Miami a magnet for fraudsters — and the feds

The recent announcement that the U.S. Financial Crimes Enforcement Network (FinCEN) is cracking down on money laundering in the form of cash purchases of luxury real estate in Miami and New York City is good news for victims of large-scale international fraud and those of us who represent them.

However, the idea that Miami’s high-flying real-estate market is at least partially built on criminal schemes to launder money is not exactly news. Criminals have long hidden ill-gotten gains in plain sight by buying high-dollar real estate in hot markets. They like a good investment as much as the next guy.

As an international lawyer specializing in recovering assets for victims of large-scale fraud, almost all of my cases involve a fraudster, corrupt actor, money launderer or tax cheat, and Florida real estate is involved in almost all of them.

The criminals hail from countries across the globe. I’m not saying that every high-dollar cash real-estate purchase involves a fraudulent actor, but almost every fraudster has at least one high-dollar cash real-estate transaction in the United States — with a heavy focus in Miami and New York.

Miami and New York are two of the most desirable places in the world to live, but for different reasons. South Florida is where criminals go to relax, just like law-abiding citizens do, and they usually have high-value real estate.

Florida is also the world’s No. 1 debtor’s haven. The state’s asset-protection regime is like a “bat signal” — or, more appropriately “rat signal” — shining off the clouds that attracts those with money of dubious origins to come and avail themselves of the ridiculously generous asset-protection laws that Florida’s Legislature has given them. When dirty money comes to town,we don’t roll out the red carpet, we roll out a green carpet with images of $100 bills imprinted on it.

New York City is the money center of the world, bar none, and fraudsters go there to be near the center of power and to have access to it.

In both cases, it is part of a power trip.

Typically the money is moved through the bank accounts of cut-outs and offshore legal vehicles. In light of Florida’s asset-protection system, there is no legitimate reason to own real estate in Florida through an opaque offshore or domestic entity. However, it is done this way to obscure the identity of the true owner.

These corporate vehicles can be set up in hours. Criminals then open a bank account offshore, and wire the funds into the accounts of title agents and other similarly situated people or companies who really haven’t had any real reason to ask any questions about the origin of the money.

Perhaps they do now.

The beauty of chasing real estate is that it is not liquid, and can’t be rapidly liquidated or moved. Therefore, the announcement of the new initiative has to cause many to pause. Developers, title agents, lawyers, brokers and others in this high-end real-estate pipeline have to understand that they don’t want to be that first one whom law enforcement finds and sinks their teeth into. They will be made an example — and properly so.

As investigators get a closer look at the problem, I predict that the crackdown ultimately will be made retroactive, and perhaps with a slightly lower dollar threshold that nets more criminals.

The largest shock for many fraudsters, oligarchs and corrupt government officials who buy real estate in the United States to hide the proceeds of their crimes is that they are subject to a real legal system. They are used to acting with impunity in their own countries and are often mystified that they can’t do that here. The law still means something in the United States, and while income disparity is progressing at an alarming rate, the rich, super rich and ultra-rich have yet to co-opt the legal system entirely.

Make no mistake: When you are very wealthy you do get treated differently than the average person — even in the United States. However, it is not as pronounced here — yet — as in other countries. In the United States, we still see the rich and powerful go to jail when they are found guilty. At its core, FinCEN’s new initiative is a much-needed reaffirmation of a bedrock American principle — “No one is above the law”.

Edward H. Davis Jr. is founding shareholder of the Miami international law firm, Astigarraga Davis, and heads the firm’s Asset Recovery and Financial Fraud group.

This story was originally published February 12, 2016 at 6:30 PM with the headline "Miami a magnet for fraudsters — and the feds."