Russian oligarchs are likely investing in US commercial real estate and are trying to circumvent sanctions imposed after the Russian invasion of Ukraine last year, reports FoxNews.
The Financial Crime Enforcement Network (FinCEN) has urged banks to monitor suspicious commercial real estate transactions (CRE) that may be carried out by sanctioned Russian elites, oligarchs, their families and organizations they use to move their wealth.
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FinCEN is an agency within the Counterterrorism and Financial Intelligence Unit of the Department of Finance that collects financial information and seeks to combat money laundering, terrorist financing and other financial crimes. When banks submit suspicious activity reports for transactions that are believed to be illegal in nature to the Department of Finance, FinCEN is a support agency that analyzes them and makes them available to law enforcement officials for investigation.
FinCEN's warning notes that the agency "warns that the sanctioned Russian elites and their proxies are likely trying to exploit several vulnerabilities in the CRE market to avoid sanctions."
“Thanks to international pressure and economic restrictions that more than 30 countries have placed on Russia for its brutal war against Ukraine, there are fewer opportunities for the Russian elite, under sanctions, to move and hide their ill-gotten wealth,” said the acting director of FinCEN. Himauli Das.
The warning states that commercial real estate presents an attractive opportunity to potentially avoid sanctions because it "usually involves very complex financing methods and opaque ownership structures that make it relatively easy for attackers to hide illicit funds in CRE investments."
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Private companies and investors participating in the CRE market regularly use trusts, shell companies, pooled investment vehicles and other entities on both sides of transactions. These legal structures allow investors to limit their legal, tax and financial liability.
CRE transactions also typically involve multiple levels of these legal entities and may have multiple investors behind them, which can make it difficult for financial institutions to identify all of the beneficial owners of a particular business.
This lack of transparency has made the deals particularly attractive to foreign investors and organizations. Foreign investors tend to make up a significant portion of CRE transactions in the US - FinCEN's warning notes that 8,4% of transactions in the 2021 survey involved at least one foreign client living abroad. This figure exceeded 10% in the years before the pandemic.
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FinCEN has identified four methods by which sanctioned Russian oligarchs and elites can try to use the CRE market to evade sanctions.
- Pooled investment vehicles, including offshore funds, can be used to circumvent financial institutions' customer due diligence (CDD) obligations and Bank Secrecy Act reporting requirements.
- Shell companies and trusts based in the US or abroad can be used by Russian elites under sanctions to hide their ownership of CRE property. This is especially true for high-value real estate with multiple levels of legal entities and trusts. Legitimate property development and asset management companies may be unwittingly drawn into sanctions avoidance schemes through the use of these structures.
- Third parties, including relatives, friends, or business partners, may be used by Russian elites under sanctions or their proxies to create legal entities used in illegal CRE transactions.
- Invisible CRE investments that provide stable returns may be attractive to Russian elites and their proxies under sanctions because they are less likely to be seen by the general public or attract unwanted attention. FinCEN notes that they can "extremely vary in type" and are just as likely to occur in small to medium-sized urban areas as they are in major cities.
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