Feds To Track High-End, All-Cash Real Estate Transactions In Manhattan And Miami!

By | January 13, 2016

The US Treasury Departments Financial Crimes Enforcement Network (FinCEN) to begin tracking high-end real estate sales!

FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami

“Geographic Targeting Orders” Require Identification for High–End Cash Buyers

WASHINGTON – The Financial Crimes Enforcement Network (FinCEN) today issued Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami Dade County, Florida. FinCEN is 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. To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County. (Source)

The onus being placed on title insurance providers ‘to discover the identities of buyers and submit the information to the Treasury’

The following article from The New York Times provides detail on why this unprecedented step to track real estate transactions, beginning in Manhattan and Miami, is being undertaken by the federal government.

Spoiler Alert – The reason for this program is to try and crackdown on the use of real estate transactions for money laundering activities, much of it by foreigners looking to move capital out of their home nation.

U.S. Will Track Secret Buyers of Luxury Real Estate

Concerned about illicit money flowing into luxury real estate, the Treasury Department said Wednesday that it would begin identifying and tracking secret buyers of high-end properties.

The initiative will start in two of the nation’s major destinations for global wealth: Manhattan and Miami-Dade County. It will shine a light on the darkest corner of the real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities.

It is the first time the federal government has required real estate companies to disclose names behind all-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.

The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities.

Officials said the new government efforts were inspired in part by a series last year in The New York Times that examined the rising use of shell companies as foreign buyers increasingly sought safe havens for their money in the United States.

The use of shell companies in real estate is legal, and L.L.C.s have a range of uses unrelated to secrecy. But a top Treasury official, Jennifer Shasky Calvery, said her agency had seen instances in which multimillion-dollar homes were being used as safe deposit boxes for ill-gotten gains, in transactions made more opaque by the use of anonymous shell companies.

“We are concerned about the possibility that dirty money is being put into luxury real estate,” said Ms. Calvery, the director of the Financial Crimes Enforcement Network, the Treasury unit running the initiative. “We think some of the bigger risk is around the least transparent transactions.”

The department will focus on sales that are both paid for all in cash and conducted using shell companies. The government is requiring title insurance companies, which are involved in virtually all sales, to discover the identities of buyers and submit the information to the Treasury. The government will put the information into a database for law enforcement.

The Treasury’s program will affect billions of dollars in real estate transactions. In Manhattan, the initiative requires buyers in sales of more than $3 million to be reported; in Miami-Dade County, it requires reporting on sales of more than $1 million. In Manhattan, 1,045 residential sales cost more than $3 million in the second half of 2015, worth some $6.5 billion in aggregate, according to PropertyShark, a real estate data company.

In addition to starting in only two markets, the requirement runs from March through August. If Treasury officials find that many sales involved suspicious money, Ms. Calvery said, they would develop permanent reporting requirements across the country.

Real estate professionals, especially in the luxury market, often know little about buyers, and until now, they have not been legally required to. In its investigation, The Times found that nearly half of homes nationwide worth at least $5 million are purchased using shell companies. In Manhattan and Los Angeles, the figure is higher.

In New York, The Times examined a decade of ownership at an iconic condominium complex near Central Park, the Time Warner Center, and found a number of hidden owners who had been the subjects of government investigations. They included former Russian senators, a former governor from Colombia, a British financier, and a businessman tied to the prime minister of Malaysia, who is now under investigation. In Florida, The Times uncovered a condominium in Boca Raton tied to Mexico’s top housing official, who recently stepped down and is now a leading contender for the governor’s office in the southern state of Oaxaca.

Ms. Calvery said The Times investigation had been important in raising awareness about problems with shell companies and in convincing the Treasury that more scrutiny of high-end buyers is needed. “It’s easier to talk about it with people who aren’t specialists in our area when they read about it in the newspaper,” she said.

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@hallmarkabstractllc.com.

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