The US's Financial Crimes Enforcement Network has announced it will be investigating the individuals behind secretive all-cash purchases of high-end luxury real estate in a six-month trial programme intended to enhance the treasury's anti-money laundering efforts.
The initiative will focus on all-cash property purchases of over $3 million in New York and $1 million in Miami Dade County with a view to determining the identity of individuals who purchase property through corporate vehicles, such as limited liability companies – a strategy often used by family offices for above board purposes.
From March, the “geographic targeting orders” will require certain US title insurance companies to reveal the identity of the individuals behind the companies. Many avoid being directly listed in the files by instead listing various nominees, usually their lawyers.
While these structures are often used legitimately, according to the Financial Action Task Force's guide to beneficial ownership: “For criminals trying to circumvent anti-money laundering and counter-terrorist financing measures, corporate vehicles are an attractive way to disguise and convert the proceeds of crime before introducing them into the financial system.”
The scale of the problem is unknown, however, property markets in residential hubs like New York, Miami, and LA are believed to have benefited from the influx of 'dirty money' from abroad.
The investigation was prompted in part by revelations in The New York Times over the prevalence of purchases of luxury residential properties through so-called shell companies, which can be used to disguise the identity of wealthy buyers, of whom some had been suspected of corruption.
Last year, The Independent reported that 36,342 properties in London had been bought by offshore companies.
While the investigation is temporary, Liam Bailey, head of residential research at Knight Frank believes markets will have to get used to new transparency measures. “There may be a minor downturn in activity in the short term, but buyers will struggle to avoid the new reality, most markets (investors) will want to buy in are moving in this direction.”
The prevalence of 'dirty money' in London's property market has also become a cause for concern. During a speech in Singapore last year David Cameron vowed to clamp down, adding that the UK should no longer be a “safe haven for corrupt money”.
The increase in transparency should not however concern family offices and individuals using corporate vehicles for legitimate reasons.
Oliver Hooper, an acquisition specialist who helps private clients purchase residential property in London, says the UK's complicated tax system effectively pushes people to engage in this activity. “If they simplified the system or lowered the threshold people wouldn't use these structures so much.”
“There are many legitimate reasons why (buyers) want anonymity in the market,” he says. Security and ability to negotiate with estate agents on a level playing field are some of the top concerns.
“There has been a misconception as to why these structures are used and the reasons behind it People shouldn't be scared of these structures, because they are going to become more common, and they do have a place in the market.”
A whole industry has sprung up in recent years catering to wealthy individuals requiring a higher level of discretion when it comes to property transactions.
While disclosure of ownership is obtainable via land registry in the UK and while HMRC are beginning to clamp down on unregulated operations with unannounced site visits, there is still very little regulation in the field. But Hooper, for one, is not concerned by increased transparency. “Measures that make the reputation of the market better can only be good thing.”