US Treasury combats money laundering in property markets

A new programme is being tested in Miami and New York, aimed at ending anonymous large-cash property purchases

A view of Manhattan. The city has become a key location for soaring property prices, and the source of money laundering through real estate 

In a bid to crack down on money laundering in America’s property market, the US Treasury is piloting a test programme in order to track real estate buyers in New York and Miami making all-cash purchases.

As global property prices continue to rise, there is growing concern that criminals are laundering their ill-gotten gains using high-end properties around the world. The new scheme will force real estate firms to disclose the identities of those behind cash purchases.

Much of the boom is driven by a desire for legitimate high net worth individuals to find safe places to park their cash in an uncertain economic climate across the world, from Europe and Asia

In many cities across America, many revitalised urban areas are seeing a boom in property prices. New York, however, has seen its property values soar. As The Financial Times recently reported, “The price of a square foot of real estate in Manhattan hit a record in the third quarter of 2015 — up 17.9 percent from the third quarter of 2014 to $1,497, according to Douglas Elliman Real Estate.” Miami and the South Florida area have also seen a property boom, particularly in luxury condos.

Much of the boom is driven by a desire for legitimate high net worth individuals to find safe places to park their cash in an uncertain economic climate across the world, from Europe and Asia. Miami is seeing an increasing number of wealthy Venezuelans and Brazilians invest in property as both country slides toward increasing economic volatility and political insatiability.

The fear is, however, that among such legal purchases, criminals are also placing their money in this booming property market. Much of these purchases are made both with cash and anonymously. As The Financial Times found out using data from RealtyTrac , in 2015 two out three property purchases in Manhattan and Miami worth more than $2m were made using cash, while over half of those in Miami and nearly a third in Manhattan involved the use of shell – or limited liability companies – “to shield the identity of buyers”. The new programme will mean that cash buyers will not be able be able to hide their identity anymore.

As far back as 2011, the US Treasury Department was warning of criminal proceeds flooding the Miami property market. “South Florida has always been a favourite destination for international visitors and political figures, whether it is for vacation or to purchase property along its sandy and sunny beaches”, according to a May 2011 Treasury Department report cited by a 2013 investigation by The Nation magazine. “As such, Miami finds itself in the distinct position of being a reoccurring hot spot for funds pilfered by politically exposed persons (PEPs) and other criminal proceeds.”

The investigation cited a number of instances of property being used as a money-laundering outlet in South Florida. Such cases included now-convicted Spanish drug dealer Alvaro Lopez Tardon, who purchased 14 Miami condos with $26.4m of alleged cocaine profits, as well as the former President of Nicaragua, Arnoldo Alemán, said to have stolen millions from his country, which he funnelled into Miami through purchasing a cabana at the Key Biscayne Ocean Club, and a [put down a] $150,000 deposit for the purchase of another Key Biscayne condominium”, The Nation report noted.

The new programmes being tested will mean that “title insurers will have to disclose buyer identities in deals of at least $1m in Miami and at least $3m for Manhattan”, according to Newsweek. The trial will run for 180 days as a test, before it is considered as a permanent rule change.

As property prices in cities around the world boom – partly as a result of wealthy investors seeking stable assets to park their cash – other countries have also raised similar concerns around money laundering. In July 2015, UK Prime Minister David Cameron pledged to tackle “dirty money” in the London property market.