IRS and FinCEN Offer Relief to Victims of Hurricane Irma

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This month, Hurricane Irma ravaged parts of the United States Virgin Islands, Puerto Rico, and the State of Florida leaving in its wake a path of destruction that will take residents months if not years to recover from. In response, as part of the larger coordinated effort by the federal government to provide disaster relief, the IRS and FinCEN have announced tax and reporting relief for residents and businesses in the areas affected.

With regard to the IRS, the affected areas include the Islands of St. Thomas, St. John, and St. Croix, multiple municipalities in Puerto Rico, and 37 counties in Florida including Broward, Miami-Dade, Monroe, and Palm Beach. A complete list of affected areas can be found in the IRS’s announcements of relief here, here, and here.  The IRS announced that filing and payment deadlines which commenced on September 4 in Florida and September 5 in Puerto Rico and the USVI have been extended through January 31, 2018. Such relief encompasses: 1) those taxpayers who filed valid extensions to file their 2016 returns that was due to run out on October 16, 2017; 2) quarterly estimated income tax payments originally due on September 15, 2017 and January 16, 2018; and 3) quarterly payroll and excise tax returns normally due on October 31, 2017. Additionally, the notices provide that penalties on payroll and excise tax deposits due on or after September 4 (Florida) or 5 (Puerto Rico and USVI) will be abated for fifteen (15) days so long as the deposits are made by September 19 (Florida) or September 20 (Puerto Rico and USVI).

The IRS announced that it automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area and that if a taxpayer receives a late filing or late payment penalty notice from the IRS and were entitled to relief, the taxpayer should call the number on the notice to have the penalty abated. Taxpayers should note that with regard to 2016 taxes, the relief is limited to an extension of existing extensions to file returns, not extensions to pay; therefore the due date associated with extensions for payments for 2016 tax returns is still keyed to the April 18, 2017 due date.

With regard to FinCEN, on September 12, 2017, FinCEN announced that deadline for victims in affected areas to file their FBARs for the 2016 calendar year has been extended until January 31, 2018. Generally, United States persons (which includes business entities and trusts created or formed in or under the laws of the United States), and non-U.S. persons located in and doing business within the United States, must file an annual Report of Foreign Bank and Financial Accounts (“FBAR”) disclosing the existence of all foreign financial accounts in which they hold a financial interest, or on which they hold signatory authority, if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. Without the extension, victims who are required to file an FBAR for the calendar year 2016 would have been required to do by October 15, 2017. It should be noted that at the time of its release, the scope of affected areas was slightly smaller for FBAR filing relief for Puerto Rico and Florida. However, victims in Broward, Miami-Dade, Monroe, and Palm Beach are considered affected and entitled to FBAR extension relief. A copy of FinCEN’s announcement can be read here.

Although on September 19, 2017, the IRS expanded the scope of its relief to include St. Croix and additional municipalities in Puerto Rico, as of the date of this report neither the IRS nor FinCEN have announced whether additional relief will be provided for Puerto Rico and the USVI in the wake of Hurricane Maria.

The attorneys at Fuerst Ittleman David & Joseph have extensive experience in the areas of tax regulation compliance and tax litigation. They will continue to monitor any future changes relating to tax and FBAR filing deadlines. If you have any questions, an attorney can be reached by emailing us at contact@fidjlaw.com or by calling 305.350.5690.

Feds Widen Hunt for Dirty Money in Miami Real Estate

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August 23, 2017
By Nicholas Nehamas and Rene Rodriguez

Wake up and smell the dirty money.

That’s the message federal regulators are sending to the real estate industry in Miami and other high priced housing markets.

On Tuesday, the U.S. Treasury Department announced it would extend and expand a temporary initiative designed to uncover criminals laundering money through real estate. The decree targets secretive shell companies — corporations that don’t have to reveal their true owners — buying luxury homes. The feds have already renewed the rules twice since first issuing them in March 2016.

But this time, there’s a big difference — and it’s putting Miami’s struggling condo market under even more scrutiny.

The rules, previously so limited in scope that they applied only to a few hundred transactions, will now cover every big ticket cash transaction by shell companies in seven major markets. They are the South Florida counties of Miami Dade, Broward and Palm Beach; all five boroughs of New York City; San Antonio, Texas; Honolulu (included in the order for the first time); and the metropolitan areas around San Francisco, Los Angeles and San Diego.

“This is going to gather much more information,” said Andrew Ittleman, a South Florida attorney who specializes in anti money laundering laws.

There’s been speculation about whether the administration of President Donald Trump, a former real estate developer, would double down on an initiative pushed by Obama era officials. But the new policy shows Trump’s Treasury digging even deeper into the murky world of luxury real estate.

The end result: It’s going to get a lot harder for everyone from drug dealers to Latin American politicians to foreign royalty to shield their purchases of condos and mansions in the United States from law enforcement.

The federal decree comes at a bad time for Miami real estate. Overbuilding and a slump in wealthy foreign buyers are hurting sales. the average sales price for luxury condo units on Miami Beach fell 21 percent year over year in the second quarter of 2017, according to a report from brokerage Douglas Elliman, . Two thirds of those sales were cash.

The rules kick in at different price points depending on the market. In South Florida, they apply to shell companies buying homes for $1 million or more with cash.

“This will help a market that has long neglected the amount of criminal activity taking place in the condo sector,” said Jack McCabe, a South Florida real estate analyst.

But Peter Zalewski, founder of the real estate advisory company Cranespotters, thinks the government is moving too slowly — and not going far enough.

“If you’re closing a $10 million sale and you stand to make $1 million on the deal, that’s a pretty big carrot,” Zalewski said. “And there’s no fear of a government stick, because there isn’t one in place.”

Bark or bite?

Critics dismissed Treasury’s original anti money laundering rules — first deployed in Miami Dade and Manhattan last year — as largely toothless.

That’s because they looked only at less common methods of cash payments such as money orders, personal checks and hard currency. But the latest order now includes wire transfers, which are electronic exchanges of money between banks. In most home sales that don’t involve bank loans, money is sent from buyers to sellers through wire transfers. Regulators were missing out on a huge swath of transactions.

“It exempted most people from disclosure,” said Alan Lips, a partner at Miami accounting firm Gerson Preston. “In today’s world, people wire money.”

Until an act of Congress earlier this summer, the Treasury agency behind the initiative, the Financial Crimes Enforcement Network (FinCEN), did not have the authority to monitor wire transfers.

John Tobon, who leads a team of Department of Homeland Security investigators in South Florida, said the move is a crucial first step in allowing law enforcement to monitor funds moving electronically. After the first order, his agents observed home buyers immediately come up with “countermeasures” to avoid the disclosure requirements, including the use of wire transfers, Tobon said.

“Wire transfers were wide open” for abuse by criminals, “and no one was looking at them,” he said. “Now, we’re going to be able to identify companies and individuals that we had no idea about in the past.”

FinCEN is targeting cash home deals because it says they are most susceptible to money laundering. Cash transactions generally don’t involve heavy bank vetting. When banks give out mortgages, they are required to background their customers; professionals in the real estate industry are exempt from those responsibilities, although that could be changing.

Naughty or nice

As part of FinCEN’s latest push, the agency has told real estate industry professionals they should be on the lookout for suspicious activity from their clients.

“The misuse of shell companies to launder money is a systemic concern for law enforcement and regulatory agencies,” the agency wrote in an advisory to real estate agents, brokers, lawyers and other industry players.

It also encouraged them to report suspicious activity involving clients.

Warning signs of bad behavior include clients willing to blindly overpay or lose money on a deal; the purchase of properties with “no regard” for their condition or location; funding that far exceeds a client’s known wealth; and clients asking for unwarranted secrecy or for records to be altered.

David Weinstein, a former federal prosecutor in South Florida who now works in white collar criminal defense, called the advisory “heavy handed.”

FinCEN is “asking people who are not financial institutions and have no outright obligations to become an arm of the government, to become informants for them,” he said, “They’re sending a not so subtle message: We want you to tell us what’s going on. The implication is that if you don’t do this, we’re going to come after you and start squeezing you and say in our eyes you should have known what was going on. You should have vetted this money.”

Although real estate professionals aren’t required to set up compliance programs, no one is allowed to “willfully” turn a blind eye to money laundering, according to federal law.

Weinstein recommended that realty firms consider implementing basic compliance programs.

Ron Shuffield, CEO of EWM Realty International, says the new requirement means closing agents must confirm the name and address of a beneficial owner with a 25 percent stake in a corporation or limited liability company via a legal form of ID, such as a passport or driver’s license.

“There’s no legitimate buyer who’s going to feel uncomfortable with this,” Shuffield said. “Most of the transactions we do now, it’s already obvious who the beneficials are.”

The degree to which suspect money fuels Miami’s luxe real estate market is debated. But real estate crops up in case after case involving illicit funds. The release of the massive trove of offshore files known as the Panama Papers showed how easily offshore money moves into Miami real estate. The flood of cash has helped raise home prices far beyond what most locals can afford.

In FinCEN’s advisory, the agency highlighted several cases showing the threat posed by money laundering. One example cited was Venezuela’s vice president, Tareck El Aissami, and his associate, Samark López Bello. Both were sanctioned by U.S. authorities for their alleged involvement in narco trafficking. López Bello owns three Brickell condos valued at nearly $7 million.

Tobon, of Homeland Security, said roughly 50 percent of his investigations involve money laundering through real estate.

The new order takes effect on Sept. 22 and expires on March 20, 2018. It could eventually be made permanent and expanded nationwide. The Washington D.C. bureau of the Herald’s parent company, McClatchy, broke the news that the order would be extended Tuesday.

Achilles’ heel

The FinCEN initiative — called a geographic targeting order — was designed to target the Achilles’ heel of American anti money laundering laws: weak transparency rules for limited liability corporations.

In many states, including Florida, it’s possible to set up an anonymous company and use it to buy a pricey mansion or condo. Offshore companies can be used for the same purpose. That’s catnip to criminals who don’t want anyone asking where they got the cash.

FinCEN changed the game by requiring title insurers — which are involved in almost all real estate transactions — to pierce the veil of shell companies and determine who really owns them. The information is then passed on to FinCEN and shared with law enforcement, but not made public.

Because of the limitations of the original rules, only 247 transactions in the target markets were reported to regulators over 12 months. But 30 percent of those sales were linked to people who’d been separately reported for suspicious activity by financial institutions.

In Miami Dade, 16 of 32 reported deals were linked to suspicious buyers.

“They’re going to capture a lot more activity now,” said Jason Chorlins, a risk advisor at Miami accounting firm Kauffman Rossin. “The majority of this activity is done via wire transfer.”

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.

Marijuana Regulatory Compliance Update: Banking and Casino Industries Call For Additional Marijuana-Related Business Guidance From U.S. Treasury

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On July 31, 2017, the American Bankers Association (“ABA”) and the American Gaming Association (“AGA”) called upon the U.S. Department of the Treasury to provide additional guidance to the banking and casino industries when dealing with marijuana-related businesses and individuals and entities associated with such businesses. The AGA’s and ABA’s letters to Treasury Secretary Mnuchin were in response to the Treasury Department’s  Request for Information from the public regarding Treasury Department regulations that can be eliminated, modified, or streamlined as part of the Department’s implementation of Executive Order 13771 which mandates that for every one new regulation issued, at least two prior regulations be identified for elimination.

Although 29 states and the District of Columbia have legalized marijuana in various forms and to various degrees, federal law still lists marijuana as a Schedule I controlled substance under the Controlled Substances Act 21 U.S.C. § 801 et seq. As a result, the possession, use, and distribution of marijuana remain crimes under federal law. In an effort clarify the obligations under the Bank Secrecy Act (“BSA”) of financial institutions seeking to provide services to marijuana-related businesses, on February 14, 2014, the Financial Crimes Enforcement Network (“FinCEN”) issued its 2014 guidance, “BSA Expectations Regarding Marijuana-Related Businesses”. This guidance is more fully explained in our prior posts found  here, here, and here. However, despite this guidance, financial institutions (which as defined in 31 C.F.R. Chapter X include both casinos and banks) still technically face the possibility of criminal penalties for assisting in money laundering should they knowingly accept and process funds from dispensaries. Due to these risks, both the ABA and AGA seek additional guidance.

In its letter to Treasury Secretary Mnuchin, the ABA raised two concerns: 1) a lack of guidance from bank regulators; and 2) insufficient guidance from FinCEN. First, although the Department of Justice and FinCEN have offered guidance to the banking industry on how to engage in business with marijuana-related businesses, federal banking regulators have not. As a result, while banks have guidance on how to track suspicious activity that may be related to illicit money laundering, banks have yet to receive any guidance from banking regulators as to whether banking marijuana-related businesses puts their federal bank charters, and participation in the Federal Reserve and the Federal Deposit Insurance Corporation at risk. Thus, the ABA has urged the Treasury Department to resolve these issues.

Second, the ABA sought additional guidance from FinCEN related to peripheral issues regarding banking and marijuana-related industries. More specifically, the ABA noted that although FinCEN’s 2014 Guidance addresses how to report suspicious activity that is legal under state law, the guidance does not address whether banks have a reporting obligation on account holders who engage in business with marijuana-related businesses, including vendors, suppliers, employees, and landlords of marijuana-related businesses.

Casinos are also treated as financial institutions under federal law, and, as the number of jurisdictions which allow both legalized gambling and legalized marijuana continue to expand, casinos are likewise confronted with the issue of whether to allow known individuals associated with marijuana-related businesses to engage in casino gaming in their establishments. As explained above, because marijuana remains illegal under federal law, financial institutions which accept marijuana-derived funds expose themselves to potential money laundering violations. These risks are nothing new for the casino industry, as casinos have long been a target for potential money launderers as laundering can be as simple as betting both sides of the line in a sporting event or placing the maximum funds allowable into a slot machine, pulling the handle for a few spins, and cashing out. In order to combat such risks, casinos have developed and implemented robustAnti-Money Laundering compliance and training programs

However, the AGA is now seeking additional clarity on how casinos should implement FinCEN’s above-referenced 2014 Guidance. As the AGA explained in its letter, “the guidance appears designed primarily for banks and other financial institutions that have corporate entity customers. Casino patrons, on the other hand, are individuals.” This presents a different money laundering risk for casinos. Casinos are concerned that individuals associated with marijuana-related businesses will use casinos as intermediaries to clean their funds in order to deposit such funds in a bank account. More specifically, casinos fear that that individuals with known associations to marijuana-related businesses will take marijuana-related funds, which banks are refusing to deposit, gamble these funds in casinos, and cash out with verifiable “clean” casino winnings which can then be deposited in bank accounts. Thus, the AGA seeks clarity from the Treasury Department on whether casinos should follow the 2014 Guidance and prepare and file Marijuana Limited SARs for such patrons. Such requests come on the heels of recent actions taken by the Wynn Las Vegas in banning Isaac Dietrich, CEO of Massroots, a social network for the marijuana community, from gambling in its casinos due to his known association with marijuana-related businesses.

Fuerst Ittleman David & Joseph, PL will continue to watch for the latest developments in the regulation of financial services and the marijuana industry. The attorneys at Fuerst Ittleman David & Joseph, PL have extensive experience in the areas of administrative law, anti-money laundering, food & drug law, tax law and litigation, constitutional law, regulatory compliance, white collar criminal defense and litigating against the U.S. Department of Justice. If you are a financial institution or marijuana-related business, or if you seek further information regarding the steps which your business must take to remain compliant, you can reach an attorney by emailing us at contact@fidjlaw.com or by calling us at 305.350.5690.

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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