Treasury move “just the beginning” in identifying secret buyers of luxe real estate: event

FinCEN reporting requirement ends on Aug. 27

May.May 20, 2016 11:15 AM

The U.S. Treasury Department’s efforts to determine the true identities of secret all-cash buyers of seven-figure luxury condos is rife with loopholes, experts said at a roundtable panel on Thursday. But the Treasury’s move might just be the beginning of a series of efforts to crack down on secret purchases.  

Beginning on March 1, title insurance companies in Florida were required by Treasury’s Financial Crimes Enforcement Network, or FinCEN, to identify the true owners of shell companies that purchase residential real estate in Miami-Dade County for cash in excess of $1 million. Known as a geographic targeting order, the measure was enacted out of concern by FinCEN and other law enforcement agencies that all cash real estate transactions were being used by criminals to launder money. The reporting requirement ends on Aug. 27.

The mid-April release of the Panama Papers has placed an even bigger spotlight on anonymous all-cash condo buyers, real estate and law enforcement experts said on the Holland & Knight South Florida Real Estate Roundtable event.

However, panelist Sergio Osorio, a vice president for Old Republic National Title Insurance Company who oversees the company’s mid-Florida operations, said he’s skeptical the targeting order is effective. “It really hasn’t done anything to hurt our business,” Osorio said. “The reason is there are a lot of ways to get around [the targeting order].”

For starters, deals involving wire transfers are exempt from the targeting order, which represent a significant number of all-cash transactions in Miami-Dade, Osorio said. He also noted all-cash buyers who want to remain anonymous can simply avoid purchasing real estate in Miami-Dade or wait until the disclosure period expires in less than four months.

“If you really want to buy in Florida, you can buy in Broward and you can buy in Palm Beach” without being identified, Osorio said. “And it’s only set up for six months. Just wait until August and you can buy then.”

John Tobon, another panelist and deputy special agent in charge for the South Florida office of Homeland Security Investigations, explained that wire transfers are not considered cash transactions under the Bank Secrecy Act. However, Congress is considering legislation to change the law, he said.

“The proposed legislation would expand the Bank Secrecy Act to cover all transactions,” Tobon said. “We realize the world is moving in a more electronic fashion.” The Homeland Security official also told roundtable attendees that it was more than likely that FinCEN would issue another targeting order at the end of August that would target other parts of Florida.

In addition, Tobon said, the Treasury Department is pushing for attorneys and real estate professionals to be subject to the same anti-money laundering rules and regulations as financial institutions. “When the anti-money laundering law was enacted, a lot of people got exemptions,” Tobon said. “It’s not just law enforcement stating we have a problem. There is pressure mounting from international organizations.”

Andres Fernandez, a Holland & Knight partner who moderated the panel, said he believes anti-money laundering reporting requirements will be extended to persons involved in real estate closings, whether it’s an attorney, a broker, or title insurance agent.

“If you fall into that category in the next three to five years, you will need to have anti-money laundering policies and procedures,” Fernandez said. “This targeting order is just the beginning.”

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