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Treasury takes aim at shell companies, corruption in real estate

Once enacted, one of the rules would require companies to declare their beneficial owners — individuals or entities with 25% or more controlling interest in the companies — to the Financial Crimes Enforcement Network (FinCEN), the Treasury agency responsible for monitoring potential illicit corporate activity.

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Miami's skyline. Pedro Portal/Miami Herald/TNS
TNS

The U.S. Treasury Department announced proposed rules to curb the use of shell companies and laundering of illicit money through American real estate.

Once enacted, one of the rules would require companies to declare their beneficial owners — individuals or entities with 25% or more controlling interest in the companies — to the Financial Crimes Enforcement Network (FinCEN), the Treasury agency responsible for monitoring potential illicit corporate activity.

The rule would apply to most limited partnerships, limited liability companies and business trusts that are registered in the United States and foreign corporate entities that do business in the country.

“Few jurisdictions in the United States require legal entities to disclose information about their beneficial owners — that is, the people who actually own or control a company — or the persons forming them,” FinCEN said in a public statement. “This creates opportunities for corrupt actors, criminals, and terrorists to remain anonymous while facilitating illicit activity through legal entities in the United States.”

American real estate, especially in places like South Florida and New York, have long been an attractive option for bad actors to park illicit cash. Currently, real estate deals involving mortgages are scrutinized and reported to FinCEN by the banks involved. However, gaps remain. For instance, smaller non-conventional lenders are often not equipped to do thorough due diligence.

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All-cash transactions, moreover, are subject to very little regulation besides FinCEN’s Geographic Targeting Orders. Those orders require title-insurance firms to report all-cash residential real estate transactions of more than $300,000 in a dozen large U.S. counties.

FinCEN last week issued a request for public comment to address how best to curb corrupt practices in the real estate market. Some options the agency is considering include not having any minimum threshold for reporting under the GTOs and bringing commercial non-residential real estate transactions under its purview.

“Increasing transparency in the real estate sector will curb the ability of corrupt officials and criminals to launder the proceeds of their ill-gotten gains through the U.S. real estate market,” said Himamauli Das, acting director of FinCEN.

The proposals come in the aftermath of an array of news investigations, including the Panama Papers, the FinCEN Files and more recently, the Pandora Papers, all of which uncovered how networks of financial institutions and lawyers aid the rich and sometimes corrupt to hide and move their assets around the world.

The proliferation of gleaming residential towers in South Florida has partly been powered by cash, sometimes illicit, flowing in through anonymous shell companies. As the high-end market booms, developers focus on luxury condos to meet the demand of these wealthy investors, pushing home prices beyond what most people can afford and increasing the wealth-gap between the have-nots and the haves.

©2021 McClatchy Washington Bureau. Visit at mcclatchydc.com. Distributed by Tribune Content Agency, LLC.

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