Real estate in the United States has been rumored to be an interesting place for hiding money. In particular, the US Treasury is concerned about illegal money getting filtered through US real estate. Until now, FinCEN has mostly relied on anti-money laundering protections on real estate transactions involving lending. FinCEN is now looking at vulnerabilities associated with all-cash real estate transactions.
The focus is on high-end residential real estate in Miami and New York. Someone is buying those ultra-expensive condos in the new residential towers. FinCEN is worried that some of those buyers may be doing so with illicit money.
“We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money,” said FinCEN Director Jennifer Shasky Calvery.
The Director of FinCEN may issue an order that imposes certain additional recordkeeping and reporting requirements on one or more domestic financial institutions or nonfinancial trades or businesses in a geographic area. See 31 U.S.C. § 5326(a); 31 CFR § 1010.370; Treasury Order 180-01.
FinCEN issued two Geographic Targeting Orders, one for New York and one for Miami. They cover transactions that meet the following criteria:
- An entity is the purchaser
- of residential real estate in Manhattan or Miami-Dade County
- for a large purchase price, $3 million in Manahattan or $1 million is Miami-Dade
- without a bank loan or similar external financing, and
- is purchased with cash or check.
The big question I had is who is responsible for reporting the transaction and conducting the diligence into the beneficial owner of the purchaser entity. FinCEN put this at the foot of title companies.
FinCEN believes that title companies play a central role in the majority of real estate transactions. That is very true in the case of bank financing. Banks required title insurance on their mortgages. Homeowners may or may not pay for an owner’s policy of title insurance. It’s a good idea, but an expense when you are putting most of your free cash into the purchase.
I suppose a bad guy will just buy their high end residential real estate without title insurance to avoid a nosy investigation into who he really is and where his money comes from.
Sources:
- FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami
- FinCEN Geographic Targeting Order for Manahattan
- FinCEN Geographic Targeting Order for Miami-Dade County
- New AML Regulatory Initiative Targets Real Estate Industry by Schulte Roth & Zabel
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