U.S. to Expand Tracking of Home Purchases by Shell Companies
More than a quarter of the all-cash luxury home purchases made using shell companies in Manhattan and Miami were flagged as suspicious in a new effort to unearth money laundering in real estate, the Treasury Department said Wednesday. As a result, officials said they would expand the program to other areas across the country.
The expansion of the effort to identify and track the people behind shell companies, begun in March, means that there will now be increased scrutiny of luxury real estate purchases made in cash in all five boroughs of New York City, counties north of Miami, Los Angeles County, San Diego County, the three counties around San Francisco and the county that includes San Antonio.
The examination, known as a geographic targeting order, is part of a broad effort by the federal government to crack down on money laundering and secretive shell companies.
“The information we have obtained from our initial G.T.O.s suggests that we are on the right track,” Jamal El-Hindi, the acting director of the Financial Crimes Enforcement Network within the Treasury, said in a department news release. “By expanding the G.T.O.s to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”
Among the suspicious transactions that the Treasury Department found tied to sales in New York or Miami this year were a $16 million cash withdrawal, a person involved in counterfeit checks and someone involved in moving $7 million around in shell companies associated with South America, Treasury officials said.
The areas being added to the order are places where buyers frequently purchase luxury real estate using shell companies, the officials said. The dollar values involved purchases of more than $500,000 or more in Bexar County, which includes San Antonio; $1 million in Florida; $2 million in California; $3 million in Manhattan; and $1.5 million in the other boroughs of New York City. Title insurance companies, which are involved in virtually all real estate transactions, are charged with carrying out the order.
Treasury officials have said that their real estate tracking program was inspired in part by a series last year in The New York Times that examined the rising use of shell companies. The investigation found that real estate professionals, especially in the luxury market, often do not know much about buyers, and it uncovered numerous buyers of high-end real estate who had been subject to government investigations around the world.
One installment of The Times’s investigation documented properties purchased in shell companies by friends and family of the prime minister of Malaysia. Those properties were subject to the largest asset forfeiture order ever in a kleptocracy case, which was announced this month.
Treasury officials said they were seeing benefits to the program in Manhattan and Miami, citing an increase in suspicious-activity reports being filed by banks and noting that the Department of Justice is finding the combination of the real estate and banking information to be helpful in its investigations.
The broadening of the rule signifies that the Treasury Department thinks the benefits to law enforcement from this sort of data collection are likely worth the cost to the industry, said Eric Berg, a lawyer at Foley & Lardner in Milwaukee and former member of the kleptocracy unit at the Department of Justice.
“There’s a lot of pushback from industry,” Mr. Berg said. “Clearly some sort of internal dialogue came to the conclusion that this is worth doing.”
Even though the title companies are ordered to identify the buyers, the burden often falls to the real estate agent, said Aaron Leider, the president of the Beverly Hills/Greater Los Angeles Association of Realtors and owner of the Keller Williams agency in the Brentwood area.
“They come to us, because who knows the client?” he said. “They don’t know the client.”
Realtor associations in California and nationally have been in discussions in recent months about how much agents need to do to comply with the rule, Mr. Leider said.
Treasury officials said the data collected in these six markets would be used to evaluate a permanent rule in the future.