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| Published: | 2017-Aug-10 |
| Last Updated: | 2017-Aug-10 |
| Principal Writer: | Rob Dennis |
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Transparency and Law Enforcement
2013 (S-1465)
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Russians spent $9 millon on Trump condos in secretive deals
Using shell companies that concealed their true identities, Russian buyers purchased at least seven condos for nearly $9 million at the Trump SoHo Hotel in New York, according to property records reviewed by News in FiVe.
Trump SoHo reportedly is among several Trump businesses being investigated by Special Counsel Robert Mueller as part of his probe into possible collusion between Russia and the presidential campaign of Donald Trump.
Trump has suggested he would try to have Mueller fired if the special counsel extends his investigation to include Trump's business dealings.
Because Trump has refused to divest himself from his businesses as president, there are ongoing concerns about his financial connections at home and abroad, and the impact they could have on domestic and foreign policy.
Russian addresses crossed out on deeds
While the seven hotel-condominium units were purchased through shell companies that hid the identities of the buyers, the property deeds list Moscow addresses for six of the sales. Four of those addresses were crossed out - but remained legible - and replaced with the address of the buyer's attorney.
The seventh unit was purchased through a shell company that shares an address with a Panamanian law firm specializing in offshore services. That address was followed by "Russia" on the deed. All of that information was crossed out and replaced with the address of the buyer's attorney.
The contracts were signed in 2008, while the Trump SoHo was still under construction. The purchases went through after the hotel opened in 2010.
These are among the sales that took place under a veil of secrecy from 2010 to 2013 at the Trump-branded property in New York. More than 100 of the 126 original purchases involved shell companies, and many buyers offered little or no information about their true identities in property or corporate records.
News in Five traced the buyers of 92 condos to Argentina, Belgium, Brazil, Colombia, England, France, Hong Kong, Italy, Japan, Mexico, the Netherlands, Puerto Rico, South Korea, Spain, Sweden, Venezuela, and the United States - as well as Russia. The buyers' names could not be identified in many cases, however.
In addition, 34 condos were purchased using shell companies that provided no information about the buyers or their countries of origin in property deeds or corporate records. Attorneys or other representatives signed deeds and other documents.
A lawsuit filed by the city of Almaty in Kazakhstan claims three of those condos were bought as part of an alleged international money-laundering scheme by a fugitive former Kazakh official.
Trump buyers have been subjects of investigation
Luxury real estate transactions are sometimes conducted through shell companies, which shield buyers from potential lawsuits and provide privacy for celebrities. However, such purchases also can be used to conceal illicit activity.
The Treasury Department's Financial Crimes Enforcement Network (FinCEN) last year found that more than a quarter of the owners behind shell companies in Manhattan and Miami-Dade County in Florida - sites of numerous Trump properties - were subjects of a "suspicious activity report."
"In particular, a significant portion of covered transactions have indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind shell company purchasers," FinCEN said in a statement.
The Miami Herald in October found that at least 13 buyers at a Trump property in Florida have been the subject of government investigations, including members of a Russian-American organized crime group.
The real estate market is largely unregulated
t's not illegal to buy property through secretive shell companies. Nor is it illegal for Trump, his partners and other players in the industry to profit from shady buyers.
In 2013, the Incorporation Transparency and Law Enforcement Assistance Act was introduced. It would have required companies registered in the United States to reveal their true owners. It was blocked by the U.S. Chamber of Commerce, the American Bar Association (ABA), and lobbyists for states including Delaware, a haven for shell companies.
A study of large-scale corruption by the World Bank found that American shell companies were used more often than those of any other country.
Unlike financial institutions, real estate professionals are not required to conduct "due diligence" background checks on buyers and the sources of their funds. Or even to report suspicious activity.
This is due to a temporary exemption FinCEN issued in 2002. Since then, the National Association of Realtors (NAR), the ABA and other business groups have lobbied to keep it in place. (FinCEN did order title insurance companies last year to identify the people behind companies paying all-cash for high-end real estate in some areas.)
Still, if some Trump condo buyers were engaged in money laundering, then anyone involved in those deals could be criminally liable if they knew what was happening.
For more about the Incorporation Transparency and Law Enforcement bill, read The Hill story.
Read the U.S. Chamber of Commerce and American Bar Association letters to Congress objecting to bill.
Read the National Association of Realtors letter to FinCEN requesting that the exemption to anti-money laundering reporting for real estate transactions remain in place. .
Click here to read the report by the World Bank on shell companies and corruption. Note: It's almost 300 pages, but even reading the first few pages will give you an idea of the nature of the issue).
Kazakh family - accused of embezzlement - tied to Bayrock
The government of Kazakhstan has accused Viktor Khrapunov - a former mayor, governor and energy minister - of embezzling hundreds of millions of dollars in state assets. Khrapunov, who now lives in Switzerland, has denied the allegations.
The Khrapunov family has ties to one partner in the Trump SoHo, Bayrock Group, which has been accused of racketeering and tax evasion in another long-running lawsuit. Bayrock denies the allegations.
Bayrock teamed up in 2007 and 2008 with companies controlled by the Khrapunov family for several deals, including an energy-extraction joint venture established in the Netherlands through a company called KazBay, McClatchy reported.
Bayrock told Dutch documentary TV series ZEMBLA that KazBay was established on the advice of outside legal counsel Bracewell & Giuliani. At the time, the law firm was part-owned by former New York City mayor and longtime Trump associate Rudy Giuliani.
Trump associates helped in Khrapunov deals
In addition, McClatchy reported that the Khrapunov family invested $35 million in U.S. real estate in 2012 and 2013, including $3.1 million for the Trump SoHo condos.
Although there is no evidence Trump himself had dealings with the Khrapunovs, they were helped by two former Trump associates, McClatchy reported.
One of them was Felix Sater, a Russian-born convicted racketeer who served time for felony assault and who was a managing partner at Bayrock before becoming a senior adviser to the Trump Organization. Sater testified in a 2008 deposition that he interacted with Trump "on a constant basis" while he was at Bayrock, and that he accompanied Trump's children Donald Jr. and Ivanka on a 2006 trip to Moscow to scout sites for a Trump-branded hotel.
Daniel Ridloff, who also worked at Bayrock before joining the Trump Organization, later worked with Sater to help the Khrapunovs, McClatchy reported.
Prior Trump venture broke anti-money-laundering rules, IRS says
The Trump SoHo project is just one small part of a complex web of business interests, managed through hundreds of companies. Trump was the first presidential candidate in four decades to refuse to release his tax returns, adding to the lingering suspicion.
Trump's business affairs are under scrutiny by investigators in the Russia probe, and old skeletons are being dug up. Among the documents provided by the Treasury Department to the Senate Intelligence Committee is a 1998 settlement in which the IRS claims the Trump Taj Majal casino broke anti-money-laundering rules 106 times in the early 1990s.
The violations came at a time when Russian mobsters living in Brooklyn frequented the Taj Mahal - and the casino was approaching bankruptcy, federal investigators told CNN.
Murky Financing
In 2006, eight years after the IRS settlement, Trump and his partners broke ground on Trump SoHo.
The $450 million project came at a time when Trump's conventional financing had dried up after a series of bankruptcies. Trump did not invest his own capital in the project, but he testified in a 2007 deposition that he received an 18 percent stake in the deal, as well as a management fee. A partners' agreement introduced into evidence in another lawsuit indicated his children Donald Jr. and Ivanka also were involved in the deal.
In the Trump SoHo and other projects, Trump partnered with developers Bayrock Group and the Sapir Organization.
Bayrock was founded by former Soviet commerce official Tevfik Arif, who immigrated to the United States from Kazakhstan.
The Sapir Organization was founded by the late Tamir Sapir, another Soviet émigré from Georgia. A Georgian news outlet claims Sapir attended the Soviet Ministry of Internal Affairs academy before coming to the United States and launching his improbable rise from cabbie to billionaire.
Bayrock received $50 million in financing for the Trump SoHo and three other projects from Icelandic bank FL Group, which is favored by oligarchs close to Russian President Vladimir Putin, according to a racketeering lawsuit filed by a former Bayrock executive.
Another Bayrock investor, Kazakh billionaire Alexander Mashkevich, was accused of money laundering in Belgium. He and two partners paid a fine, admitting no wrongdoing.
Trump SoHo sold after troubles, but his organization still runs it
The Trump SoHo project was in trouble from the outset. Neighborhood groups opposed it because of its size. Zoning restrictions meant the units could only be used by owners for 120 days a year, so some buyers had difficulty getting financing. A worker fell to his death during construction. After delays, the hotel finally opened in 2010 in the middle of the recession.
A group of buyers sued that same year, claiming Trump and others misrepresented sales figures when pitching the property. Trump and his partners settled the case in 2011, agreeing to return 90 percent of the buyers' deposits.
Ultimately, the Bayrock/Sapir group sold fewer than a third of the 391 condos. The group lost ownership of the Trump SoHo in a 2014 foreclosure.
The property now is owned by another company, but Trump International Hotels Management LLC still runs the hotel, receiving 5.75 percent of its operating revenues, the New York Daily News reported.
Trump loves Russian buyers
It's not surprising that Trump did business with Russians; wealthy buyers from that country have been a fixture in the luxury real estate market in Manhattan and other major cities.
Still, the sheer number of Russian buyers at Trump SoHo and other Trump properties contradicts the president's repeated claim that he has "nothing to do with Russia," particularly since he and his children played a hands-on role in attracting those buyers.
Trump has been dismissive of his business connections to Russia as a politician, but he was more forthcoming in a 2007 deposition.
"It's ridiculous that I wouldn't be investing in Russia," he said. "Russia is one of the hottest places in the world for investment."
Trump expanded on this in an interview with a Russian magazine the following year.
"We are in general very interested in Russia and especially in Moscow," he said. "We would also like to try our luck in Sochi, but now our main interest is in Moscow and St. Petersburg. Sochi is a very good market, in which several good opportunities will appear in the coming years."
Those opportunities don't appear to have panned out, but Trump continued to explore them while he actively sought out Russian buyers for his properties, including the Trump SoHo. He conducted advertising campaigns in Russia, and developers and other middle men traveled there to market his properties. Trump even invited Russian reporters to Trump Tower to meet with himself and his children, Donald Jr., Eric and Ivanka.
"At the moment I'm negotiating with two Russians about buying an apartment in Trump Park Avenue," Trump told one Russian reporter. "I have two or three Russian clients who want to buy a penthouse in this building, two huge apartments, two apartments for $51 million each. So I have Russian buyers ... I have very good relations with the Russians, and I have many friends in Moscow and St. Petersburg."
"I love Russia. I respect this country. I respect Putin and what he does."
Russian buyers love Trump
Trump's efforts seemed to work. Dozens of Russian buyers snapped up condos at Trump properties in the United States and elsewhere. A Reuters investigation found that more than 60 Russians bought almost $100 million worth of property at seven Trump-branded towers in southern Florida. Dolly Lenz, a real estate broker in New York,told USA Today she sold about 65 units in Trump World Tower in New York to Russian buyers.
Donald Trump Jr. referred specifically to the Trump SoHo project during a real estate conference in 2008, the year Russian buyers signed contracts for the condos.
"Russians make up a pretty disproportionate cross-section of a lot of our assets, say in Dubai, and certainly with our project in SoHo and anywhere in New York," he said.
Who are the Russian buyers?
Few details are available about Trump SoHo's known Russian buyers, though. None provided any information in New York corporate records other than the names and addresses of their attorneys.
o Another condo was purchased for $2.1 million by Agea LLC, which listed Panama and Russia on the deed. The deed was signed by Mikhail Firstov, a member of Agea. Panama corporate records show two companies that include "Agea" in their names, but neither lists Firstov as a member. Documents don't indicate where in Russia the buyer is from, or if Agea has other members.
o Two condos were purchased for a total of $2.2 million by 3002 Trump Soho Condo LLC and 3111 Trump Soho Condo LLC. Deeds for both properties list the same Moscow address, but they were signed only by the buyer's attorney.
o One condo was purchased by South River Holdings LLC and another by MK Soho LLC, each for $1 million. The deeds listed Moscow addresses, but they also were signed only by the buyer's attorney. South River Holdings sold its condo in 2014.
The Moscow addresses listed on the property deeds trace back to luxury apartments, one of which is part of a complex where Dmitry Medvedev, the former Russian president and current prime minister, used to live. The owners or residents of the properties at the time of the Trump SoHo purchases could not be identified.
The seven condo sales - and Trump's massively profitable sale of a mansion to Russian oligarch Dmitry Rybolovlev - were timely, coming as the real estate market was crumbling in 2008.
Click here to view the actual deeds (we highlighted the Russian addresses).
The Trump Effect
In light of all this, Trump's enthusiasm for Russia during the 2016 presidential campaign is perhaps not so surprising. Trump needed partners and investors with money. Russians with money needed to get that money out of Russia.
Business concerns also could explain Trump's desire to lift sanctions on Russia and improve relations with that country. After U.S. sanctions were imposed in 2014 in response to Russia's annexation of Crimea, there was a decline in Russian buyers in Manhattan and southern Florida, where dozens of Russians bought Trump properties.
In November, when Trump was elected, Russia for the first time topped the list of countries conducting online searches for south Florida real estate.
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