Recently, wealthy elites have begun looking for other places to park their funds, places they think authorities won’t look. Places that offer all the financial secrecy these elites need, but that few would associate with lives of luxury. As a result, shadowy and sometimes ill-gotten wealth has started pouring not just into yachts and vacation homes, but also into blue-collar towns in the U.S. whose economic struggles make them eager to accept the cash.
One of these small towns appears to have been Harvard, Ill., a depressed factory community that allegedly became part of a sprawling network used by Ukrainian banking tycoon Ihor Kolomoisky to launder hundreds of millions of dollars earned from a Ponzi scheme. Kolomoisky, who was recently hit with U.S. sanctions for “significant corruption” in Ukraine, is separately accused by the Justice Department and Ukrainian investigators of using a constellation of shell companies and offshore bank accounts to move millions in misappropriated funds out of Ukraine and into a series of real-estate investments in the American Midwest. (Kolomoisky denies wrongdoing, claiming he made the investments with his own money.) […]
The idea seems to have been to purchase troubled assets that American sellers were eager to offload. Even if the buyers ultimately took a loss, the assets were still outside the grasp of Ukrainian investigators and could still act as vehicles through which to funnel money. Perhaps most importantly, the properties could be bought without much inquiry into the source of the monies: For two decades, American real-estate professionals have benefited from a “temporary” exemption to anti-money laundering laws, allowing them to avoid performing due diligence on the customer making the purchase. […]
More than five years after the purchase, no jobs had returned and no further investments emerged. Unpaid property taxes kept accumulating, starving the strapped local government of hundreds of thousands of dollars. In 2016, Optima sold the building at a $7 million loss to a Chinese Canadian businessperson. Years of neglect by various owners began to take a toll: Soon, the factory went dark entirely. With a half-million-dollar tab in unpaid electricity bills, the juice was cut off, forcing local officials to visit with flashlights. “It’s just heartbreaking to see that beautiful place sitting vacant,” the McHenry County treasurer said in 2018. […]
“The building won’t just be valueless — it will be a catastrophe for the town, because it will have to be demolished,” Eldredge told me in 2020. “And the net cost for that, after salvage, is probably three to five times the city’s annual budget. It will be a financial catastrophe.” He paused, pondering the implication: This hundred-million-dollar promise to a small outpost in northern Illinois ended up with a foreign oligarch apparently using it to hide his money from investigators. (The building was sold just last month to a group of developers from Las Vegas for an undisclosed amount.) […]
As it turns out, the decrepit Harvard plant had another chance to avoid falling into disrepair. But the story of how that opportunity collapsed suggests just how deeply kleptocratic networks have become embedded into the American economy. In 2016 — just as Ukrainian officials began investigating the depths of Kolomoisky’s alleged Ponzi scheme — the oligarch and his team somehow found a buyer willing to take on the former Motorola plant. The new buyer was another firm with links to overseas investors, this time headed by a Chinese Canadian businessperson named Xiao Hua Gong. […]
A year after the sale, though, still nothing had happened with the building. And then Canadian authorities dropped a bombshell: They accused Gong of running his own transnational money laundering scheme, charging him with fraud and money laundering. Follow-on allegations from New Zealand authorities detailed how Gong had led a “multi-national pyramid scheme,” eventually resulting in the country’s largest-ever settlement, worth over $50 million. If the various allegations are true, this means the Harvard Motorola plant has entered not one, but two separate dirty-money pipelines. […]
The Biden administration has vowed to take on global corruption, recently elevating it to a core national security threat. But the intertwined stories of Kolomoisky and Harvard suggest there’s much left to do before we can even grasp the scale of the damage in America’s heartland — and figure out what to do about it.
- Fav Human - Monday, Oct 18, 21 @ 9:44 am:
But it was recently sold to someone else (for 16 million!) after a data center team missed a deadline (and forfeited 500K).
- Ares - Monday, Oct 18, 21 @ 9:47 am:
Was this the plant which received millions of dollars in property tax and other rebates from the local goats, plus millions of dollars more in State incentives at the time Sears received its tax breaks?
- Ares - Monday, Oct 18, 21 @ 9:48 am:
governments, not goats.
- Three Dimensional Checkers - Monday, Oct 18, 21 @ 9:57 am:
Not surprising at all. Read Kleptocracy by Tom Burgis or McMafia by Misha Glenney. Money laundering is a substantial part of the so call licit economy. Local governments need to know who owns their property and use the eminent domain hammer when necessary. No offense to Harvard, Illinois, but they were probably overmatched in this sense.
- Downstate - Monday, Oct 18, 21 @ 10:07 am:
Unless they were able to get bank financing on the purchase, I don’t understand how they extracted any money from the project.
If they did get bank financing, the loan could not have remained unpaid for 5 years. Federal regulators would have required some level of intervention by the bank.
The bank would have foreclosed on the loan, or paid the property taxes to keep the facility “marketable”.
- Ron Burgundy - Monday, Oct 18, 21 @ 10:14 am:
-See this is what I suspect is happening over at Rivian but on a more sophisticated level.-
Except for the difference of a couple thousand employees, but carry on.
- very old soil - Monday, Oct 18, 21 @ 10:30 am:
And Rivian has some big, sophisticated backers. https://www.financialexpress.com/investing-abroad/featured-stories/amazon-and-ford-backed-rivian-battles-losses-to-launch-major-ipo-for-ev-industry/2351651/
- thechampaignlife - Monday, Oct 18, 21 @ 10:53 am:
So it is the white collar version of the TV show Ozark, with even wealthier Ukrainian financiers instead of Mexican drug cartels?
- Original Anon - Monday, Oct 18, 21 @ 11:29 am:
To the poster who mentioned eminent domain, I’m uncertain how Harvard could handle that financially. They would have to pay just compensation, which may be next to nothing, but would not be certain until the buyer agreed or a court ruled on the compensation amount.
- Dotnonymous - Monday, Oct 18, 21 @ 11:38 am:
Somewhere in the great beyond, P.T. Barnum is smiling…bigly.
- Sir Reel - Monday, Oct 18, 21 @ 11:43 am:
Finally, we’re number one (in dirty money laundering), we’re number one (in dirty money laundering), …
- thechampaignlife - Monday, Oct 18, 21 @ 11:43 am:
I do find the Politico article lacking in detail as to just how exactly this laundering takes place, what motivates and enables it, and how the communities are affected. Specifically:
1. Who owned the Motorola plant when Optima purchased it? Was it still Motorola, was it Harvard, or someone else?
2. How did that owner receive the illicit funds? That transfer of funds is one of the crucial links in this scheme, and where regulation will most likely be effective.
3. When Optima sold the plant, who purchased it and how were the funds transferred? That transfer is another crucial link.
4. What motivates the money launderer to choose this scheme, one where they lose half the value of their funds and leave a paper trail?
5. What costs has Harvard incurred due to this plant? Were incentives paid or infrastructure built? Is there an ongoing maintenance cost? If they leave it to rot, are they any worse off than they were before it was built? Did they receive any of the proceeds from the sales or tax growth, and what have they done with that money?
Ultimately, this is a federal problem that will require some sort of recursive “web of trust” style of chain of custody for large money transfers to establish that they come from a reliably audited business that only does business with other reliably audited businesses.
- Three Dimensional Checkers - Monday, Oct 18, 21 @ 11:44 am:
===To the poster who mentioned eminent domain, I’m uncertain how Harvard could handle that financially. They would have to pay just compensation, which may be next to nothing, but would not be certain until the buyer agreed or a court ruled on the compensation amount.===
Yeah, it might not be the best idea. I guess my point more generally would be playing hardball with people like this. Make them either use the land or sell it to someone who will. Kolomoisky wanted to own it as a legitimate store of illegally gained value. He had no intention of ever developing it.
- Russophile - Monday, Oct 18, 21 @ 12:05 pm:
Corey Steel in Cicero & Niagara LaSalle, South Holland were also previously owned by Igor/Ihor Kolomoisky before going into bankruptcy.
Kolomoisky is an interesting character. He put hundreds of millions into fighting separatists in eastern Ukraine but has recently turned pro-Russia, which is probably because the west has sanctioned him. Rumored that almost half the money the IMF gave to Ukraine to bailout the central bank went instead to pay off the Kolomoisky debt.
- very old soil - Monday, Oct 18, 21 @ 12:12 pm:
More background on the plant’s history
https://www.jsonline.com/story/money/business/2017/08/20/big-deals-dont-always-work-massive-electronics-plant-just-over-illinois-border-stands-vacant/580450001/
- Pundent - Monday, Oct 18, 21 @ 12:14 pm:
The objective of any money laundering scheme is not to turn a profit but to convert illegal cash into legal liquid funds. Distressed properties are a prime candidate for these types of schemes particularly when local governments turn desperate for solutions.
- very old soil - Monday, Oct 18, 21 @ 12:14 pm:
Also, tribune story on October 1 said it was sold by the U.S. Marshall’s Service
- Annoyed - Monday, Oct 18, 21 @ 1:29 pm:
This is the type of cases the US Attorney should be dedicating major effort to, but alas, he and his $150k year AUSA’s are still trying to find a way to indict MJM, or setup some low level political like D Smith.
- thechampaignlife - Monday, Oct 18, 21 @ 2:57 pm:
===The objective of any money laundering scheme is not to turn a profit but to convert illegal cash into legal liquid funds.===
Sure, but I would assume they want to maximize the amount leftover after laundering. It sure seems like an expensive task to buy a property for $14M in dirty money and sell it for $7M in clean money. I would think that shady characters such as this would want every last dollar that they worked so hard to steal.
- Rich Miller - Monday, Oct 18, 21 @ 2:59 pm:
===would want every last dollar===
Loss expectation is built in to scams like these
- Pundent - Monday, Oct 18, 21 @ 3:22 pm:
=It sure seems like an expensive task to buy a property for $14M in dirty money and sell it for $7M in clean money.=
Ozark on Netflix should be required viewing for anyone that wants to understand how this works. The idea of laundering isn’t to get margin, it’s about moving large amounts of money to net what you can. And yes, a lot of it bleeds out. What it almost always requires is someone on the other side who’s greedy and/or desperate enough to make things happen. More and more these days that happens to be local governments.
If you want to know more about Xiao Hua (Edward) Gong read about some of his other U.S. business dealings in the hotel industry. He operated a couple of “Edward” hotels. One in Rosemont and the other in Dearborn, MI. The Dearborn hotel in particular has quite a backstory. Both have since closed.