The invasion of Ukraine has turned Russia into a global pariah. The country has faced some of the stiffest economic sanctions in history and has been kicked out of international bodies and even sporting competitions. The ostracization does not stop at the state level, the wealth of many of Putin’s inner circle have also been a subject of conversation. Maps have been published with the location of buildings in New York City that have ties to Russian oligarchs and there have even been calls to seize some of these assets in response to Russia’s military aggression.
Besides the ethical dilemma of investor protection, seizing real estate of even the most deserving is not that simple. Real estate has long been an asset of choice for dirty money because ownership of it can be hidden, generally behind the veil of an LLC. The National Defense Authorization Act pasted last year has language that requires LLCs to disclose their ownership but as the world saw with the leaked Pandora Papers, with enough money LLC ownership can be further hid behind multiple shell corporations issued from non-disclosure jurisdictions.
The longer the Russian aggression continues the more we will hear talk about finding and seizing money that funds the regime. This will likely lead to even more talk about the role commercial real estate plays in laundering foreign money which could provoke new laws tacitly aimed to prevent it. This narrative often leads to an argument for heavier taxation so the wealthy will “pay their fair share” or to “close the loopholes.” Both foreign and domestic investors apply the same laws to obscure ownership of their assets because lawmakers have previously concluded these provisions serve a broader policy purpose. Whether you agree with that or not, any changes to these policies could have far reaching consequences for commercial real estate.