Treasury extends LLC disclosure rule, but to what effect?

Brokers and lawyers report little impact on deals

TRD New York /
Feb.February 23, 2017 02:21 PM

Nearly a year after launching a pilot program designed to unmask hidden buyers of luxury real estate, the Treasury Department extended the regulation on Thursday in a continued effort to crack down on money laundering.

Taking on critics who say its geographic targeting order [GTO] has gaping loopholes, Treasury officials said 30 percent of transactions covered by the order in the past year involved someone who was ultimately linked to suspicious financial activity.

“These GTOs are producing valuable data that is assisting law enforcement,” Jamal El-Hindi, acting director of the agency’s Financial Crimes Enforcement Network, said in a statement.

But New York real estate agents and attorneys took a more skeptical view of FinCEN’s GTO, which requires title companies to disclose the true owner of shell companies making all-cash purchases of real estate in New York, Florida, California and Texas.

“Quite frankly, even if you put an apartment in an LLC you can Google the principals and find out the actual owner,” said Douglas Elliman’s Richard Steinberg. “On most of my deals, the buyers do not care if they disclose who they are — they just put [the purchase] in an LLC for tax reasons.”

Attorneys also cited an array of other loopholes — namely the exclusion of wire transfers from the GTO.

“The regulations are so specific that often, one particular requirement is not met, and hence compliance is not needed,” said Edan Pinkas of Friedberg Pinkas PLLC, who has dealt with FinCEN’s regulation on about a dozen transactions — out of hundreds — in the past year. Pinkas said it’s entirely possible that purchasers who want to keep their identities private have refrained from buying. But, he said, it’s unlikely the policy has had a “material effect” on the market.

Thursday’s ruling — which extends the regulation through Aug. 22 — is the second such move by the Treasury Department, which initially launched the LLC disclosure rule in March 2016.

In July, FinCEN extended the rule beyond New York and Miami to include Broward and Palm Beach counties; Los Angeles; San Francisco; San Diego; and San Antonio, Texas. In New York, title companies must disclose LLC ownership in all-cash deals above $3 million in Manhattan and $1.5 million in the other boroughs. (The threshold is $2 million in California, $1 million in Florida and $500,000 in Texas.)

Beyond criticism that the rule lacks firepower, some insiders say FinCEN’s efforts fall short of rooting out money laundering in commercial real estate, where moving illicit funds can be more prevalent, as an investigation last year by The Real Deal showed.

On Thursday, the American Land Title Association — a trade group for title companies — said in a statement it would continue to work closely with FinCEN. Although the group was initially resistant to its role in the order, its CEO Michelle Korsmo said, “the good news is those efforts appear to be beneficial to the government’s work identifying money laundering schemes.”


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