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Feds expand crackdown on secret real estate deals beyond Miami, Manhattan

An anti-money-laundering crackdown on secret, cash deals for pricey homes in Miami-Dade County and Manhattan will be expanded to other luxury real estate markets in Florida, New York, California and Texas, the federal government announced Wednesday.

Because buyers can cloak their identities in opaque shell companies, regulators say cash home deals are a magnet for money laundering. Corrupt foreign officials, drug dealers and other law-breakers have been caught parking dirty money in U.S. real estate.

In January, an agency of the U.S. Treasury Department said it would temporarily order title insurance companies to identify the true owners of shell companies that pay $1 million or more in cash for homes in Miami-Dade and $3 million or more for homes in Manhattan.

$1 millionReporting threshold for secret, cash home deals in Miami-Dade, Broward and Palm Beach counties.

The new order will require title insurers to do the same reporting for $1 million-plus transactions in Broward and Palm Beach counties, reinforcing South Florida’s status as one of the country’s premiere luxury markets — and also as a hiding place for illicit funds from around the world.

In New York, the order applies to New York City’s four other boroughs (Brooklyn, Queens, the Bronx and Staten Island) for $1.5 million-and-above deals. Also included: transactions of $2 million or more in San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara counties in California, and $500,000 or more in Bexar County, Texas, which includes San Antonio.

The directive, called a “geographic targeting order,” will begin Aug. 28 and last 180 days. It also extends the reporting requirements in Miami and Manhattan.

“The information we have obtained from our initial GTOs suggests that we are on the right track,” Jamal El-Hindi, acting director of the Financial Crimes Enforcement Network, the Treasury agency that issued the order, said in a statement. “By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”

Roughly a quarter of reported transactions in Miami and Manhattan involved people who were separately the subject of suspicious activity reports by banks and other financial institutions, indicating possible criminal activity, according to FinCen.

On a conference call with reporters, a FinCen official said among the instances of suspicious activity were $7 million worth of wire transfers from South America, counterfeit checks and a $16 million cash withdrawal, but did not elaborate.

The agency said it chose the new markets because they were popular with foreign buyers and had high concentrations of shell companies. Information gleaned from the expanded tracking could be used to craft permanent regulations.

In April, the Miami Herald revealed how people accused of corruption in Latin America helped fuel Miami’s luxury condo boom and inflate local home prices. The series was part of a partnership with journalists around the world called the Panama Papers.

Deals must be reported if they are all or partly cash. In today’s economy, cash doesn’t just mean briefcases brimming with hard currency.

The earlier order defined “cash” transactions to include money orders, cashier’s checks, certified checks and traveler’s checks. The new order will also apply to personal and business checks. Most real estate deals are done through wire transfers, but FinCen says it does not have the regulatory authority to monitor wires.

Unlike the banking and mortgage industries, real estate does not have strict reporting or due diligence requirements. Realtors and other industry players do not have to know or investigate their customers. That could change. Congressional leaders including former U.S. senator Carl Levin have called for more transparency and regulation.

The GTOs focus on title insurers because they are involved in nearly all real estate transactions.

Nicholas Nehamas: 305-376-3745, @NickNehamas

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