For the first time, the United States Treasury Department is taking action against the practice of shell corporations being used to protect the identities of all-cash buyers of luxury real estate. In an effort to reduce the flow of illicit money, the Treasury Department is now identifying and tracking these secret buyers. The trial program will run from March through August in select markets. If it is successful, the Treasury Department is considering making this a permanent requirement throughout the U.S.
The government efforts are part of a larger initiative that is focusing on money laundering in real estate. In recent years there has been a rise of shell companies being used by foreign real estate buyers to hide funds in the purchases of multimillion-dollar homes. Real estate professionals in the luxury market often were neither aware of who the homebuyers were nor legally required to know their identities.
To combat this practice, title insurance companies will be required to discover and report to the Treasury Department the identities of buyers. This information will be compiled into a database that will be available to law enforcement.
The markets where this program is slated to begin are high-end luxury real estate locations in Manhattan and Miami. In Manhattan, the new rules would require the reporting of buyers’ identities for properties with sale prices of over $3 million. In Miami, the rules would require the reporting of sale prices over $1 million. New York City’s finance department already has a rule in place where shell companies that buy real estate must report their identities to the city, but the new rule will be greater in scope.
No More Secret Identities
The effect on the real estate industry will be multifaceted. The new requirements for reporting will primarily have an impact on title insurance companies. It will be challenging in some cases to report identities, as buyers who are shielding illicit funds often layer shell corporations and further mask their identities by using the names of lawyers and other nominees. Title companies that do not comply and shield information will face penalties. Ultimately, the Treasury Department is seeking the actual owners, or beneficial owners, behind the shell companies.
There are some concerns about how this practice will affect the real estate market. In some situations, clients wish to remain anonymous for privacy reasons, and in other cases shell corporations are being set up for tax or estate-planning purposes. There is a possibility that the rules will hamper the sale of properties listed in the specified price ranges.
For information on buying or selling a luxury property, contact me today.
Heidi Logan is a real estate agent in Center City Philadelphia.
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