Real Estate Deal

In an effort to prevent real estate money laundering schemes and illegal real estate purchases throughout the nation, the United States Treasury Department will soon start tracking high-end real estate sales in some parts of the U.S.

Under current law, it is completely legal to purchase high-end properties without disclosing the actual buyer’s name. Many anonymous buyers open shell companies and then use those companies to purchase high-value real estate without revealing their identity. According to a report by the Chicago Tribune, the department’s Financial Crimes Enforcement Network will soon require title companies to disclose the identity of individuals behind companies who purchase real estate that exceeds $3 million with cash only transactions.

One of the government’s main concerns is that corrupt foreign officials and international scammers are using holding companies, also referred to as shell companies, to conceal their identities as they purchase high-end real estate in order to launder dirty money. As more foreign money enters the real estate world, home prices are quickly driving the market into an artificial boom. Secret buyers often use cash to purchase expensive properties with dirty money, and then hold the properties for a couple of years before selling out. When they sell the property- often for more than their original purchase price, any money received is immediately “clean”. In this type of situation, the crime of money laundering can be impossible to track.

Beginning in March 2016, the disclosure requirements set forth would apply for 180 days- the maximum time allowed by federal law. At the expiration of the six month period, however, the government can request an extension.

At this time, only high-end real estate transactions in New York and Miami, where home prices have soared over the past year, will be investigated. The median sales price for luxury real estate in Manhattan has jumped more than 25 percent since last year, with the average cost being $6 million. According to reports, close to 50 percent of these sales were all-cash transactions- a rate that sends red flags to officials.

It is hoped that these investigations will reveal information that will be useful in evaluating the presence of money laundering schemes throughout the U.S. Although the Department of Treasury has had the authority to scrutinize real estate investors under the Patriot Act, they have often been discouraged from doing so by lobbyists who oppose regulations that would require identity disclosures.