Goldstein & Levy, P.A., General Counsel
Legal Bulletin
MARCH 15, 2016 | U.S. TREASURY CRACKS DOWN ON CASH BUYERS OF LUXURY REAL ESTATE
In an effort to detect money laundering and illegal activity associated with it, the U.S. Treasury Department has imposed new rules requiring title companies to identify and disclose the beneficial owners (shareholders, members) of entities (including corporations and L.L.C.s) behind any all-cash purchase of high end residential real estate in Manhattan and Miami-Dade County. The orders will be in effect for 180 days, from March through August of 2016.
These rules were precipitated by a New York Times investigation that disclosed the use of L.L.C.s or “shell companies” with anonymous members that have used cash to purchase high end residential real estate in New York City. The Times articles also disclosed that many of these anonymous individuals were or have been under investigation for illegal activity, raising the concern that the laws governing US real estate had created a money laundering shelter for wealthy foreigners. Treasury officials indicated that they would consider instituting a permanent national program if the order uncovers many sales involved suspicious money.
“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 in the Treasury press release. “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.” A contact from the FBI, interviewed for the Times article, reporting on the new orders, said that “the anonymity possible under existing shell companies had stymied investigations.” According to the article, the FBI has recently created a new unit to focus on money laundering, of which real estate will be a main focus.
These new rules took effect yesterday, March 1, 2016, and initially applies to any cash purchase transaction made during an initial 180 day period, ending August 28, 2016 Of real estate in Manhattan and Miami-Dade County. However, the U.S. Government has already indicated that it will seek to extend the expiration of the new rule and expand its coverage to other U.S. cities as well.
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