BY

SOFIA SONG ELLIMAN INSIGHTS 7/29/2016 11:49 AM 

 

 

THE NEWS

This week, the Financial Crimes Enforcement Network (FinCEN) expanded Geographic Targeting Orders (GTO) to additional markets around the country in order to find the identities behind LLCs making all cash transactions for high-end real estate deals.

 

 GTO's help unveil corporate structures that can be used for money laundering

GTO's help unveil corporate structures that can be used for money laundering

THE BREAKDOWN

FinCEN—a division of the Treasury Department, launched a pilot program earlier this year in Manhattan and Miami which required title companies to identify the names of buyers behind companies and LLCs in all cash purchases over certain amounts and report it to federal authorities. This was an attempt to stem money laundering and other criminal activities where real estate transactions as used as a front for these enterprises.

The programs in Manhattan and Miami-Dade were so successful in yielding information that FinCEN announced this week that it is expanding the scope of the GTOs to other metropolitan areas. In addition to Manhattan and Miami-Dade counties, the following counties will also temporarily require a GTO for all cash purchases over specific price levels:

 

 

New York

Manhattan: $3M
Brooklyn: $1.5M
Queens: $1.5M
Bronx: $1.5M
Staten Island: $1.5M

 

Florida

Miami-Dade: $1M
Broward: $1M
Palm Beach: $1M

California

San Diego: $2M
Los Angeles: $2M
San Francisco: $2M
San Mateo: $2M
Santa Clara: $2M

Texas

Bexar: 0.5M

 

These new GTOs go into effect on August 28th and will remain for six months.

 

THE INSIGHTS


Authorities targeted these areas due to the prevalence of shell companies making all cash transactions in these markets. These markets are also happen to be attractive to foreign buyers. When the New York and Miami measures were put in place earlier this year, critics said there were too many loopholes to have much impact in fighting crime. But just a few months later, authorities say more than a quarter of all transactions in the pilot program were linked to possible criminal activity.

“The information we have obtained from our initial GTOs suggests that we are on the right track,” said FinCEN Acting Director Jamal El-Hindi. “By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”
 
As the scope of the GTO grows, the percentage of investigations may not jump significantly. Take for example Los Angeles where there were over 3,500 all cash deals over $2 million last year—the level which would require identification of a buyer. In many cases in Los Angeles, celebrity buyers use LLCs to buy homes, making it harder for the public to find their addresses. So, even with this expanded scope, it is likely that the vast majority of these transactions will be perfectly legal. The government says that the expanded GTO program is merely a data-gathering tool that will help guide the long-term approach to the money-laundering issue and other illicit activities where real estate is used as a front.
 
Other than evidence for criminal investigations, it appears that GTOs caused minimal impact on the housing market in the months following implementation in Manhattan and Miami and it’s rare to hear of a legitimate would-be buyer walking away from a deal because of a GTO. But in today’s environment which often seems at crosscurrents between demands for personal privacy and government regulation and transparency, it can be easy to see how these expanded orders may be troubling to some would-be buyers, many of whom value their privacy for a multitude of reasons. But, as Leslie Wilson, Senior Vice President and Managing Director of Development Marketing at Douglas Elliman said when the first GTOs started early this year, “Often I feel it is a preference of discretion and not a true necessity or stipulation to be secretive. If the federal initiative deters illicit monies being harbored in the US, then I think we would all have to collectively agree that that is a good thing particularly in light of our current geo-political state of affairs.”
 

 

 

About Sofia Song: Formerly a long time senior executive at StreetEasy, Sofia Song oversees all of Douglas Elliman’s data and research initiatives while developing and refining the firm's analytic tools to give the greatest impact to its agents and clients.

About Elliman Insights - Making data make sense: Big data is transforming the real estate industry. Data can help identify growing trends, hot areas and challenges ahead. But data and figures are only as good as your research and analytics. Through Elliman Insights, Sofia improves data by making it as useful and relevant as possible to agents and consumers, further establishing Douglas Elliman as an industry leader.

 

 

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