As President Joe Biden vows to punish Russia with financial sanctions by seizing yachts, mansions and other assets, members of the real estate community and lawmakers are skeptical about how successful he’ll be at getting access to the money Russians have been pouring into real estate for decades. From Sunny Isles, Florida, to Cleveland and high rises in Manhattan, post-Soviet oligarchs’ money has poured into big cities and the heartland in recent decades with little recourse.
That’s because there is very little the government can do to find out who owns what real estate in the U.S., which has become a “destination of choice” for money launderers throughout the world, said Louise Shelley, the director of the transnational crime and corruption center at George Mason University, who has been an expert witness about how Russian money is laundered through real estate.
At a minimum, from cases reported in the last five years, more than $2.3 billion has been laundered through U.S. real estate, including millions more through other alternative assets, like art, jewelry and yachts, according to a report in August by Global Financial Integrity, a nonprofit group that researches illicit money flows.
In 2020, Congress passed legislation to empower the Treasury Department to stop tax evaders, kleptocrats, terrorists and other criminals from using anonymous shell companies to hide and launder assets, including those in real estate. It requires companies to self-report to the Treasury Department certain basic information, including the assets’ true owners. The information will be in a database for law enforcement, national security officials and financial institutions.
“There’s not enough teeth into regulations in terms of making Realtors report,” Shelley said. “And there’s not been enough emphasis on commercial real estate. It’s all about oligarchs’ buying real estate for themselves.”
While European countries have long had similar requirements, the latest legislation is a departure from the U.S.’s long-standing approach to private companies and disclosure requirements. Still, the Treasury Department’s Financial Crimes Enforcement Network is working on the final regulations necessary to activate the network. But it addresses only part of a much bigger problem. Experts say oligarchs can benefit from major disclosure loopholes in private equity and luxury goods.
“There’s this misunderstanding that you can just go out and seize these mansions, seize these yachts. For so many of them, it’s a complete black box,” said Casey Michel, the author of “American Kleptocracy: How the U.S. Created the World’s Greatest Money Laundering Scheme in History.”
“The U.S. provided all the tools of anonymity the oligarchs needed,” he said, and there’s no immediate executive action Biden can take to fix it.
Decades of investing
Russian money has been pouring into the U.S. since the dissolution of the Soviet Union. In 1999, Richard Palmer, who was the CIA’s Moscow embassy station chief, warned in congressional testimony that Russian kleptocrats and KGB officials had poured billions of dollars into private accounts across Europe and the U.S. in the dying days of the Soviet Union.
Michel said that after the passage in 2001 of the Patriot Act, which required disclosure of major banking transactions, much of the money was shifted into real estate property and luxury goods hidden through shell companies.
It has been a challenge for governments and academics trying to measure the scope of the wealth. By 2015, Gabriel Zucman, the director of the Stone Center on Wealth and Income Inequality at the University of California, Berkeley, estimated that 52 percent of Russia’s wealth was held outside the country. The Treasury Department maintains a “report on oligarchs and parastatal entities of the Russian federation.” While the list of 96 oligarchs is public, there is also a much longer classified version that includes a deep dive into the finances of the oligarchs and entities, including their sources of income and exposure to the U.S. economy.
During the real estate boom in 2006 and 2007, Russians flocked to Manhattan to buy up properties. They bought up floors at the Plaza Hotel and logged record sales at the Time Warner Center and 15 Central Park West. They also eventually attracted the attention of law enforcement. In New York. Russian oligarch Oleg Deripaska, an ally of Russian President Vladimir Putin whose name has been repeatedly raised in investigations involving Russia and former President Donald Trump, was linked to a home in the Greenwich Village neighborhood of Manhattan, even though he had not come to the U.S. in years, The Washington Post reported. (He was also connected to a home in Washington, D.C., through a Delaware-incorporated company. The FBI raided both properties in October.) Calls to Deripaska’s former lobbying firm, which ended its contract with him last week, were not returned. On Telegram, Deripaska denounced the war, saying: “The world is very important! Negotiations need to start as soon as possible.”
After buying in New York City, Jacky Teplitzky, the managing partner of the Teplitzky Dunayer Team with the real estate brokerage Elliman, who sold dozens of apartments in Manhattan and Miami to Russian buyers in 2006 and 2007, said Russian buyers then turned their attention to Florida.
A 2017 Reuters review found at least 63 people with Russian passports or addresses had bought at least $98.4 million of property in seven Trump-branded luxury towers in southern Florida. It found that at least 703 of the owners of the 2,044 units in the seven Trump buildings, or about one-third, were limited liability companies, or LLCs, which can mask the identities of properties’ true owners. Alan Garten, the chief legal officer of the Trump Organization, told Reuters at the time that it was an “overblown story.” Over the years, such purchases, along with the broader investments Russians have made, have proven more difficult to trace.
More broadly, Teplitzky noted that most Russian buyers she has worked with have turned the cash they originally brought from Russia into what the government would characterize as legitimate investments, even beyond real estate.
“These are very smart people who have an army of accountants and advisers all over the world,” she said. “Many of them have businesses in the United States. But now they are legit American companies.”
America’s heartland is most likely awash in illicit Russian money, said Michel, who documented one Ukrainian oligarch’s outsize financial grip on Cleveland.
While the oligarch, Ihor Kolomoisky, was an early promoter of Ukraine’s current president, he eventually became a figure in pushing Russia propaganda during the Trump administration. The State Department publicly designated Kolomoisky and his immediate family members as being involved in corruption last year. Kolomoisky “became the biggest landlord in downtown Cleveland,” according to an investigation by the Pittsburgh Post-Gazette. “He’d go to steel plants and factories in small-town Illinois, Kentucky and West Virginia, plant the money and then just allow the plants to rot,” devastating the communities, said Michel, whose book focused on Kolomoisky. Kolomoisky’s former publicist declined to refer NBC News to his current publicist and added that he was unable to provide contact information because Kolomoisky would be “too busy” to respond.
It remains difficult to track any such information reliably because of how these wealthy Russian business executives partner with other investors and use shell companies to purchase real estate. Jim Costello, the chief economist at MSCI Real Estate, could cite six Russian-headquartered organizations and people with exposure of $1.2 billion in U.S. commercial real estate, a small fraction of the $808 billion in real estate that was sold in the U.S. last year.
With Russia’s invasion of Crimea and the sanctions the Obama administration passed, the Russian buyers of residential real estate largely disappeared. Victoria Shtainer, a Ukrainian-born real estate associate with Compass, who previously sold 30 to 40 Manhattan apartments to Russian buyers for $3 million to $20 million from 2005 to 2014, noted that the market dried up quickly. She said her clients found it was too difficult to get visas to visit the U.S. and that the high purchase price of Manhattan apartments triggered too many red flags in the banking system when her clients tried to transfer funds.
“It was like water that got shut off quickly. It hasn’t come back,” Shtainer said. “They don’t want to upset Putin. They don’t want to red-flag themselves.”
Shtainer said that while some of her clients sold their apartments, other clients have kept them for their children.
“Some of them rented them out or have them being rented right now or have their children in them or they stand empty,” Shtainer said. “The whole goal is to have their children educated in the United States.”
As the Biden administration presses forward with sanctions, more Russian oligarchs and some of their former loved ones have started to condemn Putin’s actions in Russia. Dasha Zhukova, the ex-wife of the Russian oligarch Roman Abramovich, the owner of the English soccer club Chelsea, emphasized that her ex-husband was no longer affiliated with the three townhomes the couple bought on Manhattan’s Upper East Side. Property records confirmed that the properties were sold in 2018 for about $90 million.
“Roman Abramovich and I separated in 2016, and assets which were transferred are in accordance with the judgment of divorce,” Zhukova said. “Since then I have moved on with my life and am happily remarried.”
Zhukova added through an Instagram post on the Garage Museum of Contemporary Art account that as “someone born in Russia, I unequivocally condemn these acts of war, and I stand in solidarity with the Ukrainian people as well as with the millions of Russians who feel the same way.”
Vladislav Doronin, the CEO of Aman Resorts, which is opening a hotel with “members only spaces” at the Crown Building in midtown Manhattan this spring, also distanced himself from what is going on in Russia. On Saturday, protestors gathered in front of the project demanding to know Doronin’s position on the Ukraine, according to The Real Deal. Charlotte Rutherford, a spokeswoman for Doronin, stressed that Doronin is not Russian and that he condemns Russia’s actions. She also stressed that none of the buyers in Aman’s New York City project are Russian citizens.
“Mr. Doronin denounces the aggression of Russia on Ukraine and fervently wishes for peace,” she wrote. “Mr. Doronin was born in the USSR, a union which no longer exists, which comprised both Russia and Ukraine. He left in 1986 before its dissolution and has therefore never been a Russian national. As an international businessman with teams situated across all corners of the globe, he has always embraced a culture of inclusion and peace.”