US expands review of money laundering in real estate market

By Christine Duhaime | July 30th, 2016

More scrutiny in US for real estate

The Financial Crimes Enforcement Network (FinCEN) announced that it is expanding its program to identify persons who may be hiding assets in residential properties in the US. The expansion adds additional cities to what are called the area for Geographic Targeting Orders (GTO). Title insurance agents in GTO cities are required to identify the people behind private companies if they pay “all cash” for high-end residential real estate. All cash means mortgage-free.

The US said it is concerned that all-cash purchases may be used to launder proceeds of corruption by parking funds into real estate through the use of what are called beneficial ownership structures.

“Luxury real estate vulnerable to money laundering”

The initial GTO program stated in the US earlier this year yielded a “significant” number of cases to the US government of “possible criminal activity” associated with real estate transactions. The US government has said that it is concerned that” luxury purchases of residential property are highly vulnerable to abuse for money laundering” and that the expanded program will help the US learn more about money laundering risks in the national real estate markets, helping to form future regulation.

At least 25% of the GTOs filed since March 1, 2016, as part of the initial GTO test, revealed suspicious names associated with luxury real estate transactions in Manhattan and Miami – the two cities that were part of the GTO pilot.

The GTO program captures just all cash transactions because when mortgages are involved, it is banks who are required to perform the vetting process of identifying and reporting financial crimes associated with mortgages.

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