Expanded federal rules target real estate money laundering

The U.S. Treasury has expanded its disclosure rules for high-end all-cash real estate to more cities.

The U.S. Treasury recently announced it was expanding the number of geographical areas where regulations designed to target money laundering will be in effect, according to Reuters. The regulations effect high-end real estate transactions in a handful of cities and counties across the nation and are designed to stop individuals from using shell companies to purchase real estate for the purposes of money laundering. While Manhattan and Miami were already included in the money laundering rules, those rules will now expand to the rest of New York City along with other places throughout the United States.

Geographic targeting

The U.S. Treasury calls the new rules "geographic targeting orders" (GTO), meaning they only apply to certain areas of the country. Until recently, the GTOs only applied to Manhattan and Miami-Dade County, but they will now be expanded to include the other four New York City boroughs; Broward and Palm Beach Counties north of Miami; San Diego, the San Francisco Bay Area, and Los Angeles in California; and San Antonio in Texas.

The GTOs cover all-cash purchases made through shell companies of high-value homes. The orders require that the names of the individuals purchasing the properties through the companies be disclosed to title insurance companies. The insurance companies, in turn, would provide the names to the Treasury Department. The orders are triggered when the price of the property reaches a certain threshold. That threshold is determined by the geographic area, ranging from $500,000 in Texas to $3 million in Manhattan.

Will they work?

The GTOs are designed to prevent money laundering by giving federal authorities access to the names of individuals who may be using high-end real estate transactions for nefarious purposes. The disclosure rules are also expected to discourage criminals from using real estate to launder money. As the Wall Street Journal points out, however, there is a lot of debate about whether the GTOs will actually be very effective.

Real estate brokers, for example, point out that many people use shell companies not for money laundering purposes but simply because they want to protect their privacy. Furthermore, some purchasers have found loopholes around the disclosure requirements, such as by paying for the property through a wire transfer.

Real estate law

Whether or not the new regulations are effective in cracking down on money laundering, they at least show that the law surrounding real estate is constantly evolving. Whether for high-end properties or a modest suburban home, real estate deals are major transactions for all parties involved. As a result, anybody involved in a real estate transaction should contact a real estate attorney for greater peace of mind. A qualified attorney can ensure that the transaction complies with all legal requirements so that those involved in the sale or purchase of the property can feel more secure in their decisions moving forward.