At least $2.6 billion in illegal or questionable money has been invested in commercial real estate across the United States over the past two decades, according to a new report by the Anti-Corruption Groups Network.
The report, released in early May, analyzed 25 cases from publicly available sources, including government indictments and news reports, to provide a glimpse into how commercial establishments such as shopping malls, supermarkets and equestrian facilities can be used for money laundering, and it noted that these cases represent only a fraction of the illicit funds entering the market.
In 2020, an investigation of the FinCEN Files led by the International Consortium of Investigative Journalists and BuzzFeed News revealed how Ukrainian oligarch Igor Kolomoiskyi spent a decade building a U.S. real estate empire, acquiring at least 22 properties, including a prominent skyscraper in Cleveland and a dormant Motorola factory on farmland in northern Illinois. In their acquisition spree, ICIJ found that Kolomoiskyi and his associates left a trail of vacant and boarded-up buildings, unpaid property taxes, unsafe factory conditions, job losses, and at least four steel mills that have filed for bankruptcy.
Kolomoisky is accused by the United States and others of embezzling billions of dollars from Privatbank, Ukraine's largest bank, which he co-owned at the time, through a bold international scheme. He denies breaking any laws in both countries.
A joint report by the Anti-Corruption Data Collective, the FACT Coalition and Global Financial Integrity cited the revelations as a “textbook example” of “total systems failure.”
“To date, investigations by real estate agents, local government agencies and federal regulators have not revealed any warning signs regarding Kolomoisky's investments,” the report said.
A 2017 photo of the abandoned Warren Steel Works in Ohio, formerly owned by Ukrainian businessman Igor Kolomoisky. Photo by Johnny Joe.
The researchers found that in most of the cases they looked at, a “chain of enablers” – lawyers, real estate agents, registration companies, limited liability companies and banks – helped launder billions of dollars, sometimes unwittingly.
The money came from 14 countries, including the United States, Russia, Mexico, Iran and North Korea, and was invested in 22 states, primarily in California, Florida and New York. More than half involved foreign government officials, their relatives and oligarchs who benefited from their proximity to power.
Let's just say that people who launder money don't make good landlords.
โ Erica Hanichak, Director of Government Relations at the FACT Coalition
In February, FinCEN, the U.S. Treasury Department's financial crimes unit, released proposed guidelines to prevent the flow of illicit funds into residential real estate by uncovering bad actors who use trusts and other secret legal entities to purchase property. This follows a Transparency International report released in late 2023 that found the U.S. lags far behind several other countries, including OECD member states, in applying nationwide anti-money laundering obligations to both commercial and residential real estate transactions.
FinCEN has said it is exploring options to increase transparency in the commercial sector, but has not provided a specific deadline.
Meanwhile, a new report warns that the use of offshore investment vehicles to intermediate commercial real estate deals and a lack of information on beneficial ownership makes it difficult to determine who is buying up the U.S. market.
“While in the case of residential real estate, where the transactions are relatively straightforward and the chances of identifying the true person behind the purchase are relatively high, in the case of commercial real estate, it is often much more difficult to identify who is behind a purchase,” the report said.
Erica Hanichak, director of government relations at FACT, told ICIJ that money laundering can also take place through commercial apartment complexes, affecting tenants and communities by making it “difficult to access affordable housing or to live in properties that might be safe.”
“Let's just say that people who launder money don't make good landlords,” she says. “We've seen a lot of cases where apartments have fallen into disrepair and landlords have failed to take responsibility for the condition of the property.”