The federal government’s clampdown on dirty money in luxury real estate markets in South Florida and other metropolitan areas is ramping up. It’s continuing to expand and getting even stricter. A new order publicized Thursday by the U.S. Financial Crimes Enforcement Network (FinCEN) promises additional scrutiny for secretive companies that plow money into real estate.
Drug dealers, corrupt officials and money launderers often funnel dirty cash into expensive properties to legitimize their wealth. They use opaque shell companies, which don’t have to disclose their owners, to keep a low profile. These organizations and the people associated with them are often untraceable, even to law enforcement officials conducting investigations.
The latest change will increase the universe of reportable transactions, making it easier to document crucial information about these companies.
FinCEN has extended the temporary orders, known as geographic targeting orders or GTO, for a fourth time, suggesting that the initiative is effective. The anti-money-laundering measure began in Manhattan and Miami-Dade in 2016.
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Such cash deals have been partially blamed for rising home prices that make it harder for locals to own property.
A study by economists at the Federal Reserve Bank of New York and the University of Miami found that anonymous cash buyers stopped buying homes, at least in the way targeted by regulators, after the new rule was implemented in June 2016. Before the curbs kicked in, opaque corporate entities bought an average of $111 million worth of homes with cash in Miami-Dade per week, or 29 percent of all residential transactions, according to the study. But almost immediately after the reporting requirement began, that number plummeted to $5 million per week, or 2 percent of all transactions.
FinCEN has added five major regions to the roster: Boston, Chicago, Dallas-Fort Worth, Las Vegas and Seattle. It will also continue to enact the updated measure in Honolulu, Los Angeles, Miami, New York City, San Antonio, San Diego and San Francisco.
As the orders have been reissued, more stringent conditions have been added. This time, even more shell companies will be on FinCEN’s radar.
One of the newest changes, which the Miami Herald reported on earlier this year, is a steep drop in the price threshold that triggers a reporting requirement.
FinCEN made that alteration quietly, and sources familiar with the agency told reporters that officials no longer wanted to publicize what kind of transactions fell within the reporting requirement. They worried that making too much information public would help money launderers find a way around the regulations.
Now, FinCEN has widened the net to include transactions involving trusts and virtual currency. It will also affect shell companies spending as little as $300,000 or more on real estate.
The bar used to be a lot higher. In South Florida, it was $1 million. In other cities, it had been as high as $3 million. The $300,000 standard is now a uniform amount that applies across the country where the program is active.