U.S. Treasury tackling money-laundering in real estate market

While America is by no means the only country around the world which has seen a massive influx of foreign investment in real estate, there are concerns about the origins of some funds. Over the last few years we have seen a number of governments looking to crack down on money-laundering in the real estate market and it seems the U.S. Treasury may have the answer.

A pilot scheme has been launched in Miami and New York amid growing concerns about money-laundering. When you bear in mind that the US authorities warned as far back as 2011 that “criminal funding” was making its way into the Miami property market maybe they have actually been slower to react than many had hoped?

Is money-laundering a major problem?

A recent report by the Financial Times found that during 2015 a staggering two thirds of homes in Manhattan and Miami valued at over $2 million were purchased using cash. It is very difficult to trace the origins of cash as there is no electronic footprint leaving criminal gangs with an opportunity to wash their illegal funds through the system. It was also noted that over 50% of such property purchases in Miami, and approaching one third in Manhattan, made use of shell companies which shield the identity of the underlying buyer.

When you bear in mind the amount of money being spent on US real estate, with more and more funds coming from Venezuela and Brazil to name but two countries, this is something which needs to be addressed.

America is not alone

The exact same arguments now emerging in America have been discussed in London for many years now. Indeed the Conservative government recently introduced measures to combat the purchase of London real estate via overseas shell companies. We’ve also seen various changes in the tax regime, impacting overseas investors, again illustrating the growing influence that foreign investors have in local property markets.

Criminal gangs, illegal income and real estate markets have had a fairly strong connection over the years, especially before the introduction of recent money-laundering regulations. Historically it was very easy to pay for property in cash, sell the property fairly quickly and emerge with what appeared to be legitimate funds with an electronic footprint. While it is not as simple these days there are instances where the criminal fraternity seem to be one step ahead of the law enforcement agencies.

Pilot scheme

The pilot scheme introduced by the US Treasury will see title insurers forced to disclose the identity of those acquiring property valued at $1 million and above in Miami and at least $3 million in Manhattan. The situation will be reviewed after 180 days with consideration given as to whether the pilot scheme will be made permanent and then potentially rolled out across the US.

Many governments around the world will be watching this pilot scheme to see whether the number of cash purchases, or purchases via shell companies, is impacted. It will certainly make for interesting reading and show whether money-laundering issues are as big a problem as some would have you believe.

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