The people shrouded behind shell companies that purchase luxury real estate in six major U.S. cities must be identified by title insurance companies under requirements renewed by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The “geographic targeting order” begun last year and which requires real owners of property in New York City, Los Angeles, San Diego, Miami, San Francisco and San Antonio, Texas, be listed in title records shows 30 percent of buyers were involved in suspicious activity.
The reason title insurance companies are being drawn into regulations is because cash transactions of real estate aren’t monitored. Banks and mortgage companies, however, do have controls for detecting money laundering activities.
“Luxury real estate transactions can be used to launder money,” affirmed Eric LeCompte, executive director of Jubilee USA, a nonprofit that lobbies for financial reforms, in a prepared statement. Further, such purchases can support tax evasion and drive up real estate prices, he said.
Watchdog groups believe luxury real estate purchased by third-party companies are magnets for tthose looking to stash away their illegally gotten profits.
Once acquired with untraceable, illicit money, luxury properties become “legitimate” assets. If sold, the money—and any gains—are laundered or “washed.”
The Treasury action comes in the wake of last year's infamous Panama Papers private bank client document leak, which revealed how shell companies can be used to facilitate nefarious activities.
Take the $3 million Bal Harbour, Fla., condominium acquired in 2011 by Isaias Property, which had potential connections to criminal elements brought to light by the Panama Paper affair. Isaias was managed by another offshore company, Mateus 5 International Holding in the British Virgin Islands. A paper trail from there led to a Brazilian national under indictment for corruption.
A Washington Post investigation last year, citing Zillow data, revealed that in the last quarter of 2015, nearly 60 percent of property purchases of more than $3 million in the U.S. were made by limited liability corporations.The transactions totaled $61.2 billion.
Many of the LLCs involved in those purchases were registered anonymously, according to the Post. It is just such transactions upon which FinCEN is trying to shed light.