FinCEN Issues Revised Order Targeting Shell Companies Buying Real Estate

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August 23, 2017
By Keith Larsen

The Financial Crimes Enforcement Network has expanded its crackdown on real estate-related money laundering transactions involving wire transfers.

The agency has broadened its Geographic Targeting Orders (GTOs), which require U.S. title insurance companies to identify the people behind shell companies used to pay for high-end residential real estate in seven metropolitan areas, including Miami-Dade County.

This could have a big impact in Miami-Dade County where there is the largest supply of $1 million-plus condos in the region’s history.

The Financial Crimes Enforcement Network (FinCEN) also published
an advisory for financial institutions and the real estate industry on the money laundering risks associated with real estate transactions, including those involving luxury property purchased through shell companies, particularly when conducted without traditional financing.

Such transactions are vulnerable to abuse by criminals seeking to launder illegal proceeds and mask their identities, according to FinCEN.

“Through this advisory and other outreach to the private sector, FinCEN, industry, and law enforcement will be better positioned to protect the real

estate markets from serving as a vehicle to launder illicit proceeds,” said FinCEN acting director Jamal El-Hindi.

Andrew Ittleman, founder and partner at Miami law firm Fuerst Ittleman David & Joseph, PL, said the biggest difference with the recently revised orders is the focus on wire transfers and the fact that the GTO’s are now on Congress’s radar.

In January 2016, FinCEN originally issued GTOs to require U.S. title insurance companies to report beneficial ownership information on legal entities, including shell companies used to purchase certain luxury residential real estate in Manhattan and Miami – specifically. The order also applied to luxury residential property purchased by a shell company without a bank loan and made at least in part using a cashier’s check or similar instrument.

“Congress is looking at the GTO’s as being relevant in sanctions against Russia,” Ittleman said.

In July 2016 and February 2017, FinCEN reissued the original GTOs and extended coverage to all boroughs of New York City, Palm Beach County and Broward County, five counties in California (including Los Angeles, San Francisco and San Diego), and the Texas county that includes San Antonio.

Australian Money-Laundering Alliance a Stretch for U.S.

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May 15, 2017
By Richard Hill

An anti-money laundering partnership between Australia’s big four banks and the continent’s government designed to share more information in real time is getting good reviews but probably isn’t exportable to the U.S., several lawyers and consultants said.

The Fintel Alliance launched in March “offers an unprecedented opportunity for government and banks to share insights to combat the long-standing issue of serious financial crime,” Aidan O’ Shaughnessy, policy director for the Australian Bankers’ Association, told Bloomberg BNA.

Real-time information sharing could even help halt money-laundering transactions as they happen, said Peter Reeves, special counsel at Gilbert and Tobin, Sydney, who specializes in financial services law and AML regulation.

Bloomberg Law®, an integrated legal research and business intelligence solution, combines trusted news and analysis with cutting-edge technology to provide legal professionals tools to be proactive advisors.

Nevertheless, privacy concerns, the much-larger size of the U.S. banking industry and different AML requirements would all make it difficult to replicate the partnership in the U.S. The U.S. also already has a quasi public-private partnership, AML experts said.

All in a Day

The Australia partnership brings together the continent’s largest banks, the Australian Transaction Reports and Analysis Centre (AUSTRAC) and other government and academic institutions to share information about money laundering in near real-time in a bid to combat the financing of terrorism, smuggling and other crimes.

The partnership is designed to allow a regulator to flag suspicious activity to bank officials and then work with them to connect disparate information and summon law enforcement–all in the course of a day, according to a video posted by AUSTRAC.

The alliance reflects a shift in thinking by the government “from a regulator that seeks compliance to a regulator that seeks cooperation,” Reeves said. Indeed, one of the reasons banks agreed to join the alliance was to reduce their compliance burdens, Reeves said.

The initiative was conceived to transform the “siloed relationship” that existed between banks and the government to “a partnership where solutions are co-designed in response to mutual problems,” an AUSTRAC spokesman told Bloomberg BNA.

U.S.-Aus. Differences

There are several reasons the program may not be easily exported to the U.S., starting with privacy concerns, according to Miami attorney Andrew Ittleman and others.

“You’ve got a lot of businesses with access to private information that they otherwise wouldn’t have, [and] you don’t necessarily have the benefit of the federal government coordinating the information-sharing between the private companies,” Ittleman, a white-collar criminal defense attorney at Fuerst Ittleman David & Joseph, said. “It looks like a free-for-all.”

Another factor is that in most cases, financial institutions in Australia must file suspicious activity reports within 72 hours. In the U.S., institutions have up to 30 days and can file for extensions, making real-time information-sharing less imperative.

It’s a major difference, said Don Andrews, who heads the compliance and risk-management unit at Venable LLP, New York. “One thing I think would get significant pushback, and maybe rightly so, would be getting reporting down to a matter of days” in the U.S., he said. “That’s a pretty big burden to place on a financial institution.”

Priorities

The Fintel alliance is a good way for banks to learn about law enforcement priorities, Robert Rowe, vice president and associate chief counsel for the American Bankers Association, said. Such information currently is lacking in the U.S., he and others said. Banks are “trying to get a better understanding about where to focus their energies,” Rowe said. “The banks are saying, `if you tell us what the problem is, we know where to look and what to look for.’”

Andrews agreed, saying, “a little more direction from the government would be helpful. Firms are spending billions of dollars to comply with [AML] requirements, so it’s very important that the government be incredibly clear about what it’s looking for.”

Dennis Lormel, a former FBI agent who specialized in AML enforcement, cited costs and regulatory concerns as reasons banks might not be keen on forming an alliance with the government. “When the general counsel for some of the major banks get involved in this, they look at it like, `we’re just asking for trouble if we open ourselves up to something like this,’” Lormel said.

Banks also are “very concerned and and overly conservative as a result of regulatory expectations,” Lormel, who now runs DML Associates LLC, a consulting firm that helps financial institutions with compliance, said. “If they go above and beyond what they’re expected to do, then the expectation is they’re gong to do it on a regular basis.”

Present Partnership

Several AML observers also said that U.S. banks and the government already have a functioning AML partnership appropriate to the size of the financial services industry, making a formal alliance like Australia’s—with its much smaller banking industry—less necessary.

“The reality is, we have a pretty good public-private partnership between banks and law enforcement,” said David Stewart, director of the financial crimes and compliance unit of Cary, N.C., analytics software firm SAS Institute Inc. Stewart cited the USA PATRIOT Act as one conduit for information-sharing, as well as a “close network of relationships” between financial institutions and the Department of Justice. “The question is whether the current system could be improved with technology to share data in real-time between the public and private sectors,” he said.

Rowe agreed that there’s a dialogue, but said the banking industry has sought a more formal alliance over the years. “Believe it or not, law enforcement says, we don’t have the time,” Rowe said.

However, according to Sharon Cohen Levin, a former top U.S. AML official, the Australian program of “out-and-out collaboration” between the government and financial institutions “would be welcome in the U.S.” Levin, former chief of the money laundering and asset forfeiture unit in the U.S. Attorney’s Office for the Southern District of New York, said that while a U.S. alliance would have to be consistent with U.S. AML rules, “in the end, I think it would lead to better law enforcement outcomes.”

The collaboration gives financial institutions “a better understanding of the criminal conduct and the patterns of suspicious activity, which produces more complete suspicious activity reporting,” Levin, now a partner at Wilmer Cutler Pickering Hale and Dorr LLP, New York, said.

Back-and-Forth Information

U.S. AML efforts are spearheaded in the government by the Financial Crimes Enforcement Network. FinCEN spokesman Stephen Hudak pointed to remarks by Deputy Director Jamal El-Hindi in November that financial intelligence “is most effective when information flows in both directions between the public and private sectors.”

Like Stewart, El-Hindi said the USA PATRIOT Act allows the government and financial institutions to share information. “It’s a successful program,” he said.

 

Marijuana Stocks: How to Invest in Marijuana Today

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April 10, 2017
By John Divine

Investment opportunities exist. But on the whole, the marijuana industry isn’t ready for prime time.

States are legalizing, decriminalizing, or allowing for the medicinal use of marijuana. And for many opportunistic investors, one question arises over and over again: How do you invest in marijuana?

As it happens, there are several ways to go about it – and it’s not so simple as calling up your broker and saying, “I’ll have some marijuana stocks, please.”

By the time it’s feasible to invest in cannabis on that level, the act of calling up a broker may not even be a thing any more.

Still, it’s worth surveying Wall Street for what, if any, upstanding marijuana stocks exist for individual investors to buy today.

The trouble with looking for marijuana stocks to buy. GW Pharmaceuticals (ticker: GWPH) is the closest thing to a legitimate U.S.-based marijuana stock. Though technically speaking, GWPH actually isn’t a marijuana stock in the sense that most people would expect.

GW Pharmaceuticals doesn’t grow or sell pot. The company is instead working on a marijuana-based epilepsy treatment called Epidiolex, which is expected to get a thumbs-up or thumbs-down from the FDA by the end of 2017.

Two of the most legitimate-looking weed stocks other than GWPH are both Canadian companies, where medical marijuana is legal: Canopy Growth Corp. and Aurora Cannabis. The competing medical marijuana suppliers north of the border have both seen their stocks roughly quadruple in price over the past year, and both currently seem to trade at exuberant valuations.

In short, this isn’t the tech sector. The market isn’t teeming with promising marijuana stocks to buy.

“There are virtually no public companies that directly touch the plant,” says Lamine Zarrad, the CEO and founder of Tokken, an app granting banking privileges to cash-intensive industries like cannabis. “The majority of companies that are publicly traded are penny stock companies.”

Penny stocks are notoriously bad investments for most individual investors, and are rife with scams, liquidity issues and transparency problems.

The fact that marijuana remains federally illegal is what relegates many marijuana stocks to these shadier corners of the market.

Companies dealing directly with marijuana not only have to worry about potential enforcement actions, but are also shunned by most banks, who want to steer clear from doing business with companies trafficking in the sale of federally illegal substances to the public.

Still, marijuana is legal (in medicinal or recreational form), in more than half of the states in the U.S. as well as the District of Columbia, and the trend is unmistakably moving toward legalization. Despite the new Trump administration taking a tougher stance on the issue than the Obama administration, industry insiders are optimistic.

“It’s been a little rocky with (Attorney General) Jeff Sessions and (President Donald) Trump, but the industry will stay strong,” says Neil Demers, CEO of Diego Pellicer – Colorado, a Denver-based upscale dispensary.

“We’ve reached a tipping point,” Demers says.

Still, while upbeat cannabis bulls may be eager to get their money in on the ground floor of a huge industry, marijuana stocks, largely speaking, just aren’t ready for prime time yet. “It’s probably wise to let some things settle – probably wise to wait until some of these companies aren’t penny stocks,” Zarrad says.

Until then, there are other ways to invest in this budding industry – outside of Wall Street.

Invest without buying stocks. It’s a good news, bad news situation. On the one hand, there are legitimate ways to invest in the marijuana industry today without buying penny stocks, compromising one’s true investment intent or taking a flier on richly priced, highly speculative stocks that might not even be profitable yet.

On the other hand, if you’re not buying stocks, the options basically boil down to becoming a local investor, small business owner or partner in a marijuana-related local business. That can be an expensive proposition, and certainly isn’t for everyone, but opportunities do exist.

Andrew Ittleman is a founder and partner at Fuerst Ittleman David & Joseph, and concentrates a good portion of his practice on marijuana-related issues on a national level.

“I don’t think there’s a one-size-fits-all approach,” Ittleman says of the do-it-yourself approach to marijuana investing.

“Stick with what you know. If you’re a real estate guy and you want to get into the cannabis space, there are plenty of opportunities for you,” Ittleman says. The principle also applies to experts in the warehousing, product and marketing fields, he says.

Of course, buying part of a local marijuana-related business still has its risks – mainly the glaring risk posed by the plant still being federally illegal. In many cases, raids, fines and charges are still within the realm of possibilities.

“But if that’s within your appetite for risk and you understand what you’re getting into, then by all means: Go for it. Because the growth trajectory that we’re on right now – it’s not always gonna be like that,” Ittleman says.

One day, the era of federal prohibition will end. What comes after that, as far as the marijuana industry is concerned, is the “billion-dollar question,” Ittleman says.

Final risks to consider. While it may not seem like there can be risks bigger than the Feds raiding your business, seizing its assets and looking for scapegoats, there is one more considerable risk involved for those considering locally investing in the marijuana industry: scammers.

“I’ve seen Ponzi schemes, I’ve seen investment fraud, I’ve seen securities fraud, I’ve seen it all,” Ittleman says. “If you wanna buy in because it’s sexy and because you like the growth and because you have the appetite for risk, you can go and buy GW Pharmaceuticals – but otherwise you gotta get out there. Meet the people.”

And try to invest in what you know.

For bold investors thinking about going the local business route, it’s always best to consult a lawyer before laying any hard cash down.

Despite its high growth and the encouraging long-term regulatory trends, when it’s all said and done, facts are still facts. And for the vast majority of investors, the marijuana industry – and even marijuana stocks – just isn’t very investable right now.

Program to Track Laundered Money in Luxury Real Estate Continues

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February 23, 2017
By Carla Vianna

What began as temporary oversight over two of the nation’s hottest luxury real estate markets — Miami and Manhattan — has been extended by the federal government for a second time.

Aimed at tracking laundered money in the nation’s luxury housing market, the Treasury Department last year issued geographic targeting orders, or GTOs, described as a temporary data-gathering tool for specific metro areas, over South Florida and other high-end housing markets.

Spearheaded by the Financial Crimes Enforcement Network, the anti-money laundering initiative required title insurance companies to disclose the names of people behind the limited liability companies, or shell corporations, paying cash for $1 million-plus homes in Miami-Dade, Broward and Palm Beach Counties.

The orders were extended Thursday for an additional 180-day period.

“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. “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 additional reporting requirements went into effect early last
year targeting pricey housing purchases in Miami and Manhattan for 180 days. The feds soon expanded their reach to the Los Angeles, San Francisco, San Diego and San Antonio metro areas while expanding the orders’ lifespan another six months.

The orders were set to expire Thursday.

FinCEN said about 30 percent of the transactions covered by the program involve a beneficial owner or buyer representative that was subject to a previous suspicious activity report. The findings confirm the agency’s concerns about the use of shell companies to buy real estate in “all-cash” transactions.

Andrew Ittleman, a partner with Fuerst Ittleman David & Joseph, said the regulation’s renewal is a way for the new administration to “wrap its arms” around the underlying problem — real estate being used as a vehicle to hide dirty money.

“But at some point this process of serial GTOs is going to have to end,” Ittleman said. “That’s when you will get a better understanding of the new administration’s position on all of this.”

Because wire transfers fall outside of FinCEN’s authority, little effect has been noted on the South Florida real estate industry as most home purchases are funded via wire. Real estate attorney James Marx said the regulation had no impact on homebuying activity. The sole purpose for its renewal was to avoid the negative dialogue, “President Donald Trump favors money laundering,” he added.

When the initiative was launched last year, the Miami lawyer with Marx Rosenthal said the move signified a shift toward more transparency in the banking and real estate industries, but he doesn’t see the Trump administration supporting the measure.

“I don’t think it makes economic sense to have more transparency for real estate transactions because you’re going to discourage people from other countries from investing in the U.S.,” Marx said. International investors have historically eyed the U.S. real estate market as a safe, private place to park their capital, and that’s something Trump will continue to support.

“I’d be very surprised if they made things more difficult for individuals or entities buying real estate in the U.S.,” he said.

 

Feds renew crackdown on dirty money in Miami real estate

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February 23, 2017
By Nicholas Nehamas

After months of “will-they-or-won’t-they” speculation, the U.S. Treasury Department announced Thursday that it will extend its search for dirty money in six high-end real estate markets, including South Florida, for another six months.

The rules, initially imposed early last year as a temporary measure on Miami- Dade County and Manhattan, require shell companies buying expensive homes with cash to report their true owners to the Financial Crimes Enforcement Network (FinCEN), a Treasury agency. Law enforcement officials have said a lack of oversight allows criminals from around the world to launder money through luxury real estate in the United States.

In the weeks following the election of President Donald Trump — a former real estate developer — it was unclear if the new administration would continue the effort, which was set to expire on Thursday.

“This is an administration that says it is both pro-business and pro-law enforcement,” said Lee Stapleton, a South Florida attorney and former federal prosecutor. “This order shows that they’re not incompatible. … It’s not good for real estate or for business if illicit dollars are artificially inflating the market. And law enforcement doesn’t want real estate to be a safe haven for money laundering.”

The so-called geographic targeting order had already been renewed once before when it was also expanded to Broward and Palm Beach counties; the other four boroughs of New York City; Los Angeles County; San Diego County; the greater San Francisco area; and the county that includes San Antonio, Texas. The rules kick into effect at different price points depending on the market. In South Florida, home sales of $1 million or more are covered.

By extending the order rather than announcing a plan to craft permanent regulations that would apply nationwide, the Trump administration showed it has perhaps not made up its mind on whether to continue the crackdown long-term, said Andrew Ittleman, a Miami-based attorney who is an expert on anti-money laundering compliance laws.

“I wouldn’t read too much into the extension,” Ittleman said. “Trump was only inaugurated a month ago. To me, this is a sign the administration could be kicking the can down the road a little bit. … They have plenty of issues on their plate right now.”

The cities chosen for enhanced scrutiny all feature pricey real estate markets and an abundance of foreign buyers, a combination federal law enforcement officials believe make them prime targets for money laundering.

“We don’t come across [money laundering in real estate] once every 10 or 12 cases,” John Tobon, U.S. Homeland Security Investigations Deputy Special Agent in Charge for South Florida, told the Miami Herald in January. “We come across real estate being purchased with illicit funds once every other case.”

Money laundering fight

In a news release, FinCEN said 30 percent of reported transactions across the nation were linked to buyers who had been flagged by banks and other financial institutions for suspicious activity.

The agency has not said how many transactions have been reported or whether any have led to criminal investigations. Officials have described the rules as a temporary data-gathering activity meant to determine if money laundering in real estate deserves permanent national regulations.

“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,” FinCEN acting director Jamal El-Hindi said in a statement. “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.”

Some brokers and developers have worried the rules would affect sales — although a Herald analysis found that doesn’t appear to be the case — and criticized the government’s efforts as unnecessary and poorly designed. But a national trade group for the title industry said it supports the anti-money laundering push.

“Our members have collected this information for more than a year and the good news is those efforts appear to be beneficial to the government’s work identifying money laundering schemes and the illegal purchase of real estate,” Michelle Korsmo, chief executive officer of the American Land Title Association, said in a statement. “We continue to work closely with our members and FinCEN to collect the needed information as efficiently as possible.”

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U.S. Renews Real-Estate Data Targeting Order

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February 23, 2017
By Samuel Rubenfeld

The U.S. Treasury Department extended for another six months a data- collection program to aid a crackdown on money laundering in real estate.

The program, which began in March 2016 and was expanded in August, requires title insurance companies to identify the true owners of limited liability companies that buy luxury real estate in all-cash transactions in some large cities, including New York City, Los Angeles, San Francisco and Miami. It was set to end Thursday; the renewal expires Aug. 22.

Treasury’s Financial Crimes Enforcement Network, or FinCEN, which issued the directives, known as geographic targeting orders, said in a statement that the data collected thus far corroborate the agency’s concerns about the use of shell companies to buy high-end property.

Acting FinCEN director Jamal El-Hindi said in the statement that the geographic-targeting orders are “producing valuable data” that’s assisting law enforcement and are “serving to inform our future efforts to address money laundering in the real-estate sector.”

Stephen Hudak, a FinCEN spokesman, declined to comment on any future plans to address the issue. Risk & Compliance Journal reported last year on the orders representing the first step toward broader anti-money laundering compliance requirements for the real-estate industry, which had

previously fended off such efforts from the federal government after the Sept. 11, 2001, terrorist attacks.

The goal, Treasury says, is to make it more difficult for buyers, particularly foreigners, to launder money through U.S. property purchases. About one- third of the transactions covered by the orders involve a person who is already the subject of a suspicious-activity report, FinCEN said.

Treasury says the orders impose the requirements on title-insurance companies because such insurance is a common feature in the vast majority of real-estate transactions, including those that don’t involve banks, which would perform checks for money-laundering risks when considering whether to fund a mortgage. As such, Treasury says, the title insurance companies “can provide FinCEN with valuable information” about transactions of concern.

Michelle Korsmo, chief executive of the American Land Title Association, a trade group representing the companies covered by the orders, said the efforts of their member for the past year “appear to be beneficial” to the federal government’s work identifying money-laundering schemes in real- estate purchases.

“We continue to work closely with our members and FinCEN to collect the needed information as efficiently as possible,” said Ms. Korsmo.

FinCEN collects and analyzes suspicious-activity reports filed by financial institutions, and Mr. Hudak said banks have also been filing more reports related to potential money laundering involving real estate as a result of the attention generated by the geographic targeting orders.

Mr. Hudak said the orders flagged, among others, beneficial owners suspected of being involved in public corruption in Asia and South America, and a beneficial owner who engaged in $160 million of suspicious financial activity and sought to disguise ownership of related financial accounts. He declined to provide further detail.

At some point, said Andrew Ittleman, a partner at Fuerst Ittleman David & Joseph PL, FinCEN will have to start the process of writing regulations to permanently formalize the process.

“Kicking the can down the road isn’t the way this is supposed to be addressed. It’s not the way federal agencies are supposed to create rules,” he said.

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Federal regulator renews real estate money laundering dragnet in South Florida

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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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States Keep Passing Laws On Marijuana As Anti-Marijuana Leaders Take Over

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February 8, 2017
By Debora Borchardt

The states may be pushing forward with more legalization of marijuana, but Washington, D.C., might be stepping back. The marijuana business community has a mixed outlook regarding how the new administration will address their emerging multimillion-dollar industry. Some say “the genie is out of the bottle and they won’t roll it back,” while others are nervously parsing each political utterance about cannabis.

In Tom Angell’s Marijuana Moment newsletter, he pointed out that during yesterday’s nomination hearing for Jeff Sessions as Attorney General, Elizabeth Warren noted his penchant for “aggressively prosecuting marijuana offenses” before she was silenced. Hawaii Senator Brian Schatz said that he believed Sessions’ views on marijuana were out of the mainstream and suggested that Sessions tell cancer victims that “good people don’t smoke marijuana,” a reference to one of Sessions well-known quotes. Washington Senator Maria Cantwell said Sessions “refused to respect the rights of states” to enact their own marijuana laws.

Separately, President Trump met with law enforcement officials and the topic of asset seizures came up. This is a very sensitive subject for many marijuana businesses. Several dispensaries tell stories of being raided and losing inventory as well as cash that they store in their vaults because they can’t get bank accounts. They are either not charged with a crime or have the charges dropped, but then never get their money or their inventory returned. A Texas sheriff complained that a state senator wanted to ban the practice and Trump threatened, perhaps jokingly, that he wanted to destroy that lawmaker’s career. That’s definitely not what cannabis owners want to hear.

Not only is Sessions going to work against the marijuana industry, but also the next Health and Human Services Secretary Tom Price is decidedly anti-marijuana. He will oversee the Food and Drug Administration, the National Institutes of Health and the Substance Abuse and Mental Health Services. Price has consistently voted against marijuana legislation. It’s hard to imagine these two won’t convince Trump to see things their way. The president already believes that all drugs are the reason behind a lot of crime today.

“There’s been nothing created at the federal level to let any of this [legalization] happen,” said Andrew Ittleman a partner at Fuerst Ittleman who works with marijuana issues. “If they want to change the course of the industry, it is well within their power to do so.” He added that he doesn’t see the scheduling of marijuana moving in a positive direction under Trump.

Meanwhile, states continue to approve and advance various laws surrounding medical marijuana and decriminalization. Georgia wants to expand qualifying conditions for medical marijuana, Wisconsin is voting to expand cannabidiol access this week, Utah approved a medical cannabis research bill and New Hampshire voted to move forward with decriminalization. There are however, signs of push back as well. Maine is looking at delaying retail sales marijuana in the state and Arkansas is trying to amend a voter-approved medical marijuana law.

For now, the industry is moving forward with the assumption that it will be business as usual and that marijuana is a low priority item on Trump’s agenda. However, nothing in this new administration is business as usual.

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Will Trump end crackdown on dirty cash in luxury real estate?

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January 22, 2017
By Nicholas Nehamas

Just a month after President Donald Trump’s inauguration, a federal anti-money laundering program that targets luxury real estate is set to expire.

The dragnet monitors pricey home deals for signs of dirty cash, helping detect criminals who launder money through real estate. Manhattan and Miami-Dade County were the first markets scrutinized by the feds.

Here’s the big question: Will Trump — who made his money as a developer — keep the heat on the real estate industry? And if the administration of a developer-turned-president chooses not to renew or expand the regulations, will it be perceived as a conflict of interest?

Unlike other industries where cash changes hands freely, real estate has few checks on buyers.

Drug dealers and corrupt foreign officials have been busted buying condos and mansions in the United States. While the Obama administration rules were blasted by developers and brokers as faulty, they don’t seem to have hurt business as much as first feared since going into effect in March.

Trump’s decision could affect home prices in South Florida and other top markets. Streams of foreign cash are driving up prices beyond what many locals can afford, even as they’ve created jobs in the construction and real estate sectors. More than 70 percent of foreign buyers in South Florida pay cash, according to the Miami Association of Realtors. (Cash deals are vulnerable to money laundering because they don’t involve banks, which are required to report suspicious activity.)

The new president’s team did not respond to interview requests. And the Financial Crimes Enforcement Network (FinCEN) — the U.S. Treasury Department agency responsible for the rules — said it could not comment on its plans.

“As we are still in the data-gathering phase …. we cannot speculate on any future actions,” said Stephen Hudak, a FinCEN spokesman. The agency has described the regulations — renewed for 180 days at a time — as a pilot program to decide if real estate deserves permanent anti-money laundering rules.

Law enforcement supports the push.

In the United States, it’s possible for a shell company to buy a home without anyone knowing who the real owner is. That allows criminals to stash cash in real estate, officials say.

“We don’t come across [money laundering in real estate] once every 10 or 12 cases,” said John Tobon, U.S. Homeland Security Investigations Deputy Special Agent in Charge for South Florida. “We come across real estate being purchased with illicit funds once every other case. And then the challenge becomes who is the real owner. … When we knock on the door of the individuals involved in the real estate transaction, they say they don’t know.”

The initiative — known as a geographic targeting order (GTO) because it zeroes in on specific metro areas — is set to expire on Feb. 23. Before then, FinCEN could renew the order for another six months. Or it could announce plans to make the measure permanent. Or it could simply allow the rules to lapse, saying it had accomplished its data-gathering mission.

Another GTO targeting electronics exporters in Doral was not renewed after a year.

FinCEN’s director, Jennifer Shasky Calvery, left the agency last year. That means Trump’s nominee for Treasury secretary, former Goldman Sachs executive Steven Mnuchin, if confirmed, will appoint her successor.

Decision time

Trump staked his presidential campaign on business-friendly policies and support for law enforcement.

But in real estate, those pledges could clash like bulldozers playing chicken. via GIPHY

In a video address previewing his first 100 days in office, Trump said he would “formulate a rule which says that for every one new regulation, two old regulations must be eliminated.”

“So important,” he added.
In other speeches, he cast himself as a “law and order” candidate.

“On crime, I am going to support more police in our communities, appoint the best prosecutors and judges in the country, pursue strong enforcement of federal laws, and I am going to break up the gangs, the cartels and criminal syndicates terrorizing our neighborhoods,” he said in an August speech.

Laundering money through real estate is a key way criminal organizations hide their profits.

Lee Stapleton, a South Florida attorney and former federal prosecutor, said even with a change to an anti-regulation administration, she feels a reversal is unlikely.

“It’s difficult to un-ring the bell,” Stapleton said. “Once these regulations have been put in place, it’s more likely that they will be expanded to other cities rather than removed from the cities where they already exist. … If it’s

something that’s been successful in the test cities, it’s possible to see it nationwide.”

So far, there’s been little indication which way FinCEN will go.

Andrew Ittleman, an attorney who focuses on anti-money laundering compliance, said he was sure the rules were here to stay — when it seemed like Democratic nominee Hillary Clinton would be the next commander-in- chief.

“We now have a president who used to be a real estate developer,” Ittleman said. “That’s a big wild card. … He’s going to have a decision to make as to his priorities: Do we want to curb this kind of money laundering? If so, is it worth curbing future real estate development?”

For the Trump administration, any decision on the issue presents a conflict of interest, said Richard Painter, a former chief ethics lawyer for George W. Bush who has urged Trump to divest his family’s business holdings.

“If the regulation gets rescinded, it could appear Treasury is backing off money laundering in real estate,” Painter said. “And why? Because the president is a real estate developer who sells a lot of high-end units? Or because of a legitimate policy goal? No one will know.”

As a developer, Trump signed licensing deals for several luxury condo towers in South Florida. Among the buyers at three Trump-branded properties in Sunny Isles Beach were members of a Russian-American organized crime group, a Venezuelan oilman convicted in a bribery scheme and a Mexican banker accused of robbing investors of their life savings, a Miami

Herald investigation found. (An attorney for Trump said his organization was not involved in sales.)

Crackdown begins

In January 2016, FinCEN announced it would begin monitoring secretive luxury home transactions in two markets: Miami-Dade and Manhattan.

The agency chose Miami and Manhattan because in both places many homes are bought with cash and banks report a high number of suspicious transactions. The regulations were later expanded to other markets in New York, Florida, Texas and California.

The rules require title insurance companies to report the true owners of shell companies using cash to buy luxury homes. In Miami-Dade, the regulations kick in for deals of $1 million or more. In Manhattan, the price point starts at $3 million. (Title insurers play a role in almost all real estate transactions.)

Banks operate under similar “know-your-customer” rules.

At the time, real estate players balked, worried about a negative effect on business and the industry’s reputation. The Miami Realtor’s Association hosted a seminar entitled “How to Avoid the Treasury Trap.”

So far, however, the effect on sales has been muted, according to Realtors, analysts and industry data.

While it’s true that luxe sales fell dramatically in South Florida in 2016, most of the decline is attributable to a strong dollar, economic instability in Latin America and overbuilding, said Ron Shuffield, president and CEO of EWM Realty International, one of South Florida’s top brokerages.

“When you started getting to a point where it was 100 percent more expensive to buy here than it was the year before, many of the big Latin American buyer markets shut down,” Shuffield said.

The number of sales began to fall before the GTO went into effect. Since then, the free-fall has continued. In Miami, sales of more than $1 million fell 19 percent year-over-year since the order began in March 2016, according to EWM and Trendgraphix. In New York City, sales were down 6 percent, appraisal firm Miller Samuel found.

In July, FinCEN announced it would expand its order. Now under heightened scrutiny: all five boroughs of New York City; Miami-Dade, Broward and Palm Beach counties; the San Francisco bay area, Los Angeles and San Diego; and the county that includes San Antonio, Texas.

Sales in affected markets in California and Texas markets have boomed, suggesting the GTO is playing only a small role in the South Florida and New York slowdowns.

FinCEN hasn’t said how many transactions have been reported. In a conference call with reporters last year, a Treasury official revealed that a quarter of the transactions reported to the agency in Miami-Dade and Manhattan involved people whose banks had also filed suspicious activity reports about their business dealings.

Not so bad for business

The narrowly tailored order hasn’t been as burdensome as the industry feared.

“I don’t think our title companies have had to deal with more than a couple of these transactions,” Shuffield said. “We thought there might be a stigma that would attach to New York and Miami. But I think people have forgotten about it.”

One reason for that: Cash, in FinCEN’s definition includes hard currency, personal checks, business checks, traveler’s checks and money orders. But it does not include bank wire transfers, the most common way buyers pay for pricey homes.

FinCEN’s authority does not allow it to track wire transfers. But it has asked Congress for that power, with the support of law enforcement.

“We’re one of the only countries in the world that doesn’t keep track of incoming and outgoing wires,” said Tobon. “The banks do it, but they do it for their business purposes. I have to get a subpoena, and the info is very limited.

If I were working for the [Royal Canadian Mounted Police], I would have that in real time.”

If permanent regulations allow monitoring of wire transfers, the order could have a more dramatic affect, brokers agree.

Some buyers have tried to avoid the disclosure requirements by using wire transfers instead of cash, according to Leonard Prescott, Florida counsel for First American Title Insurance, who spoke at a Greater Miami Chamber of Commerce event last year.

While the effects of the crackdown are difficult to measure in economic terms, they have helped educate the business community and the public, said Jonathan Miller, a New York-based housing analyst.

“Before this ruling, I don’t think most were aware of the scale of kleptocracy around the world, so it helped shed some light on it,” he said. “With the new administration and their outward goal to reign in regulations, I have to wonder if it will be remain in place indefinitely.”

Richard Steinberg, a luxury broker in New York and Palm Beach, said he doesn’t think the order was well conceived. But he has changed the way he does business since it was issued: Even though the rules apply to title insurers, not brokers, he now insists on knowing the names of all his buyers, not just their lawyers or accountants. So far, he said, clients have agreed.

“Why look for problems?” he asked. “I don’t want anything to come back and haunt me.”

 

Andrew S. Ittleman, a founder and partner of Fuerst Ittleman David & Joseph in Miami, concentrates his practice in white-collar criminal defense, anti-money laundering compliance, and food and drug law. He litigates extensively against the U.S. government in civil and criminal matters. He may be reached at aittleman@fidjlaw.com.

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Paul Vigna & Michael Casey, “The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order,” 258-59 (2015)

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