Feds Target Money Laundering in U.S. Real Estate Transactions: New reporting rules in New York and Miami

Feds Target Money Laundering in U.S. Real Estate Transactions: New reporting rules in New York and Miami

Those glassy new seven- and eight-figure condos in Manhattan that never have the lights on are probably a dream pied-à-terre but the U.S. Department of Treasury wants to know if any of them may be someone’s ultra luxe storage facility.  Storage for their ill-gotten gains that is.  On Wednesday, January 13, 2016 the Financial Crimes Enforcement Network (FinCEN, part of the U.S. Department of the Treasury) announced Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind shell companies used to pay cash for high-end residential real estate in Manhattan and Miami-Dade County, Florida.  The GTOs will be in effect March 1 to August 27, 2016.

FinCEN is concerned that all-cash purchases may be conducted by wealthy individuals—including corrupt foreign officials and transnational criminals—using expensive U.S. real estate to safely and secretly invest millions of their dirty money using a network of domestic and offshore companies to store their assets and hide their identity.  Both Manhattan and Miami are considered common spots for this type of money laundering activity.

Bank financing adds a layer of fraud protection because the process of borrowing money is more transparent and requires substantial identity information to be filed with the lender.  Cash purchases are a weak link that the federal government is ready to address.

To garner information necessary to prevent this type of money laundering, 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.  The reporting requirement is triggered when these companies pay $3 million or more for homes in Manhattan and $1 million or more for homes in Miami without any bank financing.  The title company will be required to report the owners’ names to FinCEN at the U.S. Treasury Department where it will be made available to law enforcement investigators as part of FinCEN’s database.  Importantly, these individuals’ identities will not be released to the public.

FinCEN is seeking the assistance of certain title insurance companies because title insurance is a common feature in the vast majority of U.S. real estate transactions, particularly expensive ones. The federal government believes that title insurance companies are in the best position to provide FinCEN with valuable information through this new reporting mechanism.

This FinCEN announcement follows on the heels of another recent effort to thwart money laundering by the New York City Commissioner of Finance, who changed how ACRIS tax forms had to be prepared effective May 18, 2015.  Specifically, the NYC-RPT form was revised to include two additional Grantor and Grantee types: Single Member LLC and Multiple Member LLC.  For any grantor and grantee that is a partnership or multiple member LLC, the revised form requests the name and Social Security Number for each general partner or member or an affidavit attesting to the reasons the information is missing.  See OneTitle’s previous article entitled LLCs and Privacy: The end of the dance?

 

Sources:

“Feds crack down on secret real estate deals in Miami-Dade and New York.”  Miami Herald.  By Nicholas Nehamas.  January 13, 2016.

“U.S. Will Track Secret Buyers of Luxury Real Estate.”  The New York Times.  By Louise Story.  January 13, 2016. 

“FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami.”  U.S. Department of the Treasury, Financial Crimes Enforcement Network press release.  January 13, 2016.

American Land Title Association letter to Jennifer Shasky Calvery, Director of the Financial Crimes Enforcement Network, U.S. Department of the Treasury.  January 13, 2016. (not available online)