Hochul’s Choice: Sign LLC Transparency Act, or Ignore NY’s Key Role in Global Money Laundering

Governor Hochul faces a stark choice. She can sign Assemblymember Gallagher and Senator Hoylman-Sigal’s LLC Transparency Act, or keep New Yorkers in the dark about what Treasury Secretary Janet Yellen calls “corrupt actors” laundering billions in dirty money through New York real estate LLCs.

The LLC Transparency Act requires the actual human owners of LLCs to disclose themselves to New York State, and requires the state to publish a public database of LLC owners. The bill is supported by an unusual coalition of transparency and anti-corruption groups, housing activists, and labor unions (see below), but faces growing resistance from shell company enthusiasts. 

At the Summit for Democracy on December 9, 2021, US Secretary of the Treasury Janet Yellen highlighted New York’s global importance to international money laundering:

There’s a good argument that, right now, the best place to hide and launder ill-gotten gains is actually the United States. And that’s because of the way we allow people to establish shell companies … Many corrupt actors can hide their money in Miami or Central Park skyscrapers the same way they do in shell companies. An LLC or trust can be listed as the owner. A lawyer can sign the paperwork. Indeed, sometimes the only thing these luxury properties are home to are ill-gotten gains – they’re money laundromats on the 81st floor.

Yellen is hardly the first to blow the whistle on New York’s massive LLC real estate money-laundering machine. Nearly a decade ago, New York Magazine and the New York Times published numerous stories dissecting exactly how oligarchs and narco-traffickers launder their money using LLC shell companies, especially in Manhattan. In 2011, the UN/World Bank “Puppet Masters” report highlighted the role of LLCs and real estate in places like New York City. 

New York City real estate is one of the biggest political donors in New York State, and Governor Hochul will not relish a fight with some of her largest contributors. Indeed, that’s the acid test here: Is New York State’s democracy strong enough to curb the influence of global “bad actors” laundering their money through the NY real estate industry, or will the bad guys keep getting their way?

In case you missed it, below is our summary of why Governor Hochul should sign the LLC Transparency Act.

Why Governor Hochul Should Sign the LLC Transparency Act

1. Basic fairness and consistency: The true owners of about nine in ten NYC properties already have their identity disclosed in NYC government open data (see table here and at bottom). The New York State database created by the LLC Transparency Act (S995-B (Hoylman-Sigal)/A3484-A (Gallagher)) will be the nation’s first to publicly disclose LLC beneficial owners.

2. No additional reporting burden to businesses: Under the U.S. Corporate Transparency Act, LLCs must report their beneficial owners to a database managed by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) starting in 2024. However, that database will not be public and will be accessible only to law and tax enforcement officials. The Treasury estimates it will cost an LLC $85 to prepare and submit their initial Beneficial Owners Information report.

3. Protects renters from abusive landlords: Tenants’ rights groups overwhelmingly support the LLC Transparency Act because it publicly discloses the true owners of apartment buildings, and makes it harder for bad landlords to hide behind layers of LLC shell companies. NY State has the largest share of renters of any state.

4. Anti-corruption: According to the U.S. Treasury, disclosing beneficial owners “will strengthen the integrity of the U.S. financial system by making it harder for illicit actors to use shell companies to launder money or hide assets.”

• Public integrity and anti-corruption investigators in New York have repeatedly told Reinvent Albany that their enforcement is overwhelmingly driven by public complaints. Thus, New York’s public database of the true owners of LLCs is a far more powerful anti-corruption tool than the non-public federal one.
• New York City real estate’s role as a “stash pad” for global hot money has been well documented in reporting (see articles below).
• The authoritative UN/World Bank StAR “Puppet Masters” report says corporate vehicles like LLCs are the one thing major corruption scandals have in common.

NYS LLCs Used to Launder Hot Money, Reports Show

Puppet Masters (StAR Initiative – World Bank/UN Partnership)
October 24, 2011

Indeed, nearly all cases of grand corruption have one thing in common. They rely on corporate vehicles – legal structures such as companies, foundations and trusts – to conceal ownership and control of tainted assets.

U.S. Will Track Secret Buyers of Luxury Real Estate (NY Times)
January 14, 2016

The use of shell companies in real estate is legal, and L.L.C.s have a range of uses unrelated to secrecy. But a top Treasury official, Jennifer Shasky Calvery, said her agency had seen instances in which multimillion-dollar homes were being used as safe deposit boxes for ill-gotten gains, in transactions made more opaque by the use of anonymous shell companies.

Stash Pad (New York Magazine)
June 27, 2014

While New York real estate has significant drawbacks as an asset—it’s illiquid and costly to manage—it has a major selling point in its relative opacity. With a little creative corporate structuring, the ownership of a New York property can be made as untraceable as a numbered bank account. And that makes the city an island haven for those who want to stash cash in an increasingly monitored global financial system.

Towers of Secrecy: Piercing the Shell Companies (NY Times)
Series of reports on shell companies in real estate 2015-2018

The high-end real estate market has become less and less transparent — and more alluring for those abroad with assets they wish to keep anonymous — even as the United States pushes other nations to help stanch the flow of American money leaving the country to avoid taxes. Yet for all the concerns of law enforcement officials that shell companies can hide illicit gains, regulatory efforts to require more openness from these companies have failed.

LLC Transparency Act Supported by Unions, DAs, Watchdogs, Tenants’ Rights Groups

Bricklayers and Allied Craftworkers Local No. 1
Churches United for Fair Housing
Common Cause NY
Community Service Society
Fifth Avenue Committee and Neighbors Helping Neighbors
Financial Accountability and Corporate Transparency (FACT) Coalition
Hotel Trades Council
Housing Justice for All
Housing Rights Initiative
League of Women Voters of New York State
New York District Council of Carpenters
New York State Land Title Association
New York State Regional Conference of the Bricklayers and Allied Craftworkers
North Atlantic States Regional Council of Carpenters
NYPIRG
Office of the New York County District Attorney Alvin Bragg
OpenCorporates
OpenOwnership
Reinvent Albany
Strong Economy For All

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