ILYA MARRITZ, HOST:
Dear resident of apartment 5B - is that creepy? Let's go with this. Let's see how far I get. Dear resident of apartment 5B, I don't believe we have ever met. Would you be open to meeting with me and perhaps show me around the apartment? Please say yes. Best regards, Ilya Marritz. All right, I better put this on letterhead.
Hey, how you doing? Could you give this to 5B for me?
UNIDENTIFIED MAN: Five-B - I can put it in the mailbox if that's the case.
MARRITZ: Yeah, if you could do that I'd appreciate it.
UNIDENTIFIED MAN: OK, no problem.
DAVID KESTENBAUM, HOST:
Ilya, how'd it go?
MARRITZ: It went. I did it.
KESTENBAUM: You don't like doing that.
MARRITZ: No, not really.
KESTENBAUM: You want to do the hello and welcome out here?
MARRITZ: Yeah, let's do it.
KESTENBAUM: Hello and welcome to PLANET MONEY. I'm David Kestenbaum. And you are...
MARRITZ: Ilya Marritz from member station WNYC in New York.
KESTENBAUM: Today on the show, the story of some people who went on an amazing international quest to try to answer a very simple question - who was the owner of apartment 5B?
MARRITZ: There are apartments here in New York City where the lights do not go on at night. The owners are mysterious, and you can't figure out who they are or where they got the money to pay for the place.
KESTENBAUM: If you're a criminal and you've got money to hide, one place to do it is right in plain sight, right here in the middle of New York City. You set up a shell company, buy a high-end apartment.
MARRITZ: That's the show today - how to launder a million dollars - the story of apartment 5B, which I think is that one right up there.
(SOUNDBITE OF MUSIC)
KESTENBAUM: Think about what an apartment is for a minute. Sure, it's - you know, it's a place to live. It's walls. It's windows. But if you look at that same apartment with a different set of eyes, you can see it as something else. It's also a vault, a piggy bank. It is a big pile of cash.
MARRITZ: And buying real estate with dirty cash seems to be kind of a thing these days. So let's say you're a drug lord or an arms dealer or something like that, all you got to do is set up an offshore company, put your money in that offshore company and then use the company to buy some big-ticket item. And what's better than luxury real estate?
KESTENBAUM: If you've read some of those news stories about the Panama Papers, there are a lot of stories in there like the one you're about to hear - people using money of questionable origin to buy real estate. And maybe you buy a mansion on an island somewhere.
MARRITZ: Or if you are, say, a very powerful person who recently got boxes full of cash dropped on your doorstep, maybe you decide to buy apartment 5B. It's got a view, big windows, nice appliances.
KESTENBAUM: There's a fancy roof deck. You would buy this, of course, through a shell company so that no one can figure out you own it.
MARRITZ: No ordinary person, anyway.
BRIAN MCCORMICK: My name's Brian McCormick. I'm a special agent with the Export-Import Bank of the United States, the Office of the Inspector General.
KESTENBAUM: Brian is where the quest to find the owner of apartment 5B starts. Brian - I will just say, if I did something wrong, I would not want him pursuing me. We talked to him for over an hour, and he just seems like this very careful, methodical, unstoppable guy.
MARRITZ: And back in 2009, Brian was working for the Department of Homeland Security, and he got kind of a tip. It was a request from a foreign government - from the government of Taiwan. And they asked him to look into not apartment 5B but a different piece of real estate.
KESTENBAUM: The request was basically there's this house in Virginia that may have been bought with illicit funds. Can you look into it? So Brian does, and he sees that that house is owned by a shell company.
MCCORMICK: A company registered in Virginia - Pegasus Virginia, LLC.
KESTENBAUM: Pegasus as in, like, the horse with the wings.
MARRITZ: David, you never heard of Pegasus, LLC? They make My Little Pony.
KESTENBAUM: They do not make My Little Pony. This was a - this was a shell company. You know, it's just a legal entity that owns an asset that happens to be a house, this house in Virginia.
MARRITZ: But Brian can't figure out who owns Pegasus, LLC. Who is the real owner of the house?
KESTENBAUM: Like, there's no name in the document.
MARRITZ: Well, there is one name - not the owner but the name of an attorney in Miami.
KESTENBAUM: So Brian's like, we got to go talk to that attorney.
MARRITZ: He gets a subpoena, and then he pays him a visit.
KESTENBAUM: Did he answer the door when you knocked?
MCCORMICK: Yeah, well, he had a receptionist. So we went in there and I talked to him. And he...
KESTENBAUM: Was he nervous?
MCCORMICK: Yeah, he was surprised I was there. He was pretty - he was pretty slick. I mean, he's a skilled international structures attorney. They call it asset protection.
KESTENBAUM: OK, so you walk in. You have the subpoena, and you say, I'm going to need these documents. What does he say?
MCCORMICK: He was pretty cool about it. He was very cooperative and gave them to me.
MARRITZ: Brian goes through these folders and binders of documents, trying to figure out who the actual owner is. And this is when he realizes, oh, there's more to this than the Virginia house because in the paperwork there are bills for an apartment 5B in Manhattan. There's even a brochure for the building.
MCCORMICK: Oh, yeah, yeah, it looked really nice - of course, the lovely view from there and, like, the kitchen and living room, that type of brochure.
KESTENBAUM: Apartment 5B was owned by its own shell company, West 28th Street, LLC. Who owned that? Another shell company. It was like this nest of Russian dolls, companies within companies. West 28th Street, LLC, was owned by a shell company in the British Virgin Islands.
MARRITZ: Which in turn was owned by a trust set up on another island, Nevis, or some people say Nevis.
KESTENBAUM: Which was owned by another trust.
MCCORMICK: Right. There was about four layers.
KESTENBAUM: Good Lord.
MCCORMICK: If we wouldn't have had the breaks and assistance that we did, it would have been very difficult.
MARRITZ: Finally, Brian was at the innermost layer, the center of the Russian doll, the littlest doll. He found himself staring at a piece of paper with a name - the name of a real person who owned apartment 5B.
MCCORMICK: Chen - yeah, they have their last name first - Chih-chung.
MARRITZ: Chen Chih-chung - that name I sure don't know. But Brian definitely knew it because Chen Chih-chung was the son of the president of Taiwan.
KESTENBAUM: The son of the president of Taiwan - so this would be like finding that Malia Obama secretly owned a million dollar condo in Taiwan through a series of shell companies.
MARRITZ: So this was shocking to see an actual signature on the document. But in a way, Brian was not entirely surprised. At this point, the president of Taiwan was now the former president. He was under investigation for corruption and bribery, and it looked like Brian had basically uncovered a tiny piece of a much bigger scandal.
KESTENBAUM: Apparently that big story had some tentacle that connected all the way back over here to apartment 5B on 28th Street in New York City. Brain knew that the first family owned the apartment. But he didn't know how it had been paid for. And if he could prove that the money had come from something like a bribe, then the U.S. could seize the apartment. So that became his mission, to try and trace the money trail.
MARRITZ: So Brian starts flying to Taiwan. He's going to work with investigators over there to try to make that connection.
MCCORMICK: It was very, very secretive. They didn't let people see us. We'd come into the basement of the supreme prosecutor's office. They took this case out of, like, the normal police investigators and had a special unit. It, you know, it was sensitive because it was the president.
KESTENBAUM: Brian and the others sit there in this windowless basement room, stacks of binders and spreadsheets, witness testimony, depositions. And step by step, they are able to reconstruct the money trail.
MARRITZ: And it looked like the money for apartment 5B did come from a bribe, a bribe from a big financial company - or if you want to be specific about it - it came from a box.
MCCORMICK: The money was delivered to the official residents in fruit boxes, which were placed in their walk-in closet.
KESTENBAUM: Like the kind of box you'd get around the holidays from a...
MCCORMICK: Yeah, a little, like, wooden kind of box.
MARRITZ: Except it's in the, like, the White House of Taiwan.
KESTENBAUM: And it's stuffed with cash.
MARRITZ: Honestly, I found this so confusing I started to map it out on a piece of paper. I have it here. This is based on court documents and what Brian was telling us. And what I drew looks kind of like a game of "Chutes And Ladders." Money goes into fruit boxes, then it's moved to a closet, and then it goes into a safety deposit vault.
KESTENBAUM: Then, in the middle of the night, the money gets moved to the basement of someone who works at a bank. And that person deposits the money in a Swiss bank account, which I think we have this right, is controlled by that trust that owned the shell companies.
MARRITZ: And from there, the money was finally used to purchase apartment 5B.
KESTENBAUM: As Brian is figuring this out, the trial for the former president, Chen Shui-bian, is wrapping up. And he ends up getting convicted for a whole bunch of stuff - bribery, embezzlement and money laundering.
MARRITZ: Apartment 5B is just kind of like a footnote to all of this. It's this beautiful apartment that, as far as we can tell, nobody has been using. So what do you do with it?
KESTENBAUM: In these situations, the way the government tries to make things right is by seizing the apartment and returning the money to the injured party. In this case, that would be the government of Taiwan.
MARRITZ: But to seize an apartment, that can be tricky. In America, we have people who specialize in exactly that kind of thing.
KESTENBAUM: What was your title at the time?
SHARON LEVIN: I was the chief of the money laundering and asset forfeiture unit at the U.S. Attorneys Office in the southern district of New York.
MARRITZ: This is Sharon Levin. She says a friend at DOJ - the Department of Justice - called her up one day to tell her about apartment 5B.
LEVIN: She called me and said, oh, we have a good one for you. You won't believe it. A beautiful condo in, like, hot neighborhood in Manhattan. And, you know, and then, like, the whispering, conspiratorial voice - money comes from the former first lady of Taiwan, and we can prove it.
KESTENBAUM: She told us this case has everything. Like, if you wanted to pick one case to show how criminals hide their money, this would be a good one. It is just classic.
LEVIN: There's cash in suitcases here. There's cash in fruit boxes. There are shell companies. There's - you know, every place where you would think you'd launder money from - Nevis, the British Virgin Islands, Switzerland, Hong Kong, you know, structured money into bank accounts. Every textbook money laundering technique was found in this case.
KESTENBAUM: But that can also make a case like this hard because for Sharon to seize apartment 5B she has to prove in court that the money used to buy it came from that bribe - not just that the president and his wife took a bribe. She has to show that that exact money wound its way through the whole system and was used to buy the apartment. That can be a hard thing to show.
MARRITZ: We looked at the court documents from when Sharon tried to seize apartment 5B. Here's what it says right at the top - I love this - United States of America, plaintiff, v. Real Property Known as Unit 5B on West 28th Street, New York, N.Y.
LEVIN: The case is U.S. versus a condo.
KESTENBAUM: Can you sue a condo?
LEVIN: You can sue anything. So...
KESTENBAUM: Our legal system is weirder than I realized.
LEVIN: Oh, you - some of the cases that are out there, if you look there's a website. I believe it's www.forfeiture.gov. It's the Department of Justice website where it posts notice of forfeiture. If you scroll through there, you can't believe the things that you'll see - U.S. versus a car, U.S. versus a boat. There's all different types of things.
KESTENBAUM: Is it true that one of your cases involved recovering a stolen Mongolian Tyrannosaurus?
LEVIN: Yes, a Tyrannosaurus Bataar, the, like, shorter but longer cousin of the Tyrannosaurus rex.
MARRITZ: We looked that one up. The case - United States v. one Tyrannosaurus Bataar skeleton. U.S. won that one, by the way, Tyrannosaurus lost.
KESTENBAUM: The case of the United States v. unit 5B was filed on September 13, 2011.
MARRITZ: We asked Sharon why people with something to hide really seemed to like real estate. And she said it can be a great way to launder money. First, you create a lot of layers, maybe set up accounts in shell companies on different Caribbean islands. The money becomes hard to trace. Then, maybe you buy an apartment. Eventually, you might sell it. And when you do sell it, now the money looks like it came from somewhere completely legit.
KESTENBAUM: There's also this regulatory loop hole when it comes to real estate. With most other financial transactions that go through the financial system, there are a lot of rules to try to prevent criminals from moving illegal money around.
LEVIN: Most of them are required to have some - some requirement to have some kind of anti-money laundering program. And by financial institutions, it's generally not just commercial banks but it's broker-dealers, it's travel agents, it's money service businesses, casinos.
KESTENBAUM: Like, know who you're dealing with, that kind of thing.
LEVIN: Know your customer, to file suspicious activity reports if they engage in transactions that don't seem consistent with what their business. But years ago, the real estate industry was exempted from that, and so there aren't those requirements.
KESTENBAUM: A lot of these restrictions were put in place as part of the U.S. Patriot Act back in 2001, but there was opposition to the real estate part. And those regulations just never got written.
MARRITZ: And there are a lot of wealthy people - a lot of famous people - who like their privacy. They don't want everyone knowing where they live or what they own.
KESTENBAUM: The upshot is that if you buy an apartment without taking out a mortgage - you just pay for the whole thing with cash with a wire transfer from a shell company - nobody has to know who you are. The case of the United States versus unit 5B spent about a year in court, lawyers filing back and forth, which, if you think about the whole thing, is an enormous amount of work to seize one apartment.
MARRITZ: Think of all the investigators that travel back and forth to Taiwan, the lawyers' time, the judge's time.
KESTENBAUM: It does seem like a lot of work to just reclaim a single apartment.
LEVIN: The 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.
KESTENBAUM: What's the smallest thing you've recovered?
LEVIN: Well, we once - we once did an art case. The statue - it was an antiquity - an Italian antiquity. And we only saw the pictures of the statue, so it looked quite grand, like a giant statue. And it came in and it was literally about an inch big. We had a big ceremony with a big table. And this teeny, teeny, teeny little thing was there. We were in a panic. We were going to have press there, so we needed to have, like, a blow up picture put behind it 'cause no one could see it. So that was probably the smallest thing we ever did.
MARRITZ: The case of United States versus unit 5B finally settled in October 2012. In the end, Sharon Levin got what she wanted. The United States seized the apartment that had been bought with the bribery money in the fruit box years before on the other side of the planet. The government put apartment 5B on the market and it sold for $1.5 million in 2013. Most of that money got sent right back to the government of Taiwan.
KESTENBAUM: And today, the apartment is in the hands of - we have no idea.
MARRITZ: Nobody responded to my letter. And if you look up the public records for it, it is now owned by - yes, another shell company.
KESTENBAUM: We asked the investigator Brian McCormick about this shell company that they sold the apartment to.
MCCORMICK: Oh, I know. That was - no, that was - yeah, that was vigorously checked out 'cause we're like, we can't sell it to someone who's associated with the first family or someone else that's perhaps their money's questionable. So yeah, that was checked out.
KESTENBAUM: So you checked it out and it didn't look like they - and it looked legit, did not look like there was anything fishy.
MCCORMICK: Oh, they - the buyers were - not me personally but my colleagues in New York interviewed them so...
KESTENBAUM: (Laughter) And decided they were OK.
MCCORMICK: Right, right. So yeah, that would be very embarrassing to the government that comes out later you guys were calling us like, hey, well...
KESTENBAUM: I noticed you sold this to some drug lords in Mexico.
MCCORMICK: Right, right, yeah, that wouldn't be too good.
KESTENBAUM: Ilya, I still really want to see the apartment, especially after all this, and I want to meet the owners, whoever they are. What's the name of the shell company?
MARRITZ: Ny Elizabeth Properties, LLC.
KESTENBAUM: Go ahead.
MARRITZ: Oh, God, you're not going to make me do this again.
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MARRITZ: Dear Ny Elizabeth Properties, LLC, I don't believe we've ever met.
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KESTENBAUM: Let's do the end notes on the street here. Go ahead.
MARRITZ: OK. What do I want to say? I just want to add I did speak with the Treasury Department and they told me they are trying to get a handle on what's going on with shell companies and big purchases of real estate and mysterious pools of money. They actually just started a pilot program tracking all-cash sales in Miami and Manhattan. Maybe - just maybe - that'll eventually result in new regulations on money laundering.
KESTENBAUM: How large are the purchases they're tracking?
MARRITZ: In Miami, a million dollars; in Manhattan, $3 million.
KESTENBAUM: So apartment 5B would not have qualified.
MARRITZ: Not even close.
KESTENBAUM: Thanks today to attorney David Buckley who helped us sort through some of the shell company stuff.
MARRITZ: Our show today was produced by Elizabeth Kulas and Jess Jiang.
KESTENBAUM: Send us mail, especially if you live in apartment 5A or 5C. We are firstname.lastname@example.org. Oh, and there is a new season of NPR's Invisibilia podcast coming out next month. There are stories about all the invisible forces, the ones that drive us, the ones that shape our world. This season, there are going to be stories from prison, an oil rig and a McDonald's in Russia. You can hear a preview at npr.org/podcasts or on the NPR One app. I'm David Kestenbaum.
MARRITZ: I'm Ilya Marritz. Thank you for listening.
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