A new watchdog program designed to monitor real estate deals involving shell companies has found that the buyers in 30 percent of high-end deals were linked to “suspicious activity,” the Treasury Department reported this week. Federal officials are now expanding the program, which aims to prevent money laundering by overseas buyers who use shell companies to mask their identities.
The program, called the Financial Crimes Enforcement Network, focuses on major markets that attract a high volume of international buying activity, including New York, Miami, and Los Angeles. Officials this week added Honolulu to the list. The program is monitoring wire transfers of funds as well as cash deals.
“This could have a chilling effect,” Redfin chief economist Nela Richardson told CNBC. “That very high end of the market is the most vulnerable to these issues. If a lot of foreign buyers were parking their money in high-end real estate and that much of it is tainted, this rule will have an impact.”
Under FinCEN, title insurance companies must determine the identities of shell company owners who are making cash real estate purchases at certain price points—usually more than $1 million. The Treasury Department then determines whether those shell companies have been flagged on lists of suspicious activity. FinCEN focuses on transactions worth more than $3 million in New York, $2 million in California and Hawaii, and $1 million in Florida, among other price points and locations.
“Through this advisory and other outreach to the private sector, FinCEN, [the real estate] industry, and law enforcement will be better positioned to protect the real estate markets from serving as a vehicle to launder illicit proceeds,” FinCEN acting director Jamal El-Hindi told CNBC.
Source: “A Third of Luxe Real Estate Deals Involve ‘Suspicious Activity,’” CNBC (Aug. 24, 2017)