Feds Play Shell Game in Manhattan And Miami


Title companies obligated to ID true owners behind shell entities.

Will this obligation migrate closer to home?

money launderingSecretly purchasing expensive residential real estate is evidently a popular way for criminals to launder dirty money. Setting up shell entities allows these criminals to hide their identities. When the real estate is later sold, the money has been miraculously cleaned.

The Federal government is seeking to stop this practice.

The Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury issued orders on January 13 that will require the four largest title insurance companies to identify the natural persons or “beneficial owners” behind the legal entities that purchase some expensive residential properties.

This is a temporary measure (effective March 1 to August 27) and is limited to at this point to the Borough of Manhattan in New York City, and Dade County, Florida, where Miami is located. In those two locations, the designated title insurance companies must disclose to the government the names of buyers who pay cash for properties over $1 million in Miami and over $3 million in Manhattan. FinCEN will require that the natural persons behind legal entities be reported if their ownership in the property is at least 25 percent.

FinCEN’s official mission is to safeguard the financial system of the United States from illicit use, to combat money laundering, and to promote national security through the collection, analysis and dissemination of financial intelligence.

FinancialCrimesEnforcementNetwork-Seal.svgThese orders are a continuation of FinCEN’s focus on anti-money laundering protections for the real estate sector. Previously, the focus was only on transactions involving lending. The new orders expand that focus to include the complex gap of cash purchases.

FinCEN’s Director, Jennifer Shasky Calvery, was quoted in the agency’s press release: “We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money.”

American Land Title Association officials met with FinCEN to confirm the details of the orders. Michelle Korsmo, Executive Direction of ALTA, indicated that ALTA is supportive of the effort but is concerned that the program must be implemented in order to determine whether it will work. She said it will be difficult for a title insurance company to figure out a transaction involving a major drug kingpin who buys a mansion through a string of shell corporations all over the world.

This phase of the new program is being called temporary and exploratory, meaning that it may or may not work, and if it does work, it may or may not be expanded to other locations. (Query:  why won’t a money launderer who seeks to purchase residential real estate during the initial phase of this program, simply change locations to Chicago, Houston, San Francisco or Los Angeles?)

We have no way of knowing whether or when this program might be expanded to South Carolina, but it is entirely likely that expensive properties along our coast are being used in similar money laundering schemes. Will South Carolina closing attorneys enjoy ferreting out this sort of information for the Government? We will keep a close watch on what occurs in New York and Florida during the first 180 days of this program.

More CFPB News: A Possible Deadline Extension and a Useful Toolkit


 Don’t get excited about the rumor!

gossipWhen Steven Antonakes of the CFPB spoke to a group of consumer bankers on March 25, he initiated a series of news articles and fueled a rumor mill among bankers and others that the August 1, 2015 date for implementation of the new integrated mortgage disclosures might be extended.

Mr. Antonakes was responding to a concern that some industry vendors may not be ready for the deadline.

Here’s the quote that caused the ruckus: “To the extent there is new information or we’re hearing directly from vendors that folks aren’t going to be ready…we should continue to talk about that. I can’t promise you (changes) but to the extent we will have a better understanding of the concerns, that is something we will consider.”

Lenders and others unquestionably got their hopes up that the August 1 date would be extended. But CFPB spokesman Sam Gilford quickly stated that the bureau has no current plans to delay implementation.

And Michele Korsmo, CEO of America Land Title Association said in an ALTA Advocacy Update of March 30, “Before anyone gets excited, I am telling you today that implementation of the new Integrated Mortgage disclosures will be required on August 1st, 2015.”

 Don’t count on the deadline being extended. Get ready!

Lenders continue to hope for leniency in the enforcement for a period of time after August 1, but no strategy for lenience has been implemented to date.

In other CFPB news, the bureau recently released a “Know Before You Owe” home loan toolkit, a comprehensive step-by-step guide to help consumers understand the closing process. The toolkit contains interactive worksheets and tips for obtaining additional information. I encourage closing attorneys to use this guide to educate clients.

We have all been concerned about owner’s titletoolbox insurance being called “optional” in the new disclosures. I was encouraged to see that this toolkit contains positive information about title insurance, including the fact that title insurance can safeguard the owner’s financial investment. Common claims were stated to be outstanding taxes and mechanics’ liens.

This toolkit might be a good tool for all of us!