The hunt for dirty money in Miami real estate is working — and will continue, feds sayJune 15, 2018
Since 2016, the U.S. Treasury Department has mandated that secretive shell companies buying luxury homes with cash in certain areas disclose their true owners to the government.
The anti-money-laundering initiative began in Manhattan and Miami-Dade County — to the protests of South Florida politicians — and has gradually been expanded to other areas in Florida, New York, California, Texas and Hawaii. Drug dealers, corrupt officials, money launderers and other criminals often buy expensive real estate to legitimize dirty cash. They use shell companies — which don’t have to disclose their owners — in order to keep their identities hidden, frustrating law enforcement agents and sometimes stopping investigations dead in their tracks.
Anti-corruption advocates have called for the disclosure rules to be made permanent. The flood of foreign money — most of it clean — pouring into markets like South Florida is partially blamed for rising home prices.
The temporary orders, issued by a Treasury agency called the U.S. Financial Crimes Enforcement Network (FinCEN), are known as geographic targeting orders, or GTOs.
“The GTOs issued to date have provided FinCEN and law enforcement important information about money-laundering vulnerabilities in the real estate sector,” Stephen Hudak, a FinCEN spokesman, wrote in an email Wednesday. “GTOs are a valuable tool and FinCEN is extending the current GTOs to continue studying this vulnerability.”
This marks the third time the GTO has been extended. But unlike previous announcements, FinCEN this week issued no news release or other information publicizing the decision. The rules have been met in the past with skepticism from the powerful real estate industry. President Donald Trump is a former real estate developer and still holds a stake in his family company, the Trump Organization. The Trump administration recently appointed Kenneth Blanco, a former South Florida federal prosecutor and longtime Department of Justice lawyer, to lead FinCEN.
Last year, FinCEN reported that 30 percent of home deals reported under the GTOs were linked to people who had been the subject of “suspicious activity reports” filed by banks.
“Shouldn’t that be enough to say, ‘We’re on to something,’ … and that this is something that should be made permanent and nationwide?” said Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition, which advocates for greater transparency. “I think the answer to that is yes.”
But the initial GTO order was limited in scope because by law the Treasury Department was not allowed to monitor wire transfers. Wire transfers are the financial mechanism used by most wealthy buyers to buy homes. That created a huge loophole. A subsequent act of Congress gave Treasury the power to monitor those transactions, meaning the number of home purchases captured in the government’s net greatly increased.
FinCEN has not released data showing how many people using wire transfers to buy homes were linked to suspicious activity.
Offshore corporations: The secret shell game
Offshore corporations have one main purpose – to create anonymity. Recently leaked documents reveal that some of these shell companies, cloaked in secrecy, provide cover for dictators, politicians and tax evaders.
It wasn’t immediately clear how long the order, which expired Tuesday, is being extended. Typically, GTOs last for six months. The latest order applies to the areas that have already been under government scrutiny: Miami-Dade, Broward and Palm Beach counties; the New York City boroughs of Manhattan, Brooklyn, Queens, Staten Island and the Bronx; San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara counties in California; and the areas that include Honolulu, Hawaii and San Antonio, Texas.
In South Florida, the rules kick in for shell companies buying homes priced at $1 million or more.
The markets targeted by the feds have three things in common: expensive homes, lots of all-cash deals and plenty of foreign buyers looking to park their money in the United States. They are also generally markets where financial institutions file a high number of suspicious activity reports.
Miami-Dade’s condo market has slumped over the past year because of over-building and a strong dollar shutting out foreign buyers. But it’s recently started bouncing back. In February, the number of sales for condos priced above $1 million rose 31 percent year over year, according to the Miami Association of Realtors. In January, the number of sales jumped 58 percent.