Federal authorities expand investigation into all-cash real estate deals

Technology

The federal government’s nearly four-year investigation into
whether foreign buyers are using shell companies to buy U.S. real estate in
order to launder money will continue for at least another six months.

The Treasury Department’s Financial Crimes Enforcement Network, which has been investigating all-cash luxury real estate deals since January 2016, announced Friday that it is extending its investigation until May 2020, at least.

The initial FinCEN investigation looked into whether unknown buyers were using shell companies to buy high-end real estate in Manhattan and Miami-Dade County, because the government was “concerned about illicit money” being used in the deals.

The results of that initial investigation showed more than 25% of transactions reviewed involved a “beneficial owner” who was also the subject of a “suspicious activity report,” which is an indication of possible criminal activity.

From there, FinCEN expanded the investigation several times. First, FinCEN began looking into all-cash real estate deals in Los Angeles, San Francisco and several other areas. The investigation later expanded again to include wire transfers.

Throughout the entire investigation, the burden of
identifying the actual buyer has been placed on title companies, which have
been required to report on the person behind shell companies on all-cash deals.

In its initial phases, FinCEN focused on luxury real estate,
setting the reporting thresholds for title companies at $500,000 or above. In
Manhattan, for example, title companies were only required to identify the
actual person behind shell companies used to pay all cash on deals of $3
million or more.

But, last year around this time, FinCEN expanded the
investigation again, both lowering the reporting threshold and adding new
cities to the investigation.

In November 2018, FinCEN ordered title companies in Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle to report on the person behind shell companies on all-cash deals of $300,000 or more.

Those orders were set to expire in May 2019, but FinCEN
later extended the orders through November 2019.

And now, the agency is expanding them again.

Beginning Nov. 12, 2019, and extending through May 9, 2020, title companies in the aforementioned cities will all be required to identify the person behind shell companies used in all-cash real estate deals of $300,000 or more.

The new orders are identical to those issued in May 2019 with one exception: title companies will not be required to report on purchases made by legal entities that are U.S. publicly-traded companies, as real estate purchases by such entities are identifiable through other business filings, FinCEN said.

According to FinCEN, the orders “continue to provide
valuable data on the purchase of residential real estate by persons possibly
involved in various illicit enterprises,” and extending the orders will “further
assist in tracking illicit funds and other criminal or illicit activity.”

In extending the orders for another six months, FinCEN said
that it “appreciates the continued 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.”
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