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Federal government expands investigation into money laundering in real estate

FinCEN investigation will last until Nov. 2020, at least

The federal government has been looking into whether foreign buyers are using shell companies to purchase luxury real estate in the U.S. to launder money for more than four years, and it looks like federal authorities are not ready to end that investigation just yet.

The Treasury Department’s Financial Crimes Enforcement Network, which has been investigating all-cash luxury real estate deals since January 2016, announced Friday that it is extending its investigation until November 2020, at least.

The initial FinCEN investigation looked into whether unknown buyers were using shell companies to buy high-end real estate in Manhattan and Miami-Dade County because the government was “concerned about illicit money” being used in the deals.

The results of that initial investigation showed more than 25% of transactions reviewed involved a “beneficial owner” who was also the subject of a “suspicious activity report,” which is an indication of possible criminal activity.

From there, FinCEN expanded the investigation several times. First, FinCEN began looking into all-cash real estate deals in Los Angeles, San Francisco and several other areas. The government later expanded the investigation again to include wire transfers.

Throughout the entire investigation, the burden of identifying the actual buyer has been placed on title companies, which have been required to report on the person behind shell companies on all-cash deals.

Early on, the FinCEN investigation focused on luxury real estate, setting the reporting thresholds for title companies at $500,000 or above. In Manhattan, for example, title companies were only required to identify the actual person behind shell companies used to pay all cash on deals of $3 million or more.

But, as the investigation continued, FinCEN expanded it again, both lowering the reporting threshold and adding new cities to the investigation.

In November 2018, FinCEN ordered title companies in Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle to report on the person behind shell companies on all-cash deals of $300,000 or more.

Those orders were set to expire in May 2019, but FinCEN later extended the orders through November 2019, and through May 2020.

The expiration date of the current order is May 9, 2020, but rather than let the order expire, FinCEN is adding another six months onto its investigation.

Beginning May 10, 2020, and lasting until Nov. 5, 2020, title companies in the previously mentioned cities will all be required to identify the person behind shell companies used in all-cash real estate deals of $300,000 or more.

According to FinCEN, the orders “continue to provide valuable data on the purchase of residential real estate by persons possibly involved in various illicit enterprises.”

Additionally, the agency states that the new orders “will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.”

In extending the orders for another six months, FinCEN said that it “appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.”

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