U.S. Crackdown on Money Laundering in Luxury Real Estate Set to End

    Federal regulations meant to catch illicit money flooding into luxury real estate are set to expire on Thursday, leaving the future of the so-far successful initiative in limbo.

    The federal government launched the program a year ago in two municipalities—Manhattan and Miami-Dade County, luxury real estate hubs where all-cash buyers of multimillion-dollar homes commonly hide their identities behind obscure limited liability companies, known as “shell companies.” But the pilot program ends this week, and the federal government has given no indication of whether it will be continued, replaced or scrapped despite comments from top officials in the past about its effectiveness.

    real estate crackdownIn Manhattan, the temporary regulations required title insurance companies, which are involved in virtually all property transactions, to report the personal identity of all-cash buyers using shell companies to purchase a home for at least $3 million to the U.S. Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN.

    In Miami-Dade County, title companies had to report all-cash buyers of homes at only $1 million or more—reflecting the price differences in various locations.

    The program was so successful in helping the government identify possible illicit activity that FinCEN expanded the requirements to the rest of New York City; two counties north of Miami (Broward and Palm Beach); five counties in California, including Los Angeles and San Francisco; and Bexar County, Texas, which includes San Antonio. The location-based regulation is known as a GTO, or geographic targeting order, in Treasury Department jargon.

    Multiple attempts to reach FinCEN on Wednesday were unsuccessful. A spokesman for the office did not return requests for comment on the fate of the program.

    In November, FinCEN Deputy Director Jamal El-Hindi, said the program’s success underscored the need for even greater transparency when it comes to the individuals behind shell companies.

    “Our use of public GTOs in the real estate context is bringing us valuable information about the potential use of high-end residential real estate in money laundering, further underscoring the need for greater transparency,” Mr. Hindi told a conference in Washington, D.C.

    Meanwhile, title insurance professionals expect the government to continue the program based on positive feedback received from the Treasury Department.

    Steve Gottheim, senior counsel at the American Land Title Association, an industry group representing more than 6,000 title insurance agents and underwriters, said the group’s members will likely continue reporting shell company ownership even after the program expires and until the Treasury Department issues new directives. He predicted renewed government guidelines within days.

    “What many members are really grateful for is that it seems to be worth it. What we’re hearing from the Treasury is that it has been very helpful and that there has been a connection to money launderers,” Mr. Gottheim said.

    Implementation has cost title insurers some time and money, but the regulations have not turned off buyers or affected business, he said.

    “They’re not seeing lost business. They’re not seeing people shy away from willingly giving this information,” Mr. Gottheim said.

    The process is now streamlined in Miami and Manhattan, where the program has been in place for a year, and operates best when real estate agents and lawyers inform buyers about the disclosure, he said.

    “In terms of helping to protect our industry,” Mr. Gottheim said, “this has been very fruitful.”

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