Regulators expand real estate money laundering dragnet in South Florida

Nina Lincoff, South Florida Business Journal, July 27, 2016

It’s about to get even more difficult for mysterious shell companies to drop millions of dollars of cash on luxury condos and homes.

Regulators are expanding a real estate money laundering dragnet launched in Miami-Dade County and Manhattan to six major metropolitan areas, including Broward and Palm Beach counties.

The Financial Crimes Enforcement Network announced Wednesday that it would expand a geographic targeting order it enacted in March for “all cash” high-end residential real estate transactions in Miami-Dade and Manhattan to root out people potentially trying to hide assets.

The last order required that title insurance companies identify the people behind shell companies in $1 million-plus residential real estate deals conducted in currency or cashier’s checks. The six-month order was announced in January and runs from March 1 through Aug. 27. This new order begins Aug. 28 and ends Feb. 23, 2017. But the order now extends to business and personal checks, in addition to currency and cashier’s checks.

“We feel it is the right step because we feel like we’re on the right track,” said FinCEN officials on a call with media on Wednesday. FinCEN officials revealed that the data collected from the first GTO has been very useful in helping to uncover potential players using real estate to hide or launder money.

Cash sales are huge in Miami-Dade and accounted for 54.9 percent of all existing home sales in November and that includes 67.5 percent of all condo sales, according to the Miami Association of Realtors. These cash buyers are often foreigners, the Business Journal previously reported.

“The information we have obtained from our initial GTOs suggests that we are on the right track,” said FinCEN Acting Director Jamal El-Hindi. “By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”

Since the order began, regulators have collected data on those buying real estate in Manhattan and Miami-Dade and have found that banks and financial institutions are filing more suspicious activity reports — or red flag reports. Banks file SARs when a customer does something that is outside the normal course of business and seems potentially suspicious. FinCEN officials said banks were more on-alert after the announcement of the last GTO.

The information FinCEN has gathered since March 1 has supported the regulator’s worries regarding all-cash deals in real estate. The intention with the expanded order is to get even greater insight into the world of luxury real estate transactions.

FinCEN officials also noted that some individuals changed their normal behavior during the GTO, which is not the most effective tactic to avoid regulatory scrutiny.

“It has the effect of a D.U.I. checkpoint on a highway. If people start turning around before the D.U.I. checkpoint, then that’s interesting,” a FinCEN official said.

The new order expands the coverage area to all boroughs of New York City, all of South Florida, Los Angeles County, three counties in the San Francisco area (San Francisco, San Mateo and Santa Clara), San Diego County and Bexar County, including San Antonio, Texas.

The reporting threshold differs runs from $500,000 to $3 million depending on the area, and it requires title companies to identify the natural owner behind a shell company. In South Florida, the threshold is $1 million.

“It’s probably the least surprising news I’ve heard in a while,” said Andrew Ittleman, a named partner with Miami-based Fuerst Ittleman David & Joseph.

FinCEN has been very public about its real estate GTOs, essentially sounding an alarm that anyone involved in potentially suspicious deals should be wary.

“Real estate going forward is going to be an industry that the players beyond just the title insurance companies … are going to need to learn to comply with anti-money laundering rules,” Ittleman said. “I think this becomes the industry standard in the future.”

While GTOs are temporary, its possible that these requirements will be turned into regulation. The orders don’t currently apply to wire transactions, but FinCEN officials support the expansion of GTO regulation to include wires.