The hunt for dirty money in luxury real estate in South Florida is working, according to the federal government. The same is true in other high-priced housing markets.
The agency also said that the temporary initiatives or GTOs will be extended.
Corrupt officials, drug dealers, money launderers, and other criminals often buy expensive real estate in order to turn dirty cash into a legitimate source of funds. To protect their identity, they use shell companies that are not required to disclose the identity of their owners.
The move has frustrated law enforcement agents and, in some cases, stopped an investigation dead.
This led to the U.S. Treasury Department to launch a mandate in 2016 that require secretive shell companies that paid in cash for luxury homes in certain areas to disclose their true owners to the government.
It was in Manhattan and Miami-Dade County that the anti-money-laundering initiative began despite protests from politicians in South Florida. The initiative has gradually expanded to other areas in Florida, California, Hawaii, New York, and Texas.
Advocates of anti-corruption have called for permanency of the disclosure rules. They partially blamed the flood of foreign money, even with most of them clean, pouring into markets for the rising prices of homes and properties.
Geographic Targeting Orders (GTO)
The GTOs or temporary orders issued by the U.S. Financial Crimes Enforcement Network (FinCEN) provide the treasury agency “information about money-laundering vulnerabilities in the real estate sector,” according to an email written by a FinCEN spokesman, Stephen Hudak.
“GTOs are a valuable tool and FinCEN is extending the current GTOs to continue studying this vulnerability,” he wrote.
FinCEN is led by Kenneth Blanco, a longtime Department of Justice lawyer and a former South Florida federal prosecutor. He was appointed by the Trump Administration.
For the federal officials, the tool gathers data they used to gauge how vulnerable the luxury real estate sector in the U.S. is to money laundering manipulations.
There are several things that the feds look into to identify vulnerable markets:
- Expensive homes
- Lots of deals all paid in cash
- High number of foreign buyers
- High number of suspicious activities reported by financial institutions
This is the third time that the GTO has been extended since it was introduced. Unlike the first 2 announcements, however, no news release or public information was made to announce the third extension.
30% of home deals that were reported under the GTOs last year were linked to individuals who are filed by banks as subjects of “suspicious activity reports,” according to a report by FinCEN.
This led to deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition, Clark Gascoigne, to call for the initiative to be made permanent.
“Shouldn’t that be enough to say, ‘We’re on to something,’ … and that this is something that should be made permanent and nationwide? I think the answer to that is yes.”
Gascoigne advocates greater transparency.
Problem with Wire Transfers
The Treasury Department was not allowed by law to monitor wire transfers. This limited the scope of the initial GTO order and created a major loophole since many wealthy buyers use the financial mechanism to buy homes.
It was only after a subsequent act of Congress was passed that wire transfer monitoring was allowed. Along with the power that the Treasury Department gained is the widening of the government’s net, resulting in an increase of the number of home purchases that were captured.
FinCEN has yet to release data that confirms the number of people using wire transfers to purchase properties and whether or not their activities are suspicious.
Length and Reach of the GTO extension
Geographic Targeting Orders typically lasts for 6 months. But no word yet as to how long the third extension will last.
The areas affected by the latest order are the same areas that have already been under government scrutiny. These are:
- Los Angeles
- Honolulu, Hawaii
- San Antonio, Texas
- San Diego
- San Francisco
- Miami-Dade, Broward and Palm Beach counties
- San Mateo and Santa Clara counties in California
- New York City boroughs of Manhattan, Brooklyn, Queens, Staten Island and the Bronx