NEW YORK • Concerned about illicit money flowing into luxury real estate, the Treasury Department of the United States has said it would begin identifying and tracking secret buyers of high-end properties.
The initiative will start in two of the nation's major destinations for global wealth: Manhattan and Miami-Dade County. It will shine a light on the darkest corner of the industry: All-cash purchases made by shell companies that shield purchasers' identities.
It is the first time the federal government has required real estate companies to disclose names behind cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers.
The initiative, announced on Wednesday, is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies (LLCs), partnerships and other entities.
Future investigations, they said, will focus increasingly on professionals who assist in money laundering, including real estate agents, lawyers, bankers and LLC formation agents.
The New York Times examined a decade of ownership at the Time Warner Centre, an iconic condominium complex near Central Park, and found a number of hidden owners who had been the subjects of government investigations.
They included former Russian senators, a former governor from Colombia, a British financier, and a businessman tied to the prime minister of Malaysia, Mr Najib Razak, who is now under investigation.
In Florida, the newspaper uncovered a condominium in Boca Raton tied to Mexico's top housing official, who recently stepped down and is now a leading contender for the governor's office in the southern state of Oaxaca.
NEW YORK TIMES
Officials said the new government efforts were inspired in part by a series last year in The New York Times that examined the rising use of shell companies as foreign buyers increasingly sought safe havens for their money in the US. It found that real estate professionals, especially in the luxury market, often do not know much about buyers.
The use of shell companies in real estate is legal, and LLCs have a range of uses unrelated to secrecy. But a top Treasury official, Ms Jennifer Calvery, said some multimillion-dollar homes were being used as safe deposit boxes for ill-gotten gains, in transactions made more opaque through anonymous shell firms.
In Manhattan, the Treasury initiative requires buyers in sales of more than US$3 million (S$4.3 million) to be reported; in Miami-Dade County, it requires reporting of sales of more than US$1 million.
In Manhattan, 1,045 residential sales were more than US$3 million each in the second half of last year. This was worth some US$6.5 billion in total, according to PropertyShark, a real estate data company.
The government initiative will run from March through August. If Treasury officials find that many sales involve money from suspicious sources, Ms Calvery said, they will develop permanent reporting requirements across the country.
A senior FBI official, Mr Patrick Fallon, said the anonymity possible under existing shell companies has stymied investigations and the Treasury initiative would help trace illicit money.
In its investigation, The Times found that nearly half of homes nationwide worth at least US$5 million were purchased using shell companies. In Manhattan and Los Angeles, the figure was higher.
Ms Calvery said the findings helped convince the Treasury that more scrutiny of high-end buyers was needed.
NEW YORK TIMES