Program to Track Laundered Money in Luxury Real Estate Continues

Feb 23, 2017   

February 23, 2017
By Carla Vianna

What began as temporary oversight over two of the nation’s hottest luxury real estate markets — Miami and Manhattan — has been extended by the federal government for a second time.

Aimed at tracking laundered money in the nation’s luxury housing market, the Treasury Department last year issued geographic targeting orders, or GTOs, described as a temporary data-gathering tool for specific metro areas, over South Florida and other high-end housing markets.

Spearheaded by the Financial Crimes Enforcement Network, the anti-money laundering initiative required title insurance companies to disclose the names of people behind the limited liability companies, or shell corporations, paying cash for $1 million-plus homes in Miami-Dade, Broward and Palm Beach Counties.

The orders were extended Thursday for an additional 180-day period.

“These GTOs are producing valuable data that is assisting law enforcement and is serving to inform our future efforts to address money laundering in the real estate sector,” said FinCEN acting director Jamal El-Hindi. “The subject of money laundering and illicit financial flows involving the real estate sector is something that we have been taking on in steps to ensure that we continue to build an efficient and effective regulatory approach.”

The additional reporting requirements went into effect early last
year targeting pricey housing purchases in Miami and Manhattan for 180 days. The feds soon expanded their reach to the Los Angeles, San Francisco, San Diego and San Antonio metro areas while expanding the orders’ lifespan another six months.

The orders were set to expire Thursday.

FinCEN said about 30 percent of the transactions covered by the program involve a beneficial owner or buyer representative that was subject to a previous suspicious activity report. The findings confirm the agency’s concerns about the use of shell companies to buy real estate in “all-cash” transactions.

Andrew Ittleman, a partner with Fuerst Ittleman David & Joseph, said the regulation’s renewal is a way for the new administration to “wrap its arms” around the underlying problem — real estate being used as a vehicle to hide dirty money.

“But at some point this process of serial GTOs is going to have to end,” Ittleman said. “That’s when you will get a better understanding of the new administration’s position on all of this.”

Because wire transfers fall outside of FinCEN’s authority, little effect has been noted on the South Florida real estate industry as most home purchases are funded via wire. Real estate attorney James Marx said the regulation had no impact on homebuying activity. The sole purpose for its renewal was to avoid the negative dialogue, “President Donald Trump favors money laundering,” he added.

When the initiative was launched last year, the Miami lawyer with Marx Rosenthal said the move signified a shift toward more transparency in the banking and real estate industries, but he doesn’t see the Trump administration supporting the measure.

“I don’t think it makes economic sense to have more transparency for real estate transactions because you’re going to discourage people from other countries from investing in the U.S.,” Marx said. International investors have historically eyed the U.S. real estate market as a safe, private place to park their capital, and that’s something Trump will continue to support.

“I’d be very surprised if they made things more difficult for individuals or entities buying real estate in the U.S.,” he said.