher, 200k or something. I've (sadly?) never had to file it which I appreciate since I do my own taxes. I've also personally never had a problem getting a bank account in the UK but I was concerned about that when shopping around for a mortgage. But I do appreciate it is worse elsewhere (Spain apparently) and it might get worse in the UK. Plenty of reasons to renounce.
It is low - my initial take was this law was written in the 1970s when US expats were rare and only the really wealthy lived overseas. I was thinking of the people I've read about who had 100k etc stashed in Swiss bank accounts and the like. The problem is the potential fines if you get caught not filling out the forms - I forget the exact numbers, but it's like 50% of the balance (or all your assets?) and a fixed fine ... It is pretty much an attempt to borderline bankrupt you.
In reality, however, enforcement is lax - the IRS is getting decimated thanks to Trump and co. and so going after the small fry is not cost effective. High profile cases, e.g. Boris Johnson who has American citizenship, are just as much for PR purposes as enforcing the law. The IRS went after him because he was selling his house, something like that, and so it was profitable to get him for avoiding US tax law.
I'm no fan of Johnson, but he did absolutely nothing wrong in that case, and his personal connection to the US was very weak. He renounced his citizenship shortly after that episode as are record numbers of very ordinary (income wise) Americans abroad since FACTA was introduced.
The IRS makes overseas compliance for ordinary and accidental (just happening to be born on US soil, but otherwise no connection) American citizens very difficult and opaque, and the penalties are extraordinarily disproportionate when most of the time they usually owe absolutely nothing to US tax authorities other than paperwork.
It also makes access to financial products for American citizens and ex-citizens abroad difficult because local banks don't want to risk dealing with the millions on non-compliant citizens because they also face very high penalties for providing services to non-compliant citizens.
Essentially no other country taxes on the basis of citizenship instead of residency, and they are making a pig's ear of it.
>Boris Johnson who has American citizenship, are just as much for PR purposes as enforcing the law.
He renounced his American citizenship, also mentioned by another commenter, over the matter you described i.e. US Tax ($50k+) for sale of his home in the UK.
I think the Borris one was more for PR rather than being financially profitable. It was for less than £100k if I remember correctly. Surely there are much bigger fish to fry out there.
What resources does a solo firm that specializes in real estate have?
If they think the money is suspicious, do they have to report to anyone, or the suspicious person can just find another lawyer that will handle it without the new lawyer knowing about the last’s suspicion?
Canadian lawyers are exempt from a lot of reporting requirements, and I’m not confident in their ability to suss out international criminal money laundering out of their 1 person office...
> If they think the money is suspicious, do they have to report to anyone
Yes, a Suspicious Activity Report. But in my experience the report is filed into a black hole. I've filed SARs (unrelated to real estate but I believe the process is the same) with the UK Government before. Guess how many times they followed up? Zero.
Art can also be a tax shelter if you have your own museum. Launder money to your friends, then shrink your tax bill by making massive "contributions" to your private museum.
This is interesting, but as someone who has formed a UK limited company (and yes, it is as easy as the article claims), they've missed that the tricky part is getting a bank account. The onus is on the banks to carry out checks under "Know your Client", not Companies House. Registering a company in the UK doesn't really get you anything, other than a thin veneer of authenticity among people who don't understand how easy it is.
Not saying it's not a problem, but they should have looked into how easy it is to get banking for these "novelty" businesses.
Getting business bank account is not that difficult. There are lots of new challenger banks that give business accounts easily, you just need virtual office and proof of UK residence (council tax for example). I have opened business bank account at the beginning of this year just after returning to UK from abroad, renting a place and getting council tax bill in couple weeks, getting some cheap virtual office for the company and then opening bank account is super easy.
Don't you also need a passport or some other ID? When I set up my business bank account I needed my passport and proof of address.
A passport might be just about forgeable if you have the skills but they can also look up the passport number, and there are identity verification companies that are able to do just this. That's a lot harder to get around.
I'm pretty sure you just phone the council, tell them "I've just moved into 999 Letsby Avenue and need to pay council tax, my name is Mr I M Notafraudster."
All you need is proof of address (a utility bill). The article hints at it, but identity theft is rather easy in the UK.
A few years ago someone went to a Vodafone store, opened a contract and walked out with a new iPhone in my name. I'm not exactly sure what they used to do that, but shortly after I found bank accounts and other phone contracts in my name, so I assume they used the Vodafone contract as proof of address.
You don't need to fake a birth certificate, you just need to 'request a replacement' in the name you're using. I believe this was a big issue a few years ago, people requesting birth certificates for people who had died young, then leveraging those to get passports etc.
It's funny you should say that, when I moved to the UK for a couple of years I had a couple of months at the start were I was casually job hunting and no banks there would give me a personal bank account unless I had a full time job... I think I had about £10k I wanted to transfer over at the time too.
I knew I wanted to go contracting so I setup a ltd company and had a business bank account within a couple of days.
What this guide leaves out is the most important part: getting a bank account. I can’t speak to the process in the U.K. but in the United States the “know your customer” rules are quite strict and accounts for businesses are doubly so. Just having a set of incorporation papers won’t work and it can’t be done online (in my experience).
Having a duly registered company with fake directors gets you nowhere without a bank account.
I used to be involved in a UK based startup (as a developer) where we would create a bank account for our customers as a part of the product.
The AML/KYC process was outsourced. The customer would go through the registration form, provide their details, and then we would hit up the third party AML/KYC API, which would come back with details on the additional information required.
We would then have to chase up the customer for this information (usually a picture of their passport/utility bill, that sort of thing) and provide this back to the third party handling AML/KYC, who would then give authorization to another third party to create the actual bank account.
The whole thing seemed ripe for abuse. After a bank account was created, at no point was the customer contacted by the third party to tell them a bank account had been created in their name. If I was malicious and knew somebodies address history, DOB and had a picture of their passport, I could create a bank account for them with a couple of API calls, and they wouldn't have a clue.
It used to be that to get a bank account you would have to physically go to the bank and meet a human being first, but we’ve moved away from that.
We were closely watched by, and regularly in touch with, the FCA who didn't have any problem with what we were doing.
FCA’s job is plausible deniability. Pre 2008 was regulatory arbitrage, begun under Tony Blair, who now has a nothing title at JPM. Gordon Brown, Alistair Darling and many others also took banking jobs after 2008, as did Stephanie Flanders, before this a BBC finance journalist.
In the unlikely event of the government wanting to fix this, I frankly think they should (a) ban the use of LLP by anyone other than natural persons and (b) blacklist all the tax evasion jurisdictions entirely. They will never do the latter but might be persuaded to move on the former.
> getting a bank account. I can’t speak to the process in the U.K. but in the United States the “know your customer” rules are quite strict and accounts for businesses are doubly so. Just having a set of incorporation papers won’t work and it can’t be done online (in my experience).
This would really hurt the online-only banks if it were true. I opened a (personal) Capital One account online.
I have opened many online bank accounts using only my social security number. I open bank accounts frequently for the sign up bonuses and haven't ever been asked to submit photo ID online.
I got a US bank account by visiting the bank. No questions asked. So did my friend (different bank and state). I think you are over-estimating the KYC or visiting the more reasonable branches.
Lots of branches in NY will be more than happy to open a bank account for you and give you a credit card if you have 1500-2000 US dollars.
Exactly. Obtaining a bank account requires person's ID and tax number. Even if you would know the private tax number, the person in question would get a high income tax and would start to investigate.
My understanding is, the purpose of these companies with fictional founders is for founding/owning other companies registered elsewhere. The article does mention that the chain of ownership crosses many borders and can become practically impenetrable or very expensive and time consuming to investigate.
So let's say, somewhere in the chain of onwership there are some real unsuspecting people, possibly accounting agencies, managing real banking accounts. By the time you find them the money will be gone, the agencies will disappear, the occupants of the registered postal addresses will be different. You are going to need a lot of official inquiries in multiple countries to trace everything back to the source. It might prove to be almost impossible to do.
Or by the time you finish your investigation Putin himself will be gone.
I suppose things have changed a bit since I moved to the UK, but in my experience, the US is infinitely better than than the UK is terms of banking. It was quite easy to open up a business bank account in the US - took one day. Here, it is still hell to open up an initial personal bank account - passport, the residence permits, the proof of address... A few weeks at least. Once you are in the system, it does get a bit easier, but the UK system is still tied to the concept of you're associated with a specific branch at a specific location - it is like the 1950s in some ways. Larger banks are sort of more efficient, but it is not the US at all.
As a UK citizen, that last part doesn't seem true for my personal banking. Once you have an account it's very easy to open others at different banks.
Just recently I opened a secondary account with an app only bank. Other finance apps can simply use the API to help you keep track of your own spending, etc.
Of course immigrants may have additional hurdles with banking in the UK, I don't know.
This was 12 years ago, so things have changed, but man... when I first got here, landlords were wanting 6 months of rent upfront. The system was obviously designed (or it just came out that way) to make it hard for immigrants to initially establish themselves. These days, it is going to get a lot worse once Brexit happens.
Perhaps you misunderstood me or I wasn't clear - when I first got here, I tried to deposit a check into my account using another branch / office than the one I where I opened my account. I couldn't. It is not a matter of opening another account with _another_ bank. From the little I know of the banking system, things are or were not then, as wholly integrated as they were in the States. OTOH, the US is only now catching up to the rest of the world w/ Chip and PIN debt/credit cards....
I could certainly deposit checks in any bank branch 12 years ago in the UK. Your experience there seems weird. Even 12 years ago, no-one in the UK really used checks, so that might have something to do with it.
Opening an account is indeed unnecessarily difficult for immigrants, and UK landlords can get away with anything due to an almost total absence of regulation.
I've always been mystified by the idea that's taken hold in the UK that a utility bill is some kind of ID. As far as I can see, a modern utility bill could trivially be faked on a regular printer. (I assume that utility companies can't verify bills without violating data protection laws.)
If you submitted that for reimbursement purposes, I'm sure it would.
If you submitted it for proof of address purposes and you have service from that utility in your name but with different consumption values, I would think it would not.
If you submitted it for proof of address purposes and you do not have service from that utility in your name, I would think it would be.
Yes, I mean in the proof of address case. It seems doubtful that providing a fake document with your real address could constitute fraud, if the document was being used solely to verify your address. But perhaps there is some other criminal offense of forgery or some such that is still applicable.
I moved away from my hometown longer ago than that and had no problem depositing cheques in branches other than the one with which I was registered. It may depend on the bank you are using, or possibly even the method of deposit and the branch's ability to provide the resources for it.
I think the whole concept of “branches” is basically gone.
Except if the bank sells off a region (e.g. merges with another bank, but is required to sell off some operations for competition reasons), then you’ll end up following your home branch.
It used to be that the home branch would technically be responsible for verifying cheques, but i’m Sure that’s all centralized now too.
I opened my bank account 11 years ago (2008), and never had any issues doing anything I needed to do (including cheques) at another branches over 100 miles away.
Is it intentional? Of course it's intentional. This is how they bring in massive amounts of money. No doubt some of it ends up in politicians' coffers, directly or indirectly. Seeing the consequences of the change in law to allow this is trivial especially with the guy who kept trying to demonstrate it to the government. How ironic when the government is the one who intentionally initiated this. No wonder they charged only the whistleblower with filling false information. It's not stupidity, it's malice. As it typically is with humans, despite the obviously incorrect perception to the contrary that some are fooled by.
1. Transaction reporting requirements are a blatant violation of privacy. Stopping crime is not a sufficient justification for warrantless mass surveillance of private interactions.
2. If money is dirty, you should be able to prove a crime was committed to procure that money. If you can't, then the allegation is mere suspicion, and we've entered the territory of "guilty until proven innocent" civil forfeiture.
I don't agree with your first point, but it sounds like the basis for a coherent argument.
However I think your second point is arguing against a statement the article doesn't make at all. The article is really arguing about making it possible to prove guilt, not just seizing everyone's assets and then checking if they're dirty!
>>The article is really arguing about making it possible to prove guilt
That's not how free societies work. The state must find evidence of a crime and then use that evidence to prove the crime occurred. It cannot require everyone to document their activity, and pass it off to authorities, under pain of imprisonment, so that authorities are given evidence of crimes as they occur.
The idea that anything not vetted by the state should be suspected of being "dirty", and shunned, is a dangerous ideological framework that favors tyranny and extreme centralization of power.
This is well known that UK laws protect people who commit financial crimes in other countries. UK is the destination for all corrupt Indian politicians and businessmen who committed financial crimes.
At the end of the day people need to reconcile the fact that there is a tension between financial privacy and transparency for the sake of fighting crime. Additionally, there is the fact that the implementation of policy is typically a messy affair, and the added complexity that the state may not be the “good guy” (take civil abuses of civil forfeiture in the US as an example) makes the whole topic one that where clear lines are hard to draw.
Despite the clickbait title of the article, this isn’t complete information. Plenty of locales will be happy to take your money and register your company - named, numbered, owned by Larry, Moe, and Curly no problem.
However banks still have their “know your customer” requirements, and generally need to understand and verify the ultimate owner of an entity. That is where the checks are. Just registering a company doesn’t give you access to a bank account. Where companies like HSBC get in trouble is they do the verification incorrectly, wink, and don’t discover the error until someone points it out to them.
Money coming in and out of traditional tax havens gets a lot of scrutiny. As someone mentioned earlier most current money laundering schemes involve real estate or buying profitable businesses. I’ve read the mexican drug cartels will buy winning lottery tickets from people (at full value!) because it allows them to justify their income.
>Among the characters who have used British shell companies to hide their money are Paul Manafort, disgraced former chairman of Donald Trump’s election campaign, and Viktor Yanukovich, overthrown president of Ukraine, among thousands of lower-profile opportunists.
Including tons of other establishment figures, global leaders, kleptocrats, and business moguls, but of course only those in the eye of the British "national interests" or out of grace with the establishment on both sides of the pond, like Manafort and Yanukovich are mentioned in the BBC...
OK, so you put the dirty $$ in the banking system. Then what? This can work in Russia and alike places but at least in USA you would have to declare it and answer soon or later how you got it. The former Economy Minister having $1.7 Billion in his account might ring a bell or two.
Having it there and not being able to use is...useless.
That's the whole point of money laundering - to make the money look legit, so that you can use it. Shell companies are not only to put the dirty money in the system but also to produce a fake record of successful business transactions that make the money look legit.
Depending on the amount of money you have there, one can set up trades so that the other party gets your money by you "losing" it. One can buy gems, property, rare collectables. You can afford losing 10-50% of the money, but in return still getting enough which will be cleaned. It's not easy, but it's not rocket science either.
Oh I get it but bells still (should) ring. They buy assets on the reference price and sell at market price. That works for relatively small amounts of money, not billions. You can fool USA is you're a Chinese or Russian businessman (hey look I made my money via x and y corp) but mother country should know by tracing to the original amount.
The usual trick is to then have your corporation (pile of illegal cash) loan "you" money - that was Manafort's way, for example. No tax owed on a loan, it's not income.
interesting that part of the way Manafort was caught out is that he had his offshore company directly purchase things for him
FBI raided his home, found many bespoke suits in his closet. They traced them back to a high-end tailor and retailer in LA and went and asked them who paid for the suits. From there they located the offshore company and found it was in complete control of Manafort
Where in Beverly Hills did Manafort Spend $500,000 in suits?
It's more controversial than that. The government effectively passed a retrospective tax on this arrangement, called the 'loan charge' because they thought it should have been against the rules but it turned out in many instances it actually wasn't.
Fun fact: all US tax residents, lawful permanent residents and citizens need to declare all foreign assets to the US government every year if they're over some pretty low thresholds. You may have to do this not once but twice if you're over slightly higher thresholds. One is or was known as FBAR and is a disclosure you need to make to the Department of the Treasury (specifically FinCEN). The other is Form 8938 and is part of your tax return (so to the IRS).
Both require you to list all assets you own, co-own or otherwise have signatory authority over... except for real estate. If you earn money from real estate (eg by renting it out) then that needs to be declared (and possibly taxed) but the ownership of the property itself does not. Why? Who lobbied for that exception?