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New money laundering and terrorist financing concerns


Luxury Housing and Commercial Real Estate transactions are drawing federal attention!  This is thanks to the rate of $1 million and up cash deals going on in these markets.  Cash transaction are perfect targets for money laundering and means for terrorist financing, as identified by the Financial Crimes Enforcement Network (FinCEN) at the Treasury Department.

As the result of recent scrutiny by the U.S. Treasury Department into the layers of secrecy behind deals with no names attached, FinCEN Director Jennifer Shasky Calvery said in a statement, “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.”

On January 13, 2016, FinCEN issued a Geographic Targeting Order (GTO) that temporarily requires certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high-end residential real estate in Manhattan and Miami-Dade County.  Why these two areas? They have the highest number of cash transactions in the nation.  According to the National Association of REALTORS® (NAR), the rate of cash deals in Miami is twice the national average due to the sheer volume of international buyers.

Using an LLC to close a luxury residential transaction is a standard route for many international buyers, which they are even advised to do for a variety of reasons from tax planning to shielding ownership for privacy and legitimate security concerns.  The use of this mechanism, however, has created a loophole for money laundering activities to occur unchecked.  Will these investigations by the Treasury lead to the end of anonymity for high-end cash buyers?

On February 3, NAR General Counsel Katie Johnson met with representatives of the Treasury Department and the Financial Action Task Force (FATF), an international body established by treaty to assess member states efforts to combat money laundering and terrorist financing.

NAR has argued, and the Treasury Department agrees, real estate agents and brokers are not in a position to detect money laundering since the funds involved in real estate transactions are handled through regulated financial institutions.  NAR has worked closely with FinCEN and the Treasury to develop voluntary guidelines for real estate professionals to identify signs of money laundering.  Scottsdale Area Association of REALTORS® and NAR encourages its members to check out the various website links, workshops at national meetings and various publications on this issue.


Suzanne Brown

Suzanne Brown is the Community and Government Affairs Director at SAAR.