From Wolf Street:
Today, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced that it would expand a program it had kicked off in January to identify and track secret homebuyers who hide behind shell companies.
The expanded program will “temporarily require US title insurance companies to identify the natural persons behind shell companies used to pay ‘all cash’ for high-end residential real estate in six major metropolitan areas,” up from the two areas designated in January, Manhattan and Miami, among the biggest destinations of global wealth:
FinCEN remains concerned that all-cash purchases (i.e., those without bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures.
Real estate purchases in the US have been a perfectly good way to launder large amounts of money, no questions asked. Brokers and banks and other industry professionals have played along. Everyone in the world knew it. And they came to launder their cash.
These folks don’t mind paying a little extra. So as an industry-pleasing side effect of this influx of opaque money, luxury home prices soared, from where they trickled down to the rest of the market.
The New York Times, whose investigative reporting on money laundering in the real estate business, particularly in Manhattan, appears to have stirred the Treasury Department into action, explained in January:
It is the first time the federal government has required real estate companies to disclose names behind cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers.
Apparently, this first experiment in Manhattan and Miami was successful for the government, according to the release today:
The initial GTOs [Geographic Targeting Orders] are helping law enforcement identify possible illicit activity and informing future regulatory approaches. 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.
This corroborates FinCEN’s concerns that the transactions covered by the GTOs (i.e., all-cash luxury purchases of residential property by a legal entity) are highly vulnerable to abuse for money laundering.
So with these successes under its belt, FinCEN outed its expanded list and the minimum purchase prices for each area that would trigger the reporting requirement:
New York: Manhattan with a threshold at $3 million; Brooklyn, Queens, Bronx, and Staten Island at $1.5 million.
Florida: Miami-Dade County, Broward County, and Palm Beach County, all at $1 million.
California: San Diego County and Los Angeles County; plus in the Bay Area, San Francisco, San Mateo County, and Santa Clara County, all at $2 million.
Texas: Bexar County (San Antonio area) with a threshold of $500,000.
Through this expansion, “we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course,” the release said.
It’ll send more shock waves through the global community of secretive cash buyers of US luxury real estate.
Meanwhile, in the Land of OZ, as noted last year by Nathan Lynch, Head Regulatory Analyst for Australia & New Zealand at Thomson Reuters:
AUSTRAC’s surveillance efforts are… being frustrated by the fact that money launderers will often use unregulated entities as a “first point of contact” to help disguise their source of funds. If a criminal makes a suspicious cash deposit into a real estate agent or lawyer’s trust account, for example, the suspicious transaction is not required to be reported to AUSTRAC. Reporting entities, such as banks, are required to report transactions of this type within three business days of forming a suspicion. Lawyers are only required to report threshold transactions under the legacy Financial Transaction Reports Act 1988, not suspicious matters, while real estate agents have no reporting obligations.
Separately, Lynch noted that “politicians have been conspicuously evasive on their bipartisan commitment to follow through with a second tranche [of the AML legislation]… politicians are happy to turn a blind eye”.
