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U.S. Extends Crackdown on Money Laundering in Luxury Real Estate

The regulations apply to all-cash buyers using shell companies in places like New York City, Miami and Los Angeles

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Roughly one-third of transactions reported since the program began early in 2016 revealed an owner or buyer who is also the subject of a suspicious activity report.

Richard Levine / Getty Images
Roughly one-third of transactions reported since the program began early in 2016 revealed an owner or buyer who is also the subject of a suspicious activity report.
Richard Levine / Getty Images

The federal government will extend an Obama-era program meant to catch illicit money pouring into luxury real estate in the U.S., the Treasury Department announced on Thursday.

The temporary regulations apply to 14 municipalities, including New York City, Los Angeles, Miami-Dade and San Francisco—where all-cash buyers of multimillion-dollar homes commonly obfuscate their identities behind limited liability companies, also known as "shell companies." The year-old pilot program requires title companies, which are involved in virtually all residential transactions, to report the personal identities of the people behind these all-cash purchases—a mandate that has successfully rooted out potential money laundering, officials said.

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The government announced the extension the day the program was set to expire. It will continue for another 180 days, ending on Aug. 22.

Roughly one-third of transactions reported since the program began early in 2016 revealed an owner or buyer who is also the subject of a suspicious activity report, the Treasury Department’s Financial Crimes Enforcement Network said on Thursday. The statistic backs up the government’s concerns about shell companies that pay all-cash for luxury properties, the department said.

"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 Jamal El-Hindi, FinCEN’s acting director. "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 requirements for reporting differ based on the property market. For example, in Manhattan the program requires title insurance companies to report the personal identities of all-cash buyers for homes sold for at least $3 million. In Miami-Dade County, the threshold is $1 million; and in Los Angeles and San Francisco, the threshold is $2 million—reflecting different market conditions throughout the country. In Bexar County, Texas, which includes San Antonio, the threshold is only $500,000.

The program started a little more than a year ago in Manhattan and Miami and was later expanded to the rest of New York City; five counties in California; two Florida counties north of Miami; and Bexar in Texas.

Title insurance companies have borne the cost of the program, but say it’s worth the extra effort to protect the industry from illegal activity, Steve Gottheim, senior counsel at the American Land Title Association, an industry group representing more than 6,000 title insurance agents and underwriters, told Mansion Global on Wednesday.

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"What many members are really grateful for is that it seems to be worth it. What we’re hearing from the Treasury is that it has been very helpful and that there has been a connection to money launderers," Mr. Gottheim said.

"They’re not seeing lost business. They’re not seeing people shy away from willingly giving this information," Mr. Gottheim added.

The process has become streamlined in Miami and Manhattan, where the program has been in place for longer, and operates best when real estate agents and lawyers inform buyers about the disclosure, he said.

"In terms of helping to protect our industry," Mr. Gottheim said, "this has been very fruitful."