Does the new FinCEN regulation affect you?

Seminar discussed what deals are excluded, like those completed entirely using wire transfers

Mar.March 02, 2016 03:00 PM

Russell Jacobs of the Jacobs Law Group

The federal government’s tracking of secretive cash deals for pricey Miami real estate began Tuesday, and the question on Realtors’ minds has been “How does this affect me?”

Not as deeply as you might think, real estate attorney Russell Jacobs said at his Wednesday seminar titled “Avoid the Treasury Trap with Foreign Buyers.”

A group of about 20 Realtors attended the class at the Miami Association of Realtors’ headquarters primarily to better understand the methodology behind the U.S. Financial Crimes Enforcement Network’s new disclosure requirements.

The agency, better known as FinCEN, rolled out “geographic targeting orders” Tuesday that require title insurance companies to disclose the names of buyers behind anonymous companies that pay cash for $1 million-and-up homes in Miami, and $3 million-and-up in Manhattan for the next six months. It’s an effort by the federal government to better curtail money laundering through high-end U.S. real estate in both markets.

Jacobs’ first point of discussion was how these orders could affect a deal, or the market of foreign buyers in general.

The new regulation could scare off investors who see it as the U.S. overstepping its boundaries, he said. While the Internal Revenue Service doesn’t seize homes and assets for personal gain, Jacobs said, some of the despotic governments that investors deal with at home do.

Couple that with a strong U.S. dollar discouraging foreign investment here, and the luxury market in Miami could suffer as its image of being a safe haven is tarnished, he said.

“We want to get the word out that this isn’t something to be afraid of,” Jacobs said at the seminar. “What we’re dealing with now is Latin American clients thinking that investing in Miami is going to be problematic because of the reporting.”

So what types of transactions are covered? Residential purchases above $1 million, made using a legal entity, with either paper checks or cash for any portion, and entirely without any type of bank issued financing, will be scrutinized by FinCEN. If any of those checkboxes aren’t hit, Jacobs said, the transaction won’t fall under disclosure requirements.

That means commercial purchases — including residential buildings with more than 5 units — and individual deals below the $1 million threshold aren’t scrutinized by FinCEN. Bank financing also keeps a purchase out of the spotlight because financial institutions have their own forms of disclosure when issuing a loan, Jacobs said. If a purchase is entirely completed using wire transfers, already a common form of payment, the transaction is not subject to the new rule.

And while those exceptions might seem narrow, the orders only affect Miami-Dade County and Manhattan in New York City. So Broward and Palm Beach counties in South Florida, or really anywhere else in the country, are exempt from the rules, Jacobs said.

However, Jacobs said not all of the workarounds are without drawbacks. Trusts — while not covered under the order — can open an owner to legal liability in the event of a lawsuit, as would making a purchase under your actual name, on top of extra taxation from the U.S. government.

“Hopefully FinCEN realizes this is an inefficient way to go about catching money launderers,” he said. “Ultimately they’re really hurting the local economy.”

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