The Treasury Department announced it will require real estate companies to disclose the names behind cash transactions of $3 million or more for high-end real estate in New York and Miami. The effort is to expose suspected money laundering in real estate.
“We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium US real estate to secretly invest millions in dirty money,” Jennifer Shasky Calvery, director of Financial Crimes Enforcement at the US Treasury Department, said in a statementWednesday.
The initiative will require US title insurance companies to identify the “natural persons” behind companies paying “all cash” for residential real estate in Manhattan and Miami, both of which are major destinations for global wealth. Natural persons are those who own 25 percent or more of the equity interest in the property.
The Treasury Department said it’s investigating all cash purchases, those that don’t require bank financing, because they may be conducted by people trying to hide their assets “through limited liability companies or other opaque structures,” such as shell companies.
“Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering,” Calvery said. “But cash purchases present a more complex gap that we seek to address.”
The New York Times published a series of investigative articles last year exposing the rising use of shell companies, as foreign buyers sought real estate as safe havens for their money in the US. The stories examined a decade of ownership at the Time Warner Center near Central Park, and found a number of hidden owners who had been the subject of government investigations. They included former Russian senators, a former governor from Colombia, a British financier and a businessman linked to a Malaysian minister under investigation.
In a further journalistic probe, the Times found nearly half of the homes worth at least $5 million nationwide were purchased using shell companies. The number was higher in Los Angeles and New York.
The Treasury Department and federal law enforcement officials said greater resources are being directed to investigate luxury real estate sales, and that they will focus on professionals who assist in money laundering.
“We’re going after the facilitators of the money laundering,” said Patrick Fallon, a senior FBI official, to The New York Times. “They’re the bankers, they’re the accountants, lawyers, folks who are setting up LLCs, they are setting up foundations, folks who are setting up nonprofits, real estate investment trusts, etc.”
Title companies or purchasers who provided false information could face penalties, said the Treasury Department. The initiative runs from March through August. If it finds sales involving suspicious money, the agency will develop permanent reporting requirements across the country.
In New York, investigators will examine sales of more than $3 million, and in Miami sales of more than $1 million will be scrutinized.
The New York Times said that “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.