US prime property is magnet for illicit wealth, warns Treasury
Probe unearths string of dubious cash buyers in New York, Miami and other cities
US real estate’s reputation as a favourite destination for international money launderers has grown after a Treasury investigation confirmed fears that top-end property in New York, Miami and other cities is being used to channel illicit wealth.
The Financial Crimes Enforcement Network (FinCEN), a Treasury unit, found that one in three buyers who used shell companies for cash purchases of luxury property in leading cities had had the alarm raised about their financial dealings.
The role of US mansions, penthouses and beachside residences as a haven for tainted wealth has been under increasing scrutiny in recent years as it emerged that buyers had included figures such as Colombian drug lord Pablo Escobar and the son of Equatorial Guinea’s president.
FinCEN said on Thursday it had unearthed a string of dubious buyers using a new disclosure rule to probe all-cash deals undertaken through shell companies. The purchasers included some suspected of being involved in corruption in Asia and South America and one who engaged in $160m of suspicious activity, officials said.
The US market in existing housing alone — which excludes commercial and newly built property — turns over $1.6tn a year, according to the National Association of Realtors. About a quarter of buyers pay cash, with the proportion rising to half of foreign buyers. These account for only 4 per cent of all purchases, but this means some $32bn a year flows into US real estate from abroad in cash transactions that, until a year ago, could be conducted anonymously.
Since the Patriot Act was introduced after the September 11 2001 terror attacks, mortgage lenders have been subject to “know your customer” rules designed to stop terrorists and other criminals using agents, shell companies and other subterfuges to move illicit money into the US. But cash purchases were excluded.
A year ago FinCEN, which collates information reported by banks and others on their clients and makes it available to law enforcement agencies, moved to plug what it believed was a major conduit for dirty money.
It introduced a rule requiring identity disclosure for cash buyers using shell companies to purchase top-end property in Manhattan and Miami. The rule was later extended to the whole of New York City, more of Florida and Los Angeles, San Francisco, San Diego and San Antonio.
The information gathered “corroborates FinCEN’s concerns about the use of shell companies to buy luxury real estate in ‘all-cash’ transactions”, the unit said on Thursday.
Some 30 per cent of top-end all-cash transactions using shell companies for which FinCEN received data were found to involve either an owner or owner’s representative who had been the subject of a “suspicious activity report”. These are reports that banks must lodge with the authorities when they have concerns about the source of a client’s funds.
Some anti-corruption activists had feared the disclosure rule would be allowed to lapse when it came up for renewal on Thursday, part of wider concerns about the fate of regulation under Donald Trump’s administration. During his presidential campaign, Mr Trump described the Foreign Corrupt Practices Act as “horrible”.
However, the disclosure rule was extended for another six months on Thursday. A FinCEN spokesman said the decision had been taken with the “full support” of Steven Mnuchin, Mr Trump’s Treasury secretary.
Mr Trump’s fortune is based on US real estate. As the Financial Times revealed in October, an alleged Kazakh money-laundering network used the all-cash transactions now in the spotlight to buy and sell apartments in the Trump Soho tower in Manhattan.