A new Treasury Department program will investigate anonymous money laundering within the real estate industry.
Luxury real estate buyers who place a high premium on secrecy may soon find their anonymity difficult to maintain, courtesy of a new pilot program being launched by the U.S. Treasury Department. Meant to put a kibosh on easy money laundering associated with high-end real estate transactions, the new program will begin initially in two American real estate markets and spread from there if it’s deemed a success.
The program, announced in mid-January, will kick off in two markets: Miami-Dade County and Manhattan, according to The New York Times. While it’s in effect, real estate companies will be responsible for disclosing the names of people behind cash purchases, even if those purchases happen to involve shell companies, such as limited liability companies (LLCs). The project is just one facet of an ongoing federal push to target money laundering within the real estate industry.
While the use of shell companies to purchase real estate is legal, Treasury officials say they’ve witnessed instances where homes worth millions were used to safeguard illicit cash. Those homes were purchased using shell companies to make tracing the source of funding difficult, if not impossible.
The program kicks off in Manhattan and Miami-Dade in March and is expected to expire in August. The new initiative will require buyers in sales of more than $3 million to be reported to the Treasury Department in Manhattan. Purchases that top $1 million in Miami-Dade will also have to be reported. If enough suspicious sales are found in that time frame, the Treasury has indicated a permanent program will be put into place nationally.
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While the Treasury Department’s Financial Crimes Enforcement Network sees the initiative as a way to combat money laundering, those in the real estate industry fear unintended consequences that may hurt legitimate high-end buyers who happen to use cash and want protect their identities. LLCs are sometimes used to protect legitimate wealthy investors, such as celebrities and foreign dignitaries, from prying public eyes.
“You have to remember that a lot of wealthy people, particularly in South America, are very, very shy about disclosing their wealth,” Related Group of Florida Chief Executive Officer Jorge Perez told Bloomberg Business. “Remember, in their countries, they are afraid of being kidnapped, they are afraid of being killed, so privacy is a huge thing.”
Others fear a continued fall of already slumping real estate prices, especially in Manhattan were they’ve been on the decline for months. In Miami-Dade, developers are concerned buyers will turn to more amenable markets.
Concerns aside, the Treasury is moving forward with its plan, which began to solidify after The New York Times did an investigative piece on the rising popularity of shell company purchases with global real estate buyers. Its analysis revealed, for example, that 64% of condos within Manhattan’s Time Warner Center were technically owned by shell companies. In that very building, the paper found 16 foreigners who had been targeted in government investigations.
Nationally, nearly half of the expensive homes on the market are purchased through shell companies, the paper reported.
The full impacts of the initiative won’t be known until the pilot program completes its run in August. In the meantime, those who seek to hide ill-gotten gains in real estate are likely to find American markets are becoming less hospitable.
