Anticorruption advocates have long thought that real estate and money laundering go together like a horse and carriage. At least in the United States. With a little help from a friendly lawyer, a corrupt official or other big time criminal has until recently been able to use an anonymous shell company to hide their money by buying a luxury mansion or pricey condominium. Because the real estate registry listed the company, not the crook, as the owner, the real owner’s identify was hidden. From law enforcement, the media, and civil society.
In 2016 the U.S. government made a start on ending this abuse. It began to require the disclosure of the beneficial owner of any corporation which paid cash for properties in cities where real estate purchases were likely used to hide stolen money. Initially, and as expected, the new rule seemed to have the desired effect: all cash purchases of real estate appeared to drop significantly — indicating a gaping loophole in the antimoney laundering laws had been plugged.
But the first paper published by the Anticorruption Data Collective finds to the contrary. Authors Matt Collin of the World Bank and Brookings Institution, Florian M. Hollenbach of the Copenhagen Business School, and David Szakonyi of George Washington University report the rule had no impact “on the number of, the total price volume, or the share of corporate all-cash purchases in targeted counties.” Indeed, they could find “little difference in the patterns of corporate all-cash purchases versus a ‘placebo’ outcome that should not be affected by the policy.”
Beneficial ownership disclosure is a favorite reform of anticorruption advocates. One that would seem to have an obvious, immediate salutary effect. Why didn’t it here?
The authors offer two reasons, and suggest there could be others. Their paper demands careful attention. One because of the implications for beneficial ownership disclosure rules, and second, and more importantly, because it shows how important it is to carefully assay anticorruption reforms. Their paper is here and comments are welcomed. And GAB looks forward to more work by the Anticorruption Data Collective.
This was a really interesting paper. I normally advise countries to develop multiagency policies in the AML area. In this case it seems to me that Treasury launched a policy without engaging with the enforcement agencies, the paper says they didn’t even ask them about it until a couple of years had elapsed. The lack of focus on the financial motive for criminals and the importance of not just following the money, but recovering it, continues to be a source of frustration.
Glad you liked the paper and thanks for making a very important point about an essential step when drafting a law.
I’m happy to engage. The drafting of law and policy implementation are like chalk and cheese. Drafting is often done quite well (although not always), the implementation of anti-corruption policy is generally done very badly indeed. The order seems to be: policy idea, policy consensus and announcement, draft a law, pass a law. This is followed some years later a review of why the policy has not worked. The reason is the fullstop (period in the US) after ‘pass a law’, where someone should have been asked to stop what they were already doing and implement the new policy. On the plus side I am the one paid to do the review, which is why I know. I much enjoy your blog. Best wishes, Tristram
I have observed that over the course of making a relationship with real estate proprietors, you’ll be able to get them to understand that, in every real estate financial transaction, a payment is paid. In the end, FSBO sellers will not “save” the commission rate. Rather, they fight to earn the commission by simply doing a good agent’s work. In accomplishing this, they devote their money and also time to execute, as best they might, the responsibilities of an broker. Those tasks include revealing the home by way of marketing, introducing the home to prospective buyers, building a sense of buyer emergency in order to make prompt an offer, organizing home inspections, dealing with qualification check ups with the loan company, supervising repairs, and facilitating the closing.