Concerned that secretive purchases of luxury real estate are being used to hide ill-gotten gains, the federal government launched a test program earlier this year to discover the true identities of all-cash buyers for high-end properties hidden behind an L.L.C. or other shell entity in Manhattan and Miami-Date County, Florida.

And with “a significant portion” of the hidden all-cash transactions investigated over the past five months having “indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind [the] shell company purchasers,” the Financial Crimes Enforcement Network (FinCEN) will expand the reach of the program to include (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately north (Broward and Palm Beach); (3) the county that includes San Antonio, Texas (Bexar County); (4) San Diego County; (5) Los Angeles County; and (6) San Francisco, San Mateo and Santa Clara counties, as of August 28.

As such, U.S. title insurance companies will be required to identify the natural persons behind any shell company that pays all-cash for residential real estate valued at over $2 million in San Francisco, San Mateo and Santa Clara. The high-end threshold in Manhattan is 50 percent more.

“The information we have obtained from our initial [Geographic Targeting Orders (GTOs)] suggests that we are on the right track,” said FinCEN Acting Director Jamal El-Hindi. “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.”

Recent Articles

Comments from “Plugged-In” Readers

  1. Posted by moto mayhem

    we can finally learn about these mysterious foreign buyers in SF, or if they exist at more than 3-4 % of buys

  2. Posted by dullasdulldoes

    Santa Cruz, Monterey & Santa Barbara get ready…. a river of LLC cash buyers headed your way!

    • Posted by Dubocer

      But if you’re not an all cash buyer, can you still buy through an anonymous LLC w/ seller financing?

      I think Americans should have the right to be able to purchase a property w/ out everyone on the block knowing who we are, far too many nosy folks in SF.

      We don’t ask renters to identify where they live, perhaps we should. We’d see far too many people are holding on to RC units and claiming they live in them when they can’t possibly live in all of them.

      • Posted by Sierrajeff

        Yes, and like any blunt regulation, on the face of it, seems to be many ways around – go in 50/50 with another buyer; get a 20% loan (or some other %);or as @dullasdulldoes notes, just switch to a different county.

      • Posted by JR "Bob" Dobbs

        Order states that it applies where the purchase “is made without a bank loan or other similar form of external financing.” So my read is that you can’t easily do an end run through some type of nominal seller financing or the like.

        The title company will only disclose the buyer’s identity to the Director of the Financial Crimes Enforcement Network at the U.S. Department of the Treasury. So nosy neighbors won’t learn anything (without a lot more digging).

        If renters were found to be hiding assets for improper purposes (money laundering, tax evasion) through their rented properties in some manner, like anonymous all-cash buyers do, then I imagine we’d see some push to identify renters. I don’t believe there is any problem like that.

      • Posted by anon

        And if you use a bank loan, you probably fall under banking “know your customer” rules.

        Being anti-foreigner or anti-cash is a bad thing. But being anti-crime seems fine to me.

        And this is the key line: “And with “a significant portion” of the hidden all-cash transactions investigated over the past five months having “indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind [the] shell company purchasers,””

        With rates so low, you do have to wonder about the legitimate reasons for people to do all cash transactions.

        • Posted by Sierrajeff

          Yeah, just like the CIA has stopped “a significant number” of terrorist attacks, and the TSA has stopped “a significant number” of people bringing the wrong things on planes. Any government program tries to justify its existence, and without publishing actual reports and quantitative success rates, the agency’s own generic statement is meaningless.

          • Posted by anon

            “More than a quarter of the all-cash luxury home purchases made using shell companies in Manhattan and Miami were flagged as suspicious in a new effort to unearth money laundering in real estate, the Treasury Department said Wednesday.”

            And it was the Times’s exposé that kicked the government into action. Worth a read.

      • Posted by moto mayhem

        i think all RC renters should be identified as well as their income . i think we will find out most housheolds under RC earn well over $100K

        • Posted by curmudgeon

          useless comment that has nothing to do with the federal regulation.

        • Posted by Backtotheburbs

          It takes much more than 100k to rent a RC unit in SF these days – you’d have to go back a few good years …

          Also surely landlords are heavily biased towards tenants with good cash flow, eh?

  3. Posted by jwb

    I guess I’d like to see how this code is written. What if I pay for the property with mostly cash and one sack of bananas?

    • Posted by JR "Bob" Dobbs

      The sack of bananas would have no effect on whether the Order applies. If you paid 100% in bananas, no reporting is necessary. Might work if the seller is a large family of gorillas.

    • Posted by SocketSite

      Here you go: Sample GEOGRAPHIC TARGETING ORDER (from the link we provided above).

      The order applies to all transaction in which:

      “i. A Legal Entity;
      ii. Purchases residential real property…for a total purchase price of $2,000,000 or more in the California county of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara; and
      iii. Such purchase is made without a bank loan or other similar form of external financing; and
      iv. Such purchase is made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form.”

      With a ‘Legal Entity’ defined as “a corporation, limited liability company, partnership or other similar business entity, whether formed under the laws of a state or of the United States or a foreign jurisdiction.”

  4. Posted by Broke Ass Home

    Seems ridiculous and why should someone opting to pay all cash (a good thing) be disclosed to the general public. How one pays for their house is their own business. Why not do these for expensive cars, jewelry, etc.

    • Posted by JR "Bob" Dobbs

      This Order does not apply unless the buyer is a corporation, LLC or the like. It would not apply if the buyer is a natural person. So someone can pay all cash with no reporting, unless you do so through a fictional legal entity.

      • Posted by David

        But wouldn’t you end up being “found out” by the title company if you did that (buy as a normal person) assuming you’re a criminal? So the order doesn’t need to apply to buyers that are individuals.

  5. Posted by woolie

    Good news for Alameda and Marin.

  6. Posted by anon

    What about forgoing title insurance? That would seem to be the big loophole here.

  7. Posted by Sabbie

    It’s a start, now how about that 15% tax on home purchases by non citizens (Vancouver) or limiting non citizens to buying new construction only (Australia). We could probably come up with a few more good ones in five minutes of brainstorming. Oh wait that will never happen in the US, because it would hurt the official narrative that the higher the home prices the better, and cut into the Realtor lobby profits.

    • Posted by anon

      I’m no fan of criminal money laundering, spreading misinformation to sucker folks into RE purchases or blowing bubbles to substitute for economic growth, but what does any of that have to do with scapegoating foreigners, tech workers or what ever other bête noire people come up with?

      If you want to stop the flow of criminal money, do something like the topic of this post. Call out misinformation and point people to more accurate info. Encourage people to look at fundamentals vs just getting dazzled by price appreciation.

      But targeting foreigners and tech workers just seems misplaced and unproductive.

      • Posted by Sabbie

        It’s not misplaced or unproductive, and I never mentioned tech workers. Why let foreigners buy up our land when there are plenty of US citizens who want it, but can’t afford it? I am foreign born btw so don’t say I’m a xenophobe. Some other countries that restrict purchases by foreigners: Hong Kong (15% tax) Mexico (exclusion zones for prime real estate) Switzerland (quotas) UK (extra tax upon sale). People say it’s not a big deal but the NAR says foreign buyers purchased $102.6B of US residential property in the past year and 15% was in CA.

        • Posted by BobN

          “Why let foreigners buy up our land”

          Turnabout being fair play…

          • Posted by Sabbie

            Then start by giving Alcatraz back the to indigenous.

        • Posted by RobBob

          Also Denmark restricts non resident purchases, from what I heard it was due to wealthy Germans purchasing large amounts of their beachfront property.

    • Posted by Dave

      I believe Canada limits the amount of farm acreage foreign nationals can own.

      I’ve invested in small entitlement LLCs in the Bay Area. 150 – 200 shares or so. American citizens have to fill out all kinds of paper work and certify they meet minimum asset and/or income requirements. Foreign investors have no such restrictions. The problem has been foreign investors taking almost all the shares. To the point where one group I work with is trying to give preference to American investors. Its a tough haul though with legal issues.

      Not directly related to the topic, but the average middle income American is the one who gets hurt by the increasing commodification of housing and the difficulty of getting into vetted good LLC real estate deals.

    • Posted by SFRealist

      Remember when the Japanese were buying up all of our real estate in the 1980s and everyone was afraid that Japan was going to be taking over?

      • Posted by curmudgeon

        This is a different issue. American real estate has been the place where Russian oligarchs and Chinese communist party insiders and Malaysian friends of prime minister with access to the Sovereign wealth funds and South American drug lords can easily park and launder their cash. America has basically turned a blind eye to this laundering, which not only encourages the continuing illegalities in the home country but distorts our high end real estate markets. What the IRS is doing is closing this loophole and trying to be a responsible global citizen. Folks should read the NYTimes expose if they seriously doubt this is a bad thing.

        • Posted by SFRealist

          Actually I agree with you 100% on the point of transparency. I am less accepting of those who condemn foreign ownership generally. I am in favor of transparency and of allowing anyone to buy property here.

          • Posted by curmudgeon

            And I agree with you as well. No need to be xenophobic about foreign ownership. That is only a vote of confidence in the stability of our country.

  8. Posted by Louis

    There are a lot of regs and laws governing money laundering and these are well established politically and legally. This is just another permutation of this, and no chance it will be pushed back to protect “property-rights” issues.

    You already have to provide lots of info to deposit $10,000 in a regulated bank.

  9. Posted by Sara Short

    Great news for properties priced under 2 million.

    • Posted by Serge

      Pretty much. If you want to avoid detection, just buy something under $2m. Or buy many properties under $2m to add up to whatever you wanted. Problem solved, but now you have a lot more competition in the sub $2m market. Unintended consequences, mmmm.

      • Posted by JR "Bob" Dobbs

        I don’t think that would be an unintended consequence, but an intended one.

        The current problem is that it is very easy for a criminal to launder/park large sums of money through U.S. real estate. If a drug lord wants to park $30 million in ill-gotten cash, he could buy a single NY condo or SF home through an LLC undetected. It is far more disruptive to now have to arrange to buy 16 or 17 places for under $2 million each. Yes, it could be done. But disrupting such criminal transactions is the whole point of this new requirement. Just like the $10,000 cash reporting requirement can be gotten around by a larger number of smaller transactions but is disruptive and so it serves its purpose.

        All the “you can get around this by doing X” ideas all involve more, and more difficult, work for a criminal, which is precisely the point.

        • Posted by Serge

          Just because it involves more work does not mean that it won’t be done. Plus, it’s not like the people who need the money laundered are the ones doing it themselves. Their accountants and agents do it. They’ll just do more work and get bill accordingly.

  10. Posted by unlivable city

    So in other words, all the empty nesters selling their houses and moving to the city to experience the zest of city living in ugly box-live slabs stuffed into SOMA will be given the gift of a “go away” sign in flashing neon. Trust me oldsters, we’re doing you a major favor.

  11. Posted by Keepitup

    Bitcoin……there problem fixed.

    • Posted by Confused renter

      Bitcoin is not remotely tied to anything tangible or backed by a government. Tomorrow the whole bit coin concept can disappear in to a vapor and poof all your wealth is gone.

      While US has a history of preserving private property rights.

  12. Posted by GetOut

    They should expand this to ALL SFH/Condos regardless of price and seize the properties found to be due to capital control violations

  13. Posted by hgh

    What are they going to do with this information? Are they actually prosecuting, and are they really going to discourage foreign cash buyers?

    • Posted by JR "Bob" Dobbs

      Yes, the government prosecutes money launderers and other criminals all the time, and they use the information they were able to gather to do so.

      I suspect this will discourage some foreign (and domestic) cash buyers who wish to remain anonymous.

  14. Posted by Keepitup

    “While US has a history of preserving private property rights.”

    Except in cities like San Francisco or Santa Monica. Ask the owner of any building subject to rent control.

    Just saying

Add a Comment

Your email address will not be published. Required fields are marked *