One Step in Attacking Lack of Transparency in U.S. (1/13/16)

A complaint sometimes made on the comments to blog entries on this blog is that the U.S. attacks tax havens (particularly those that permit U.S. persons to hide money in financial institutions or through trusts, corporations or other entities) while the U.S. permits lack of transparency for foreign persons bringing money into the U.S.  See e.g., Financial Secrecy in the U.S. - A NonTax Example Illustrating the Law Enforcement Problem (11/7/15), here.  The New York Times today has this article:  Louise Story, U.S. Will Track Secret Buyers of Luxury Real Estate (NYT 1/13/16), here.

Of course, there is transparency in U.S. financial institutions because of know your customer rules.  But other forms of wealth, particularly U.S. real estate can be effective ways to hide wealth, ill-gotten or otherwise, from foreign tax administrators and collectors, as well as foreign and U.S. law enforcement with respect to money laundering and other illegal activity.  This is an attempt to address that issue, in part.

Key excerpts from todays NYT article:

Concerned about illicit money flowing into luxury real estate, the Treasury Department said Wednesday that 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 real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities. 

It is the first time the federal government has required real estate companies to disclose names behind all-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 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, often known as L.L.C.s; partnerships; and other entities.

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 United States. 

The use of shell companies in real estate is legal, and L.L.C.s have a range of uses unrelated to secrecy. But a top Treasury official, Jennifer Shasky Calvery, said her agency had seen instances in which multimillion-dollar homes were being used as safe deposit boxes for ill-gotten gains, in transactions made more opaque by the use of anonymous shell companies. 

“We are concerned about the possibility that dirty money is being put into luxury real estate,” said Ms. Calvery, the director of the Financial Crimes Enforcement Network, the Treasury unit running the initiative. “We think some of the bigger risk is around the least transparent transactions.” 

The department will focus on sales that are both paid for all in cash and conducted using shell companies. The government is requiring title insurance companies, which are involved in virtually all sales, to discover the identities of buyers and submit the information to the Treasury. The government will put the information into a database for law enforcement. 

The Treasury’s program will affect billions of dollars in real estate transactions. In Manhattan, the initiative requires buyers in sales of more than $3 million to be reported; in Miami-Dade County, it requires reporting on sales of more than $1 million. In Manhattan, 1,045 residential sales cost more than $3 million in the second half of 2015, worth some $6.5 billion in aggregate, according to PropertyShark, a real estate data company. 

In addition to starting in only two markets, the requirement runs from March through August. If Treasury officials find that many sales involved suspicious money, Ms. Calvery said, they would develop permanent reporting requirements across the country.