Secret Buyers May Soon Be Under Investigation

Secret Buyers May Soon Be Under InvestigationWhen it comes to purchasing luxury real estate, there can be any number of reasons for why a buyer might want to keep their identity a secret. Certainly in a city like Los Angeles, with prominent celebrities wishing to maintain their privacy and enjoy their time at home, it makes sense to not announce to the world address of a new Bel Air or Santa Monica home.

But then there are anonymous purchases of real estate made through what are called “shell companies,” which are essentially just corporations that exist in name only, with no actual operations or assets. These shell companies have been known to purchase real estate using cash. And the American government is now concerned that this specific kind of anonymous, shell corporation and cash real estate purchase may be used for criminal money laundering purposes.

Up until now, there has been no legal requirement for a real estate agent or insurance company dealing in real estate to actually know the true identities of the people being dealt with. The Financial Crimes Enforcement Network department of the American government is now going to be conducting a “trial run” of a new initiative to investigate specific types of real estate purchases in America.

For this initial test, the Manhattan borough of New York city, in New York state, and the entire Miami-Dade county in Florida will be the targets of this investigation. In both cases, title insurance companies will now be required to know the identities of real estate purchasers, and submit that information to the US Treasury Department. In both New York and Miami-Dade, this will, once again, be restricted to luxury real estate purchased in cash through shell companies. The amounts, however differ between regions. For Manhattan, any purchase that meets this criteria over US$3 million will be required to submit to the investigation. In Miami-Dade county, the threshold is only US$1 million.

This test run is initially going to be conducted in these two areas from March 2016 through August 2016, at which point the results will be analyzed. If it’s decided that this investigation has yielded too many possible criminal ventures in money laundering, the investigation may then enlarge in scope, become permanent and move to many other cities.

Obviously for a city like Los Angeles, which has a reputation for opulent mansions in some areas, the situation is cause for concern. It’s one thing to have a beloved film celebrity buying or building the home of their dreams. It’s quite another thing for a home to simply be a safe haven for illicit funds. Los Angeles presents a complex situation since, like Manhattan, there’s a disproportionately high ratio of wealthy individuals and high value luxury real estate. An investigation conducted by the New York times revealed that over 50% of the homes purchased in America over US$5 million in worth were purchased by anonymous buyers in shell companies. However, for Manhattan and Los Angeles, that percentage was actually higher. It will be interesting to see how the results from this initial March-August investigation play out, and what consequences this will have for the Los Angeles real estate scene.

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