Federal regulator renews real estate money laundering dragnet in South Florida

Feb 23, 2017   

February 23, 2017
By Nina Lincoff

In its continuing effort to crackdown on real estate money laundering, the Financial Crimes Enforcement Network (FinCEN) announced it will renew an order requiring title companies to identify the natural persons behind companies in residential currency transactions of $1 million or more in South Florida.

FinCEN announced Thursday that it would renew a temporary order – for the second time – which aims to end secrecy in real estate purchases in six major metropolitan areas, including South Florida. The goal of “geographic- targeting-orders,” or GTOS, is to make it more difficult for mysterious shell companies to drop millions of dollars of cash on luxury condos and homes.

The ruling could have an impact in Miami-Dade County, where there is the largest supply of $1 million-plus condos in the region’s history.

The FinCEN order, which has been in place since last year, has proven very effective when it comes to identifying potential high-risk real estate money laundering transactions.
FinCEN found that 30 percent of the transactions covered by the order thus far have involved an owner that is also named in a suspicious activity report, or red flag report. Banks file SARs when a customer does something that is outside the normal course of business and seems potentially suspicious.

The FinCEN geographic targeting order first came into effect on March 1, 2016 and was set to expire on August 27 of the same year. That order targeted deals in Miami-Dade and Manhattan. In July, regulators decided to expand the dragnet, adding Broward and Palm Beach counties, among other areas, to the order. The expanded order also covered business and personal checks, as well as currency transactions and cashier’s checks.

That expanded order was set to expire on Thursday, but it seems that FinCEN likes the information that it has been getting.

“These GTOs are producing valuable data that is assisting law enforcement and is serving to inform our future efforts to address money laundering in the real estate sector,” said FinCEN Acting Director Jamal El-Hindi on Thursday. “The subject of money laundering and illicit financial flows involving the real estate sector is something that we have been taking on in steps to ensure that we continue to build an efficient and effective regulatory approach.”

The renewed order becomes effective on Friday, and will stay in place for 180 days, according to FinCEN. The six major metro areas covered by the GTO are all boroughs of New York City, South Florida, Los Angeles County, three counties in the California Bay Area including San Francisco, San Diego County, and Bexar County in Texas, which includes San Antonio.

The order essentially means that for all residential transactions over a certain price threshold, law enforcement wants to know the actual person buying the property. The price thresholds change depending on region – in South Florida it’s still $1 million, while in Manhattan it’s $3 million.

Cash sales are huge in South Florida, and Miami-Dade County has the biggest supply of $1 million-plus condos for sale in the region’s history. As of Dec. 31, there were approximately 2,549 $1 million-plus condos for sale in Miami- Dade.

While this order isn’t meant to discourage legitimate buyers from purchasing real estate, it may have an effect on buyers who don’t want their identities tied to properties they own.

FinCEN is an arm of the U.S. Department of Treasury. Treasury has been tasked by President Donald Trump via executive order to review existing regulation and legislation and how such oversight impacts business success. The fact that the FinCEN GTO has been renewed, despite a new administration viewed as more business-friendly, suggests that either the GTO has been very effective, and/or that the problem of real estate money laundering is very severe.

“The GTO presents an interesting conundrum for the new administration. On the one hand, President Trump made his name as a real estate developer and has held himself out as being friendly towards development,” said Andrew Ittleman, a partner at Miami law firm Fuerst Ittleman David & Joseph. “On the other hand, Trump was the ‘law and order’ candidate, and appears to be taking an aggressive posture towards crime, especially the international variety.”

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