U.S. real estate is a target for money launderers looking to stash their stolen cash in a safe and stable investment. Real estate professionals facilitating the transaction can play a key role in identifying these criminals and assisting law enforcement in stopping their scams.
Lawrence Scheinert, director of the Office of Special Measures at the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), presented a new program called the Geographic Targeting Order during the REALTORS® Legislative Meetings & Trade Expo in Washington, D.C. It’s a temporary anti-money laundering program requiring U.S. title insurance companies to report information about “covered transactions” made by what’s commonly known as shell companies, Scheinert said at the Business Issues Policy Committee meeting. The program targets cash purchases of residential properties paid for with a certified check, traveler’s check, personal check, business check, or money order in certain areas of the country where this type of crime is prevalent, including:
- San Antonio, Texas (minimum residential sale price of $500,000)
- Miami-Dade, Broward, and Palm Beach counties in Florida ($1 million and up)
- New York boroughs of Brooklyn, Queens, Bronx, and Staten Island ($1.5 million and up)
- The San Diego, Los Angeles, San Francisco, San Mateo, and Santa Clara areas of California ($2 million up)
- New York borough of Manhattan ($3 million and up)
For transactions that match the above criteria, title companies can report data to FinCEN, including information about the shell company and the identities of the people with at least a 25 percent ownership interest in the entity, their contact information, address of the property bought, information about the individual(s) representing the purchaser, closing date, and purchase price.
Shell companies are a legitimate vehicle for operating companies or obtaining financing, Scheinert says. They can also be created for tax purposes. However, they’re also attractive to money launderers who want to take advantage of vulnerabilities in the real estate sector.
So far, FinCEN has found that 30 percent of the buyers behind these transactions had previous reports os suspicious activity filed against them for issues such as unusual cash withdrawals, suspected corruption ties in foreign countries, and other claims.
FinCEN is the financial intelligence unit; they collect and distribute their information to law enforcement agencies, but they don’t have the direct authority to prosecute perpetrators. “This isn’t a crackdown. It’s an information-gathering effort,” he says. The data from the geo-targeting order is added to a database accessible by law enforcement agencies conducting investigations. “Title companies have been very cooperative,” Scheinert says. “And REALTORS® understand what we’re trying to accomplish here.”
The National Association of REALTORS® has anti-money laundering guidelines available to members, which includes tips for identifying the signs of such criminal activity. This includes unusual involvement of a third party or titling of a residential property in the name of a third party; the purchase of properties that are extremely overvalued or undervalued; a buyer who brings actual cash to closing; or if the property being purchased doesn't match the characteristics of the buyer. Brokers and agents should do their due diligence, Scheinert says, such as obtaining identification records of a client (a copy of a driver's license or passport). If a legal entity is involved, the real estate professional should take steps to identify who controls the entity.
If you believe you’re involved in a transaction of a criminal nature, file a suspicious activity report with FinCEN or call the agency’s regulatory helpline at 1-800-949-2732.