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When Dirty Money Becomes Luxury Real Estate

ARI SHAPIRO, HOST:

The federal government wants to do something about money laundering, specifically the kind that involves shell companies and luxury real estate. Reporter Ilya Marritz of member station WNYC has been working with our Planet Money team, and he explains why high-end properties are a choice investment for people with something to hide.

ILYA MARRITZ, BYLINE: Let's zoom in on a single apartment - apartment 5B in a building in Chelsea, in the middle of Manhattan. You could walk by and never give it a second look, but one man spent about three years trying to pin down the real owner.

BRIAN MCCORMICK: I'm a special agent with the Export-Import Bank of the United States, the Office of the Inspector General.

MARRITZ: That's Brian McCormick. His specialty is chasing down money launderers. A few years back, he was at the Department of Homeland Security when a tip came in from a foreign government. Taiwan wanted him to look into a possibly shady real estate deal. Before long, the trail led McCormick to a pile of papers which included a brochure for a luxury property in Manhattan - apartment 5B.

MCCORMICK: Oh yeah. Yeah, it looked really nice. Of course, a lovely view from there and, like, the kitchen and living room - that type of brochure.

MARRITZ: Now, you may look at an apartment as four walls and a place to eat dinner, but McCormick sees it differently. To him, an apartment like 5B is a big pile of cash. It's a piggy bank. The question is where did the cash come from? There's no name on the deed, just a shell company in New York, which leads to a shell company in the Virgin Islands, which leads to another shell company. You get the idea. Finally, McCormick is digs up a document with an actual name on it.

MCCORMICK: Chen - you know they have their last name first - Chen Chih-chung.

MARRITZ: You may or may not know that name, but McCormick sure did because Chen Chih-chung is the son of the former president of Taiwan, a member of a family at the time already under investigation for a bunch of scandals. One of them was a bribe worth about $6 million and paid directly to the first lady of Taiwan. McCormick told me and Planet Money's David Kestenbaum the cash was delivered to the presidential palace in a way that no one was supposed to notice.

MCCORMICK: And the money was delivered to the official residence in fruit boxes, which were placed in their walk-in closet.

DAVID KESTENBAUM, BYLINE: Like the kind of box you'd get around the holidays from a client or something - bunch of oranges.

MCCORMICK: Yeah, a little, like, wooden kind of - wooden kind of box.

MARRITZ: Except it's in, like, the White House of Taiwan.

MCCORMICK: Right.

MARRITZ: So Brian now knows the money for the apartment came from a bribe. That means the government can try to seize it. The case is United States of America - plaintiff - versus Real Property Known as Unit 5B.

SHARON LEVIN: The case is U.S. versus a condo.

MARRITZ: Sharon Levin was the prosecutor.

LEVIN: You can sue anything - brick of clay - like...

MARRITZ: A car, a boat, anything that might be paid for illegally. One time - no joke - Levin sued a dinosaur.

LEVIN: Yes, a Tyrannosaurus bataar, the, like, shorter-but-longer cousin of the Tyrannosaurus rex.

MARRITZ: The case of United States versus Unit 5B spent about a year in court. It took an enormous amount of effort. McCormick put in thousands of air miles, Levin put in thousands of hours just to take a two-bedroom apartment.

LEVIN: Department of Justice takes a pretty, you know, sort of big picture of this - is that every item matters, that no matter what it is, it's still worth pursuing.

MARRITZ: Levin says it's a textbook example of why people with dirty money like American real estate. There's this big loophole. Most parts of our financial system - banks, casinos, stockbrokers - they have to report suspicious activity.

LEVIN: The real estate industry was exempted from that, and so there aren't those requirements.

MARRITZ: The feds, though, are thinking about how to close the loophole. In Miami and New York City, they are testing out a new rule where the owner of expensive property has to put down their real name on the purchase. For NPR News, I'm Ilya Marritz in New York. Transcript provided by NPR, Copyright NPR.