The US Financial Crimes Enforcement Network has started to look closely at cash purchases of expensive real estate as a possible source of money laundering. In January, FinCEN issued two Geographic Targeting Orders, one for New York and one for Miami. Now more metropolitan areas are in FinCEN’s sights.
According to the press release, FinCEN has been gathering some good data from the small step it took earlier this year. Apparently it thinks there are other jurisdictions that are likely places for money laundering.
The new order targets all of New York City, more of the greater metropolitan Miami area, and adds in metropolitan areas in California and the area around San Antonio.
The covered transactions must meet the following criteria:
- An entity is the purchaser .
- It’s purchasing residential real estate.
- It’s for a large purchase price (see below).
- There is no bank loan or similar external financing.
- The purchased in made in part with cash or check or or certified check or cashier’s check.
One problem is the inclusion of a certified check or cashier’s check in the included transactions. If you’ve ever bought a home, you usually come to the closing with a certified check or cashier’s check. The closing needs cash equivalents at the closing to make sure it can send the money back out to the seller. In Massachusetts, its mandated by law.
I would guess that the FinCEN targeting order is generating mostly reports of ordinary, legal transactions.
That’s not to say that the efforts should not be applauded. Legitimate parties in real estate transactions do not want to be engaged in money laundering.
I would guess that most people engaged in this type of residential real estate money laundering have stopped using title companies in the transaction. That moves it out of the reporting requirements of the order. Title companies provide a great service, but not a required part of the transaction. It seems easy to structure around.
The purchase price guidelines in the targeted areas:
New York:
- The Borough of Manhattan $3,000,000
- The Borough of Brooklyn $1,500,000
- The Borough of Queens $1,500,000
- The Borough of Bronx $1,500,000
- The Borough of Staten Island $1,500,000
Florida:
- Miami-Dade County $1,000,000
- Broward County $1,000,000
- Palm Beach County $1,000,000
California:
- San Diego County $2,000,000
- Los Angeles County $2,000,000
- San Francisco County $2,000,000
- San Mateo County $2,000,000
- Santa Clara County $2,000,000
Texas:
- Bexar County $500,000
FinCEN is using title insurance companies as the gatekeeper because title insurance is a common feature in real estate transactions. FinCEN is quick to note that the title insurance companies themselves are not being implicated in the money laundering. “To the contrary, FinCEN appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.”
Sources:
- U.S. Title Insurers Required to Identify High-End Cash Buyers in Six Major Metropolitan Areas
- A Small Step Forward in Real Estate Anti-Money Laundering
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