A new corruption probe linked to Trump is a scathing indictment of the US real-estate industry

As US pres­i­dent Donald Trump whirled around Poland on July 6, a sto­ry in the Financial Times (pay­wall) turned up an inter­est­ing new devel­op­ment relat­ing to his real-estate empire. Felix Sater, a Trump asso­ciate and a con­vict­ed crim­i­nal, is coop­er­at­ing with an inter­na­tion­al probe into Kazakh mon­ey laun­der­ing, some of which alleged­ly went through a Trump property.
According to the FT, for­mer Kazakh cab­i­net min­is­ter Viktor Khrapunov spent $3.1 mil­lion buy­ing three apart­ments in Trump Soho through shell com­pa­nies using funds that the Kazakh gov­ern­ment alleges he stole from the state. The FT reports that Sater, a Russian-born US cit­i­zen con­vict­ed in 1998 of a fraud in part­ner­ship with the New York and Russian mafia, act­ed as a fix­er to help Khrapunov’s fam­i­ly buy the prop­er­ties. Khrapunov claims he is inno­cent and is being per­se­cut­ed by the regime of Nursultan Nazarbayev, Kazakhstan’s strong­man president.

Could this damage Trump?

While the Kazakh inves­ti­ga­tion is unlike­ly to shed any light on pos­si­ble ties between Trump’s elec­tion cam­paign and Russian inter­fer­ence in last year’s US elec­tion, says Alexander Cooley, author of Dictators Across Borders: Power and Money in Central Asia, if it prompts spe­cial pros­e­cu­tor Robert Mueller to probe Trump’s real-estate trans­ac­tions, it could become uncom­fort­able. The Trump Organization has court­ed Russian buy­ers and, like many high end sell­ers of US real estate in large American cities, it sells prop­er­ties to mys­te­ri­ous shell companies.

Cooley spec­u­lates that Mueller may want to ques­tion how buy­ers of Trump prop­er­ties obtained their mon­ey. “Where do cash infu­sions for Trump prop­er­ties come from? What are the types of funds they’re attract­ing? What are the motives for invest­ing?” asks Cooley, who is direc­tor of Columbia University’s Harriman Institute.

The problem here

The Kazakh probe once again expos­es the murky way the US real-estate world works. Moguls like Trump have long been able to legal­ly sell prop­er­ties to secre­tive shell com­pa­nies and ask no ques­tions about the true owners—who could be legit­i­mate buy­ers but also klep­to­crats, drug lords, or ter­ror­ist financiers.

When the Patriot Act was passed dur­ing the Bush admin­is­tra­tion to clamp down on ter­ror­ist financ­ing, the Treasury exempt­ed the real-estate sec­tor from a rule that forced banks to find out who owned anony­mous firms before doing busi­ness with them.

That rule was sup­posed to be tem­po­rary. But 16 years lat­er, the gov­ern­ment has done lit­tle to change regulations—despite the fact that almost half (pay­wall) the expen­sive res­i­den­tial prop­er­ties in the US are owned through shell com­pa­nies, accord­ing to a 2015 New York Times inves­ti­ga­tion. New York City began requir­ing shell com­pa­nies (pay­wall) buy­ing prop­er­ty to dis­close their mem­bers in May 2015, but many said the new rules didn’t go far enough.
Just last week, the US won the right to seize a Manhattan sky­scraper being used by Iran to avoid sanc­tions after a nine-year legal case. For Eryn Schornick, a pol­i­cy advi­sor at anti-cor­rup­tion NGO Global Witness, the Treasury’s fail­ure to end the Patriot Act exemp­tion adds up to “the real-estate lob­by hav­ing won the bat­tle to keep reg­u­la­tion out of its industry.”

The gov­ern­ment has tight­ened rules through a mea­sure called Geographic Targeting Orders, apply­ing to the coun­ties sur­round­ing six major cities, includ­ing Trump’s stomp­ing grounds of New York, Miami, and Palm Beach. Under the orders, when a shell com­pa­ny buys an expen­sive res­i­den­tial prop­er­ty with cash, the com­pa­ny it gets title insur­ance from then has to find out who owns the shell firm and pass that infor­ma­tion to the Treasury. Then? Well, noth­ing hap­pens unless there’s an inves­ti­ga­tion into the buyer.

The Treasury says 30% of buy­ers involved in deals since this sys­tem was put in place last year have been deemed sus­pi­cious in pre­vi­ous reports. So? By the time their names are revealed, such buy­ers have already parked their mon­ey, says Shruti Shah, vice pres­i­dent of the Coalition for Integrity, a trans­paren­cy NGO. “The trans­ac­tion is already done,” she says. Instead, she argues that real-estate bro­kers should have to do their due dili­gence before the pur­chase is made. “The sad part is this can be done with­out leg­is­la­tion; it can be done through rule-mak­ing by the Treasury,” she says.

Given Trump’s life­time in the real-estate indus­try and the vest­ed inter­ests of the prop­er­ty mag­nates he trusts to advise him, the chances of change seem slim. Nonetheless, advo­cates like Schornick remain hope­ful. “If civ­il-soci­ety orga­ni­za­tions go to the mat on this, I think there’s going to be a very strong argu­ment for some move­ment because the evi­dence is so over­whelm­ing,” she said. However, “we’ll have to under­stand that there’s a very strong real-estate lob­by that now has direct allies in office. I don’t think it’s fair to say they’ll just jump in bed togeth­er, but it’s human nature to some degree.”

WRITTEN BY Max De Haldevang

A new cor­rup­tion probe linked to Trump is a scathing indict­ment of the US real-estate industry

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