Global High Net Worth Investors: Money Laundering & Luxury Real Estate

In July 2016 the US Treasury Dept. expanded its pursuit of international criminals who launder money (hide the illicit funds) through all cash US luxury real estate purchases.

According to the NY Times, nearly 1/2 of luxury real estate nationwide is purchased using shell companies. Effective August 2016 the US Treasury Department has ordered title companies (escrow companies) to report the identities of all cash buyers who purchase expensive US residential real estate (homes and condos). According to the US Treasury Dept. foreign and other purchasers use offshore and onshore “shell companies” (that conceal the real owner identities) to purchase US real estate in all cash transactions which becomes a “US safe haven for their money”.

Effective August 2016, the Treasury Program requires the reporting for all cash purchases at the following sales prices (in the following jurisdictions):

1. New York City (Manhattan: $3m, Other NYC boroughs $1.5m)
2. Florida: Miami-Dade County, Broward and Palm Beach Counties ($1m)
3. California: Los Angeles, San Francisco Bay Area and San Diego ($2m)
4. Texas: San Antonio ($500k)

Additionally, other major US cities may soon be included once the US Treasury Dept., according to FINCEN (Financial Crimes Enforcement Network) Acting Director, Jamal El-Hindi: “learns more about the money-laundering risks in the national real estate market”.

In the United Kingdom recent legislation, The Criminal Finances Bill, is designed to crackdown on billions of dollars laundered by international criminals in the UK real estate market. In the UK it is estimated that up to $173B per year is laundered through UK real estate. Transparency International claims that up to 2000 properties in Central London alone require explanation while UK Home Secretary Amber Rudd estimates an average of 10 “unexplained wealth” transfers per month.

The Bill contains two critical pieces:

1. Authorities may impose “Unexplained Wealth Orders” on owners who buy multi-million pound properties, forcing them to prove the source of the funds or have the assets seized;

2. The UK government may claim property and assets (by seizure) of those guilty of human rights abuses anywhere in the world and revoke their UK Visa.

London in particular is being highlighted as being the “money laundering capital of the world”. Journalist Luke Harding who has investigated global money laundering in a recent expose, The Laundromat is the center of “mega fraud” in which a whole tier of lawyers, agents, real estate brokers have gotten rich by “basically servicing kleptocratic cash”. Harding has analogized the English as being “posh English butlers for kleptocrats” which he termed “depressing and shameful”.

Of particular concern is the role played by British territories in money laundering. Nearly one in ten properties owned in the City of Westminster is owned by an offshore company based in UK territories like British Virgin Islands, Jersey or Guernsey. The Criminal Finances Bill did not include a third provision which would have created a public register of ownership.

Labour MP Dame Margaret Hodge stated: “We are winning the argument but it’s an incredible struggle every time…in the UK post Brexit there is a reluctance to offend anybody. Even the BVI
In case we can get some trade out of them…its nonsense. We should not be defending corruption, money laundering, tax evasion and avoidance and criminal activity in the name of trade.”

In the Panama Papers, of which I have written two books: 1. The IRS/Panama Papers: US Taxpayers with Offshore Entities and 2. The IRS/Panama Paper: Tax Evasion and Money Laundering, it was revealed that certain US states are now replacing offshore tax havens to create shell companies for anonymous owners to use to purchase US assets including: Nevada, Delaware, South Dakota and Wyoming.

It remains to be seen if the US Treasury Dept will expand their recent disclosure requirements to other than NY, FLA, CA and Texas but if the problem is considered a nationwide risk for America and American states are being used by criminals to launder money thru shell companies to buy US luxury real estate it is only a question of time before US legislators and related governmental bodies follow in the footsteps of the United Kingdom and enact a US version of the UK Criminal Finance Bill which would allow the US or State governments to seize US real estate purchased with illicit funds.

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