Hidden Fortunes

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Hidden Fortunes

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Bibliographic details

• Authors: CHADY EL KHOURY
• Published: December 3, 2024

Overview

• Author: CHADY EL KHOURY, assistant general counsel in the IMF’s Legal Department.
• Publication: F&D Magazine, December 2024.
• Central claim: Criminal networks, corrupt politicians, and tax evaders use global real estate to park illicit wealth, contributing to housing bubbles and pricing out local buyers.

How dirty money distorts real estate markets

• Illicit purchasers buy luxury properties through shell companies, trusts, and offshore accounts established by professional enablers rather than purchasing directly.
• Developers rarely question the source of funds, producing high-end properties often left empty and owned by anonymous entities.
• Resulting effects include inflated property prices and housing bubbles that make homeownership less attainable for ordinary residents.

Mechanisms and actors

• Use of anonymity tools:
  • Shell companies.
  • Trusts.
  • Offshore accounts.
  • Professional enablers who set up opaque ownership structures.
• Real estate sector practices:
  • Developers and market participants often do not verify the ultimate source of funds.
  • Real estate functions as a safe haven for concealing illicit fortunes.

Geographic scope and examples

• Major global cities cited where effects are pronounced: New York, Miami, London, Dubai.
• London example:
  • Foreign companies held £73 billion worth of properties in 2018.
  • About 90 percent of these purchases were made by entities registered in tax havens.
  • Source for the London figures: a paper by economists Jeanne Bomare and Ségal Le Guern Herry (as reported in the article).
• African cities also affected:
  • Lagos, Nairobi, Johannesburg experience speculative investments that create similar real estate bubbles.
  • Weak regulations and informal housing markets in these regions attract questionable money and squeeze out local buyers.

Regulatory background and gaps

• Two decades ago, the international community recommended that real estate agents conduct due diligence and report suspicious transactions, similar to banks.
• Unlike banks, real estate sector actors are not held to consistently strict anti-money-laundering standards.
• Detection and enforcement remain weak globally, allowing continued use of real estate for money laundering.

Policy recommendations

• Require property buyers to disclose their true identity—the “beneficial owner.”
• Public agencies should verify ownership information and make it accessible to authorities investigating suspicious transactions when red flags arise.
• Where privacy laws permit, consider making beneficial ownership information public to enhance transparency.
• Strengthen detection and enforcement mechanisms in the real estate sector to close existing loopholes.

Key statistics and facts (verbatim)

• £73 billion (value of properties held by foreign companies in London in 2018).
• 90 percent (share of those purchases made by entities registered in tax havens).
• Two decades ago (timeframe when due diligence recommendations for real estate agents were prescribed).
• Cities explicitly named: New York, Miami, London, Dubai, Lagos, Nairobi, Johannesburg.

Source: Hidden Fortunes, F&D Magazine, CHADY EL KHOURY, December 2024.

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