News & Insights

Ultimate Beneficial Ownership (UBO) Compliance Research: Tracking Russian Money in Global Real Estate

Russia and high-profile Russian-related individuals are in the global spotlight after the country’s invasion of Ukraine in February 2022. Global leaders such as US President Joe Biden have moved to financially penalize the Russian elite via sanctions and control of other assets such as yachts and mansions. However, high-profile Russian and Russia-associated individuals have been pouring money into real estate in the US, UK, Europe, and Asia for decades, and lawmakers and members of the real estate community are skeptical about how easily global leaders will be able to identify asset ownership.

Determining ownership and value of assets may be difficult in the real estate industry, where money laundering and unclear ownership are prevalent. In this blog, we’ll explore:

  • The challenges of tracking Russian money in the global real estate market
  • Insights into the research and tools needed to track illicit cash flows
  • The role of Ultimate Beneficial Ownership (UBO) in combating illicit financing during the political storm created by the situation in Ukraine

Why Real Estate for Russian Money Laundering?

Russian illicit finance has created a haven in real estate around the world, exacerbated by weak regulatory controls concerning proof of wealth and ownership.

In London and the rest of the UK, “few questions — if any — are asked about the provenance” of Russian funds when it is being poured into real estate, according to the Intelligence and Security Committee of the UK parliament. For several years, Russian money was welcomed in the UK as it bolstered the economy, and Russian oligarchs capitalized on “toothless” anti-money laundering legislation. Transparency International revealed that up to £1.5 billion of UK property is owned by Russians accused of financial crime or with links to the Kremlin. On top of this, 90,000 properties in the UK are owned by opaque companies, complicating government efforts to determine true ownership.

In Istanbul and Dubai, real estate agents say they “sell seven to eight units to Russians every day. They buy in cash, they open bank accounts in Turkey, or they bring gold.” In February of this year alone, Russians purchased 509 houses in Turkey. Real estate purchases by Russians in Dubai also surged an annual 67 percent in early 2022. Real estate agents attribute the swell to the war in Ukraine, saying that at the start of the war, the number of inquiries they received was “10 times higher than usual.” Brokers also clarify that, for Russians who already have bank accounts in Dubai, the real estate investing process is very easy. 

According to Louise Shelley, director of the transnational crime and corruption center at George Mason University, the US has also become a “destination of choice” for money launderers, including high-profile Russian individuals and oligarchs investing in real estate. Over the last five years, reported cases reveal that at least $2.3 billion has been laundered through US real estate, and millions more in alternative assets such as art, jewelry, and yachts. Foreigners made up 8.6 percent of all commercial buyers in 2021, according to data from the National Association of Realtors. In addition, 59 percent of commercial real estate transactions in the US that included buyers from overseas involved all-cash purchases between 2016 and 2020. Similar to the situations in the UK and Europe, there is very little the US government can do to identify ownership in real estate. Regulatory analysis of a database built by the US-based think tank, Global Financial Integrity, of over 100 real estate money laundering cases concluded that the US regulatory approach — location-specific Geographic Targeting Orders, or GTOs —has “critical shortcomings.” While the US has ramped up regulatory reporting requirements for financial institutions, law enforcement, and national security, realtor reporting is conspicuously lacking.

As real estate economies around the world have opened the door for Russian investment, they paved the way for hiding and increasing illicit finance. The anonymity that is available for ill-gotten gains to be invested in real estate allows Russian oligarchs and other high-powered individuals to launder money in global real estate with little chance of true ownership being identified. With so few criteria regarding source of wealth proof, it’s the perfect way for Russian high net worth individuals to launder and invest large amounts of money acquired through illegal means.

Challenges in Tracking Russian Illicit Finance in Global Real Estate

While there are several challenges when it comes to tracking illicit finance around the world, there are some specific obstacles in identifying Russian money laundering.

Insufficient reporting requirements  

In 2020, the US Congress passed a law that ramped up reporting requirements for law enforcement, national security, and financial institutions, but the same has not been applied effectively to industry reporting yet. The existing legislation requires companies to self-report on the true owners of certain assets, but experts feel there is not enough enforcement for industry professionals to report and not nearly enough emphasis on commercial real estate.

After the release of real estate reports in the UK, Parliament passed long-promised legislative reform in March 2022, in an attempt to create more transparency into financial ownership. Specifically, the legislation will develop a public register of the owners of overseas companies that own or purchase property in the UK, retroactively applied to purchases in England and Wales over the last two decades, and since December 2014 in Scotland. Even with the passing of this reform in the UK and discussions moving steadily forward in the US, there is an extensive amount of retroactive work to be done.

Hiding behind LLCs

In the US, Reuters found that 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 also found that at least 703 of the owners of the 2,044 units in the seven Trump buildings, or about one-third, were LLCs. Since there are few member requirements or restrictions for LLCs, it can be very difficult to track and identify true ownership.

Real estate in the UK has a similar problem, with over 90,000 properties owned by companies with no clear owner, increasing the challenge of tracking the finances behind it. Dubai also has few restrictions when it comes to LLC ownership of property, which has resulted in the same problem of opaque companies buying up many units with no clear line of financial legitimacy.

Pushback from the real estate industry

Realtors and economists are concerned that a new set of stricter rules could, while cracking down on illicit finance, adversely hit the industry and the economy. The property market in Dubai, for example, contributes to one-third of the city’s economy, which is recovering from a seven-year slump most recently exacerbated by a mass exodus during the pandemic. Finally seeing a major occupancy increase, realtors are hesitant to make any regulatory changes that could hurt the market again. US and UK regulators are focusing on specific rules around ultimate beneficial ownership, which would hopefully home in on illegal activity without hurting the real estate ecosystem, setting up a model by which other regions can follow suit.

The Role of Ultimate Beneficial Ownership in Tracking Illicit Finance

Identifying the UBO will expose those who control the entity and any potential associated risks. Regulators are hopeful that focusing legislation around UBO will better regulate illicit finance without drastically impacting the economy. Beneficial ownership helps to reveal the number of owners of an entity, reveal clues about the intent of the owners, and illuminate any conflicts of interest or potential reputational damage. Also, by understanding the geographical origins of the organization and its owners, we can be aware of any unique jurisdictions that may impact reporting requirements.

In the UK, as mentioned, regulators will be creating a public register of the owners of foreign companies who buy property, and they are reforming the execution of Unexplained Wealth Orders (UWOs). The US Treasury’s Financial Crimes Enforcement Network (FinCEN) is providing similar recommendations around ownership, including encouraging organizations to ramp up efforts for determining UBOs to stay on top of potentially illicit financial partners.

IntegrityRisk OwnerCheck

One of the most effective methods by which real estate and other organizations can identify beneficial owners is to utilize a UBO solution, such as OwnerCheck from IntegrityRisk. OwnerCheck empowers companies to make informed decisions about partner relationships by:

  • Identifying owners and affiliated parties through public records research
  • Conducting negative news research
  • Checking politically exposed person (PEP) statuses
  • Monitoring sanctions and watch list presence
  • Inspecting social profiles
  • Performing focused or full public record checks into all identified related companies, corporate affiliates, and/or principals
  • Proprietary internal database review – 100,000+ international entities/individuals
  • Offering broad and deep beneficial ownership services that range from essential basics such as high-volume sanctions screening all the way through complex global asset searches.

Tackle Illicit Finance Through UBO Compliance Research

The difficulty of tracking Russian money in global real estate has illuminated the great problem of illicit finance and money laundering in the industry. An increase in reporting requirements and enforcing the identification of UBOs is an essential step in fixing the issue. To learn more about how IntegrityRisk provides a sophisticated UBO solution with OwnerCheck, contact us today.