Big dirty cash...

Built in 1900, located in Washington’s most diverse neighborhood with some of the city’s finest museums and foreign embassies, a historic Dupont Circle house has been the desire of many prospective byers since its major renovation last year.

The house, located between R and 21^st streets, looks marvelous from the outside, albeit its windows are filled with white cover, and a security camera is mounted above the wall to the mansion’s driveway. There is also a mysterious sign “H” that towers on top of the building.

“That “H” [sign] has nothing to do with the neighborhood, perhaps it might refer to some name, - definitely not Hillary [Clinton] - as the place is owned by foreigners,” giggles a local resident who agreed to share his opinion about the mansion without being identified.

The house is officially located at 2030 R St NW, and its value as of April 2016 was $3,670,530, according to Redfin, the real estate brokerage. Property records indicate the 5,100-square-foot mansion (1,960 land, 4,036 living) has 5 full bathrooms, 6 bedrooms and an attached garage. It also has a finished basement.

Outside of the building a small poster is referring to the next door marked “ADA University Foundation” lurking behind a short fence.

A video posted on YouTube recently by Baku-based Azerbaijan Diplomatic Academy or ADA, introduces the R street mansion as its US foundation’s building, however the official address of the Foundation is shown as 1627 21st Street NW - the next door neighbor – on ADA’s website.

A quick search on the DC Tax and Revenue Office dataset suggests no result for 1627 21st Street NW house, however the city’s tax records indicate that a non-profit called ADA University Foundation does own the 2030 R St house.

The ADA University was established in Azerbaijan in 2007 by Hafiz Pashayev, the country’s deputy foreign minister, who happens to be the uncle of first lady Mehriban Aliyeva (also a board member of ADA,) and according to a WikiLeaks cable, belongs to “the county’s single most powerful family” with extensive interests in banking, real estate, insurance and other areas.

The ADA Foundation in DC was also registered in 2007, and it lists several high-profile names among its board members, including Mr. Pashayev himself, as well as Richard Armitage, George W. Bush administration’s deputy secretary of state, according to tax returns that were filed by ADA Foundation to the DC government during past three years. (Ambassador R.Armitage’s office respectfully declined to share any comment for this article when reached over the phone. ADA’s main office in Baku also refused to contact the author with Mr. Pashayev’s assistants.)

The company's filing status is listed on DC government’s records as “active” and its file number is 271480. The registered agent is Galib Mammad, an Azerbaijani-American, who does business at 1814 19th Street NW. (Mammad didn’t reply to interview inquires when contact via email. The Azeri media once highlighted his close relations to Pashayev.)

The purchase of R street mansion has a very complex structure. According to the information provided by BlockShopper.com, a website that tracks DC real estate records, the non-profit Azerbaijan Diplomatic Academy Foundation bought the historic townhouse on March 15, 2014, for $3.4 million, however it appears to have sold it on September 10, 2015 to.... itself, this time under a different name as Ada University Foundation, and the sale price is not indicated.

A realtor who was briefly involved in the mansion’s purchase process in 2014, said off the record that the Azeris brought “an unusual tactic” to the negotiating table: an all-cash offer.

While it remains unclear how many properties ADA Foundation owns in the nation’s capital, it’s definitely not the only Azerbaijan-linked Corporation that fuels all-cash buying surge for DC real estate.

In 2012, the American subsidiary of Azeri State Oil Company SOCAR purchased a 23,000-square-foot building in 18th St. NW. Ironically, the mansion previously served as home for Freedom House, a human rights watchdog that lists Azerbaijan among the word’s top “not free” countries.

Azerbaijan is known as one of the top jailers of independent journalists, who particularly tried to dig into the first family’s business interests. Its government has a reputation of shelling out big speaking fees to offshore companies abroad to manage its property portfolio in the West, as recent Panama leaks shed additional light on it.

Kleptocracy in action…

While the Panama leaks shocked many in the West exposing the world's rich hiding their money offshore, in countries like Azerbaijan it’s just another proof of the well-known fact: how the families that run their countries build empires of hidden wealth by privatizing state budgets, cashing it, and taking it abroad, something that western scholars such as Julie Davidson of Hudson Institute, describe as “kleptocracy.”

Based in Washington DC, Hudson Institute has recently launched a special program that is aimed at addressing the threats posed by corrupt authoritarian regimes to Western democracy and US national security. Julie Davidson manages the think-tank’s Kleptocracy Initiative.

In an interview she said, it should surprise no one that the US real estate market is a favorite money-laundering vehicle for foreign kleptocrats. Stashing wealth overseas with mentions, villas and bank accounts, kleptocrats and their cronies can enjoy the benefits of the freedom and legal protections of rule of law that they deny to their own citizens.

“We should be very worried about how money enters our real estate market because a great deal of it comes in unanimously and we don’t know where it’s coming from,” she said.

How dirty money enters US real estate

An August 2015 report by real estate watchdog RealtyTrac, California-based firm that tracks foreclosures, found that cash sales nationwide have reached their highest level in over seven years, and the DC area played a part. More than half of purchases by international clients were made in cash last year.

Cash sales accounted for 25 percent of sales during the first three months of 2016, according to the latest report released by National Association of Realtors on April 20.

Cash offers are more attractive because, sellers don't need to worry about reporting a source of their money, and the offers usually come with shorter closing times, according to a DC realtor who agreed to share his viewpoints for this article on condition of anonymity.

Most times, the source said, real estate deals in Washington are done by foreigners using non-profit Limited Liability Corporations or LLCs rather than in the name of an individual.

This advantage, as he puts it, has to do with estate tax: “Ownership of properties can be held in shares of the LLC and in that case, the tax liability would be much less. They can also be used to take suspicious money out of other countries and transfer it to the foreign entity before investing it our real estate.”

The Global Kleptocracy: UK example

With its benign tax code, and legal protections of rule of law the US is a very attractive destination for foreign kleptocrats - but certainly not the only one.

For many years, the UK was among natural destinations as well, says Ben Judah, a British investigative journalist and author of a documentary ‘From Russia with Cash,’ an undercover investigation on money laundering.

Even before the news broke about the Panama secrets, he said, the British public wanted their government to do something about the UK’s network of secretive tax havens. The West, Judah believes, should also be held accountable for failing to make the world unsafe kleptocracy.

“Sometimes we think that corruption is like 10 dollars here, 20 dollars there, but in reality, the amount of money that is being taken from poor countries to rich countries is equal to trillion dollars a year.”

For Judah, stopping kleptocrats from buying property enormously through offshore channels in the Western capitals could strike a big blow against these regimes and against corruption.

“And I must say that there are active campaigns in Britain to do that.”
Panama scandal, he thinks, is a good trigger for this process.

Panama scandal is “a collective problem”

The Panama Papers are two things: First, they’re a giant pile of data that relate to the structuring of offshore corporate entities, which have acted as fronts for kleptocrats and other high-profile politicians allowing them to open back accounts and buy property by hiding their true identities.

Second, they are another example of how the actions of corrupt governments are influencing and changing the West. As Hudson’s Julia Davidson puts it, “they import not only money, but also corruption.”

Ivan Zarak, Panama’s vice minister of economy, was recently in Washington DC to urge the western societies to “tackle this global problem collectively.”

“The leaked papers are not about Panama but a collective problem, it requires collective action,” he said during his speech at Wilson Center on April 14.

Panama scandal, Zarak added, “is an unfortunate name:” “Our country is totally committed to transparency.”

Chip Poncy, former US treasury official, agrees with Zarak. Yes, he says, “it’s not only about Panama… There are more law firms in New York City that are doing the same think that we never talk about,” Poncy, currently senior advisor at the Foundation for Defense of Democracy, a Washington-based think tank, said in an interview.

There have been debates among the US officials about kleptocrats exploitation of such loopholes for more than a decade. Poncy added.

“I'm just shocked that we're shocked… Now the real question is, are we going to be shocked this time long enough to do something about it?”

How to fight global kleptocracy?

But what is the best model to fight global kleptocracy? How can transparency advocates institutionalize this scrutiny in real estate to broader global transparency initiatives?

“There is something that can be done,” said Chip Poncy. Given the level of detail that has been reported out of Panama papers, he said, there will be opportunities to identify and initiate investigations against kleptocrats.

In the meantime, Poncy hopes, Panama disclosure will prompt some renewed efforts to tackle on reforms in which law enforcement will not have to rely on a leak, as that information will be available.

For Hudson’s Julia Davidson, by refusing to allow kleptocrats the privilege of access to our financial institutions and entry upon our soil, the US can take the global initiative.

When the Patriot Act, an anti-terrorism law, went through in the US after 9/11, she recalls, the only sector that was not held responsible for reporting was real estate.

“We do need to be worried [about kleptocrats’ investing in our real estate,] because these are not people who are occupying the buildings, but who are parking their money for other uses, but not using it as an investment as we would think of the investment in democracy.”