Hi Guys,
Can someone please explain to me how building a mall contributes to washing money?
I mean let's say I make $1000 from a drug deal.
I then use that $1000 to build a mall.
the mall still needs to make a profit for me to have 'washed' my money does it not?
What if the mall is not a success then I haven't exactly washed my money, as much as just 'thrown it away'..... no?
what am I missing?
Same thing has happened in Miami, Moscow, London and Dubai.
The key principle behind most money laundering schemes in real estate is the transfer of VALUE, as opposed to actually moving hard cash from place to place. In most commercial schemes, remember the buyer and seller (or renter, in the case of malls) is often the same person and/or entity. You can do it a couple of ways:
1) A building is constructed using funds that were submitted as drafts or bearer notes. It is completed, then sold (largely to a series of "investors" tied back to the criminal enterprise via company or trust) at a steep premium, which is also paid via drafts or notes. That's why the units cost so much relative to normal per-unit and operating costs. The payments "pass through" the property as legitimate income.
2) Same scenario as above, but via tenants in either a residential building or mall. Not only is the rent legitimate income, but the enterprise charges itself a high price for property management services.
3) A "fire sale," where the builder/launderer dumps excess property on the market and takes a loss on underpriced sales. Remember, the launderer controls all aspects of the transaction, and operates as buyer, seller, and broker. Therefore, the "losses" are paper losses only, and (you guessed it) tax deductible.
There are other schemes, of course, but those are the usual suspects for significant value transfers. Note that NONE of the above require real buyers, tenants, or customers to any degree to function. The criminal plays all those roles.
Anyway, in Miami, they used to call the buildings "dark towers" because they were newly built, looked great, but no one lived there. That was the deal for many decades, until the real estate boom brought in speculators. The funniest part was, the media actually bought the notion that the buildings were constructed off of 5% down payments, with the rest covered by the investment bank (they weren't really banks, just branded investment shops). Well, who do you think owned the assets in the bank?
Most developing nations don't have the Anti-Laundering laws, or frankly the resources to adequately combat this. In addition, the buildings are pretty, taxes are paid, and palms are greased quite liberally with this process, which, if run properly, looks fairly legitimate, especially given a third world mindset.
Frankly, it's pretty hard to detect and enforce against when you're a world financial power.
Oh, I know all this because I worked for a federal judge back in law school while she was running a laundering trial. Watching an Assistant U.S. Attorney lay it all out was very interesting stuff. And persuasive, as they were convicted.
