Identity of Real Buyers to Be Required in Manhattan and Miami for Certain “All Cash” Real Estate Transactions

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The Financial Crimes Enforcement Network (FinCEN) today issued Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida. FinCEN is concerned that all-cash purchases – i.e., those without bank financing – may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County.

– From today’s announcement: FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami

Anyone with a pulse and more than a couple of functioning brain cells has been aware for years that corrupt foreign oligarchs, politicians and dictators have been using global high end real estate as their preferred means to launder billions if not trillions of funds collectively stolen from their host populations. While London seems to be the preferred venue, Manhattan is not that far behind.

To get a taste of the problem, here are a few excerpts from the 2014 post, Introducing Ghost Skyscrapers – NYC Real Estate Goes Full Retard:

“The Census Bureau estimates that 30 percent of all apartments in the quadrant from 49th to 70th Streets between Fifth and Park are vacant at least ten months a year.”

New York City has never been known for its affordability, but a new crop of mega-luxury buildings in Manhattan are redefining sky-high prices. One 57 is the 1,000-foot high building looming over Central Park where an apartment has closed for as much as $90 million.

Jonathan Miller appraises the units at One 57. He said if you were to walk by at night the skyscraper would be largely dark because a majority of the units’ owners are international and don’t live here. They are using the apartments strictly as investments.

In the video segment attached to the article, Mr. Moss (who looks a bit like a younger Barney Frank) notes: “New York is a safe haven for financially powerful people from around the world.” 

But of course, it’s not just NYC. Let’s revisit some passages from the late-2015 post, The Foreign Criminals Using Los Angeles Real Estate to Launder Money and the Developers Who Help Them:

Here, as in other roosting places of the superrich, the recent influx of foreign money has gone hand in hand with the rising use of shell companies — generally limited liability companies. Shell companies were used in three-quarters of purchases of over $5 million in Los Angeles over the last three years, a higher rate even than the roughly 55 percent in New York, according to a New York Times analysis of data from PropertyShark. What is more, in Los Angeles, where so many of the new palaces are spec houses — luxury magnets for global wealth — not only are the buyers shielded by shell companies, but the developers are, too.

Head up North Alpine Drive in Beverly Hills, for example, and on the right is a $14.7 million home owned by a shell company tied to Kola Aluko, a Nigerian businessman who is a figure in an investigation of that country’s former oil minister.

A block away is one of several local properties that have been owned by shell companies tied to a son of Suharto, the corrupt and brutal former president of Indonesia.

And back down the hill is Le Palais, a faux chateau — with a swan pond and a Turkish bath with hand-carved Egyptian limestone columns — that a shell company tied to Mr. Hadid sold to a shell company tied to Lola Karimova-Tillyaeva, a daughter of the president of Uzbekistan. The Karimov family faces corruption investigations in several countries, according to two people who have worked in law enforcement and have knowledge of the inquiries.

Among his big-ticket sales was a Beverly Hills house, with a glowing pyramid in a reflecting pool, that was acquired in 2010 by a shell company tied to the stepson of the prime minister of Malaysia. (The prime minister is now a target of corruption investigations at home and abroad.)

So after years of such headlines, it appears the Feds are finally going to “look into it.”

From FinCEN:

WASHINGTON – The Financial Crimes Enforcement Network (FinCEN) today issued Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida. FinCEN is concerned that all-cash purchases – i.e., those without bank financing – may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County.

With these GTOs, FinCEN is proceeding with its risk-based approach to combating money laundering in the real estate sector. Having prioritized anti-money laundering protections on real estate transactions involving lending, FinCEN’s remaining concern is with the money laundering vulnerabilities associated with all-cash real estate transactions. This includes transactions in which individuals use shell companies to purchase high-value residential real estate, primarily in certain large U.S. cities.

“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. “Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector.” 

Under specific circumstances, the GTOs will require certain title insurance companies to record and report to FinCEN the beneficial ownership information of legal entities purchasing certain high-value residential real estate without external financing. They will report this information to FinCEN where it will be made available to law enforcement investigators as part of FinCEN’s database. 

The information gathered from the GTOs will advance law enforcement’s ability to identify the natural persons involved in transactions vulnerable to abuse for money laundering. This would mitigate the key vulnerability associated with these transactions – the ability for individuals to disguise their involvement in the purchase. 

FinCEN is covering certain title insurance companies because title insurance is a common feature in the vast majority of real estate transactions. Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern. The GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies. To the contrary, FinCEN appreciates the 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. 

The GTOs will be in effect for 180 days beginning on March 1, 2016. They will expire on August 27, 2016.

While interesting, what’s unclear to me is whether or not the demands for information involve only new purchases to take place within that narrow 180 day window, or whether they are looking for data on historical sales as well. If it’s only that 180 day window, it’s probably not that meaningful. If it’s more comprehensive than that, then things could get very, very interesting.

For related articles, see:

The Foreign Criminals Using Los Angeles Real Estate to Launder Money and the Developers Who Help Them

Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering

Open the Floodgates – Chinese Inquiries on U.S. Real Estate Soar 35% After Easing of Visa Rules

Introducing Ghost Skyscrapers – NYC Real Estate Goes Full Retard

Guardian Op-Ed – The City of London Has Turned Britain Into a “Civilized Mafia State”

In Liberty,
Michael Krieger

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2 Comments

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  1. So……not to be mean nor argumentative..people with the kind of money involved here..can not just Simply Buy/create “Straw-Names/people”

  2. Just “some”? Are the rest of them foreigners?

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