The U.S. Treasury Department is setting its sights on transparency in the booming high-end real estate market amid concerns that it may be operating as a hotbed of money laundering.
A test program launched in March will require real estate companies in Manhattan and Miami to disclose the true “beneficial owner” of any shell companies looking to buy real estate in those jurisdictions.
Currently, all-cash purchasers of property in the U.S. are able to shield their identity behind shell companies. The mortgage market for high-end real estate is viewed as more transparent.
“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. “These geographic targeting orders will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector.”
The Treasury probe, expected to last six months, is aimed at Miami and Manhattan because of their popularity with foreign buyers of real estate. All properties over $3 million in Manhattan and $1 million in Miami will be subject to these enhanced requirements.
Federal officials appear most interested in gathering information as to the scope of the problem, and are likely to take more permanent action once the program expires in August. The U.S. Patriot Act does empower the Treasury Department to direct real estate firms to evaluate foreign buyers more carefully.
Calls for federal action into real estate money laundering have been building since a blockbuster New York Times expose last year found that 44 per cent of all-cash purchases for houses over $5 million were made to shell companies.
The newspaper also dug into the more than 200 shell companies that own property in the luxury Time Warner Center and identified at least 16 foreign beneficial owners that have been the subject of government inquiries.
