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Too little, too late? Feds aim to ID buyers of real estate hiding behind shell companies

Got to hand it to the feds. You just can't get anything by them.

Pause for laughter.

A new rule took effect this month aimed at ending the secrecy of people who buy real estate via anonymous shell companies. Finally, it seems to have dawned on U.S. Treasury Department officials that this type of property transaction — in which the buyer is listed merely as a "Fill in the Blank LLC" — might be an effective way to invest ill-gotten gains and launder money without having to identify the purchasers.

"We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money." That's what Jennifer Shasky Calvery, the Treasury's director of the financial crimes enforcement network (known as FinCEN) said when announcing the new rule.

In the spotty world of antimoney-laundering initiatives, this effort again smacks of too little, too late.

First off, the rule is temporary and only applies geographically to certain high-end real estate deals done only in Manhattan and Miami. Buyers in Tampa Bay can continue to do what they want. For now.

Under the rule, title insurance companies for the next six months must file information with FinCEN on the owners of a shell company making an all-cash purchase of real estate. The targeted transactions involve property of more than $1 million in Miami and more than $3 million in Manhattan.

The loopholes are glaring. Real estate buyers seeking privacy can easily avoid prying federal eyes by structuring their property purchase to avoid FinCEN's tracking criteria — for instance, by taking on a small mortgage instead of paying all cash. Or they can simply buy property somewhere other than Manhattan or Miami.

Like here, where property acquisitions in the name of no-name shell companies have long been common.

The FinCEN order does not permit the feds to collect data on wire transfers. Yet transfers are a common method of moving money used in large-dollar real estate deals. The rule also applies only where at least some of the proceeds are paid in currency or bank checks, traveler's checks or money orders.

To be fair, this limited federal effort may yet blossom into a more comprehensive crackdown on shell company real estate deals.

"This is only the start," FinCEN's Calvery insisted at a recent Miami antimoney-laundering conference of the Florida International Bankers Association. Under the Patriot Act, the Treasury can impose antimoney-laundering rules on property transactions. So far, lobbying by the powerful real estate industry has limited tougher sanctions out of concern that revealing the names of luxury property owners will have a chilling effect on real estate markets.

Buying homes or commercial buildings via a shell company does not automatically mean dirty money is involved. Shell company "LLCs," limited liability corporations, are increasingly popular with wealthy buyers, especially international buyers eager to keep secret from their own governments or even potential kidnappers any U.S. real estate investments. Shell company deals also can be used to limit legal responsibility and manage or even hide tax exposure.

Shell companies also happen to be in vogue, appealing to those well-off property buyers who simply want to keep their names out of the public spotlight.

The problem, as FinCEN's new rule suggests, is that the rapid rise of anonymous shell corporations makes it hard to know if buyers are simply shy or engaging in criminal acts to hide dirty money.

The Miami Herald reports that real estate buyers in Miami-Dade paid cash for more than 1,150 homes priced at $1 million or more last year, according to EWM Realty International. That means cash deals accounted for 60 percent of home sales valued at more than $1 million.

A recent New York Times investigation revealed the high frequency of using shell companies in luxury real estate deals. In Manhattan, 39 percent of condos purchased since 2008 for more than $5 million involved shell companies hiding the identity of the buyers, the newspaper found. By 2014, the share of hidden buyers of luxury properties had soared to 54 percent.

For all the concerns of law enforcement officials that shell companies can hide illicit gains, the New York Times reported last year, regulatory efforts to require more openness from these companies have failed.

"We like the money," Raymond Baker, the president of Global Financial Integrity, a Washington nonprofit that tracks the illicit flow of money, told the New York Times. "It's that simple. We like the money that comes into our accounts, and we are not nearly as judgmental about it as we should be."

In many of Manhattan's premier condo towers, a majority of the properties are owned by shell companies. For example, the New York Times found that 57 percent of the units in Trump International are owned by nameless shell companies.

Similar percentages of real estate deals transacted by shell companies are also typical in Los Angeles and San Francisco.

In January, the Miami Herald reported that a Key Biscayne mansion had just sold for a whopping $47 million. The buyer? A Delaware-based shell company named Boca Breeze. The actual owner is unknown.

Given today's security-conscious climate and the global flow of vast sums of money from who knows where, maybe it's time for such secrecy to end.

Contact Robert Trigaux at rtrigaux@tampabay.com. Follow @venturetampabay.

Too little, too late? Feds aim to ID buyers of real estate hiding behind shell companies 03/11/16 [Last modified: Friday, March 11, 2016 12:44pm]
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