US targets opaque all-cash property purchases

The United States government is to crack down on the use of so-called title insurance companies for all-cash purchases of high-end property in certain parts of the country.

Under what are being called “Geographic Targeting Orders” (GTOs), individuals buying expensive properties outright, without the help of bank financing, and using “shell companies” to conceal their identities, will now be forced to identify themselves.

The new regulations will only apply to properties in Manhattan, New York and Miami-Dade County, Florida, according to the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury Department.

In a statement, FinCEN said it was implementing the rules in order to crack down on tax dodging and, in particular, money laundering by offshore criminals.

“We are seeking to understand the risk that corrupt foreign officials, or trans-national criminals, may be using premium US real estate to secretly invest millions in dirty money,” said FinCEN Director Jennifer Shasky Calvery.

“Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector.”

FinCEN stressed that title insurance companies receiving a GTO should not consider themselves under suspicion, adding that it “appreciates the assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors”.

The FinCEN campaign involving GTOs will begin on 1 March, and expire on 27 August, FinCEN said. It didn’t immediately say why the campaign was due to end at that time, and whether it would resume at a later date.

According to a report in the New York Times, the US government  “can demand these geographically targeted disclosures for up to six months, but can then seek an extension”.

Soaring sales of luxury homes cited

In its report, The New York Times noted that prices for homes at the upper end of the market in both Manhattan and Miami have soared over the past year, with the median Manhattan home selling for $1.15m at the end of 2015, up 17.3% from a year earlier.

What’s more, The Times said, National Association of Realtors data shows that of the $100bn spent on real estate transactions in Florida last year, “nearly a quarter came from international buyers, and 74% of those sales were all-cash”.

Still, most of those purchases would not qualify for the additional government disclosure because they were priced under the $3m mark, the New York Times noted.

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