Real Estate Investment: Legitimate or Laundered

There is reason to suspect that this region could be involved

The so-called Panama Papers scandal, which took down Iceland’s prime minister on Tuesday, may seem a long way from eastern Long Island. Because the ownership of many of the most valuable properties here remains secret, however, just who might be hiding next door, so to speak, is a good question. Given concern by United States authorities about possible international money laundering ties to luxury real estate, there is reason to suspect that this region could be involved.

It is difficult to imagine a bigger financial story than the one that broke Monday about an enormous cache of documents from a Panamanian law firm that appeared to specialize in aiding the rich and powerful from around the world in their efforts to hide wealth, including ill-gotten gains. Although American interests have been relatively few in the initial revelations, some are sure to come from among the roughly 11.5 million documents that were leaked.

The common thread between the Panama scandal and the South Fork is a desire of those with the money to keep out of view. Transactions here often involve anonymous limited liability corporations or trusts, which make it all but impossible to know who is buying what, or what the ultimate direction might be when a project needs review by local regulatory agencies. One recent example was the shadowy entity called ED40, whose hidden principal or principals hired a couple of local front men as they sought to convert the East Deck Motel in Montauk to a high-end members-only surf club.

 L.L.C.s and other forms of private partnerships can be legitimate legal strategies for dealing with tax and inheritance issues; their use is not in itself the problem. The New York Times has found that an increasing number of foreign buyers have been using shell companies — like some of those unveiled in the Panama Papers — to find safe investments for dirty money in the United States. As reported extensively in The Times earlier this year, the Treasury Department is planning a trial effort to root out illicit money in high-end real estate deals in Manhattan and South Florida. For the first time, real estate companies in those markets will have to name the individuals behind cash transactions. The Treasury Department could widen its net beyond Manhattan and Miami if early results indicate the problem is as widespread as indicated. It would be naïve not to assume that some of that money flowed toward this area. 

At a local level, partnerships registered in U.S. states that allow anonymity need not be the stuff of international intrigue to be troubling. More information rather than less is key to making good land-use decisions. Knowing who or what is behind a particular project makes sense. This is made acute as more corporate interests focus here, particularly in Montauk, where redevelopment of former mom-and-pop hotels and restaurants appears at a fever pitch. 

Just who government is doing business with should be clear in all cases. While the public might be out of the loop, hidden ownership presents too-easy opportunities for corruption, as seen abundantly in some of the recent Albany scandals.

Think, too, of the record sums of sketchy L.L.C. money tied to East Hampton Airport interests and out-of-town helicopter companies that flooded the November election. Though the Republicans, to which all that cash went, were soundly defeated, that might not have been the case at another time and on another issue. 

It is time that officials work harder to pierce the clouds of secrecy. If the sources of money are legitimate, the owners of the L.L.C.s and the like should have nothing to hide.