Recently, the Treasury Department said it will begin cracking down on secret buyers of luxury real estate properties.  Their new policy is part of a federal effort to help deter money laundering in real estate.  The federal government will seek to identify and track cash buyers of large, expensive properties, who are using shell companies that shield a buyer’s identity.  The new government focus was inspired in part by the rising use of shell companies as foreign buyers increasingly looked for safe places to invest their money in the United States. Buyers often hide their identities by layering companies on top of other shell companies. Buyers also use LLC Companies using the names of lawyers or other agents, or assign the copy to another buyer, instead of their own names. This secretive process made it fairly easy for foreign buyers especially to move money from an illegitimate business into a legitimate property in the United States.

There was a series of articles in The New York Times that brought to light this wide-spread use of the illegal activity. The articles in The Times researched ten years of ownership at The Time Warner Center near Central Park and found numerous hidden owners who had been the subjects of government investigations. They included former Russian senators, a former governor from Colombia, a British financier, and a businessman tied to the prime minister of Malaysia, who is now under investigation. Many of these cases involve high-profile buyers.

It is now legal to use an anonymous shell company to purchase real estate, but this is the first time that the federal government will require real estate agents and companies to disclose names of buyers of these cash transactions. The Treasury Department will also soon require title companies to uncover the name of anonymous buyers and the actual purchaser name of a someone buying a property in the name of a shell company. The Treasury Department will begin their search for these anonymous buyers in both Miami and New York City, but could expand their search to other areas soon.

The Treasury's program will affect billions of dollars in real estate transactions. In Manhattan, the initiative requires buyers in sales of more than $3 million to be reported; in Miami-Dade County, it requires reporting on sales of more than $1 million. In Manhattan, 1,045 residential sales cost more than $3 million in the second half of 2015, worth around $6.5 billion in total, according to PropertyShark, a real estate data company.

Jennifer Shasky Calvery, a Treasury Official says that her agency had seen instances in which multi-million dollar homes were being used as safe deposit boxes for ill-gotten gains, in transactions made more opaque by the use of anonymous shell companies."We are concerned about the possibility that dirty money is being put into luxury real estate," said Ms. Calvery, the Director of the Financial Crimes Enforcement Network, the Treasury unit running the initiative. "We think some of the bigger risk is around the least transparent transactions." She says that her department will focus on sales that are both paid for all in cash and conducted using shell companies.

Posted by Susan Reynolds on


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