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8/6/2018 Rubio plans national crackdown on real estate money laundering | Miami Herald

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POLITICS

Crackdown on dirty money shook Miami real estate.

Now, Rubio wants to take it national

WASHINGTON —

BY KEVIN G. HALL AND NICHOLAS NEHAMAS

[email protected]

July 31, 2018 07:00 AM

Updated July 31, 2018 11:55 AM

In a move with significant implications for the U.S. housing market, Florida

Republican Sen. Marco Rubio is seeking to take a Treasury Department crackdown on dirty

money in luxury real estate and expand it from a few high-priced enclaves to the entire nation.

Rubio says his proposal is an attempt to root out criminals who use illicit funds and anonymous

shell companies to buy homes — a form of money laundering that hides the cash’s tainted origin

from law enforcement and banks. The widespread practice enables terrorism, sex trafficking,

Privacy - Terms

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corruption, and drug dealing by providing an outlet for dirty cash, according to transparency

advocates.

Through an amendment to an unrelated major spending bill, Rubio will ask Treasury to study

whether government regulators should force shell companies that buy homes priced at $300,000

or more in cash nationwide to disclose their owners. That could be a figure as high as 10 percent

of the nation’s real-estate deals.

A similar reporting requirement affecting transactions priced at $1 million or more has already

had a chilling effect on all-cash corporate sales in Miami-Dade County, which has been under

Treasury’s microscope since 2016.

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“Shell companies involved in shady activities are a big problem, especially throughout South

Florida,” Rubio said in a statement to McClatchy and the Miami Herald. “With this provision, a

study would be conducted to look at requiring all shell companies that make cash transactions,

regardless of their area, to disclose their identities.”

The amendment builds on a previous Treasury disclosure order that applied only to certain

markets, including South Florida.

That order — which forced shell companies buying homes with cash to reveal their true owners to

the government — has been in place in some areas since March 2016 at various price points. Its

effects were immediate and stunning. As soon as the order took hold, shell companies buying

homes with cash dropped off the map, a recent study by academic economists found. In Miami-

Dade, the number of corporate cash sales plummeted 95 percent, although a strong overall

market suggests creative buyers found ways to circumvent the rules, researchers said.

Before the crackdown, corporate cash sales accounted for roughly a third of home-sale volume in

Miami-Dade, which is popular with foreign investors.

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The amendment has the support of the top Democrat on the Senate Finance Committee, Oregon’s

Ron Wyden, as well as Rhode Island Democratic Sen. Sheldon Whitehouse. Both have tried to

widen disclosure of true owners of shell companies, which can be listed in the names of lawyers,

accountants, and other fronts. The lack of corporate transparency frustrates law-enforcement

officials, who say it stymies their investigations.

A vote is expected on the overall bill as soon as this week, Rubio’s office said.

The powerful real-estate industry has fought attempts from the government to have it act as a

watchdog against money laundering, as banks, precious-metals dealers, money-service businesses,

and other financial institutions are required to do. Many Realtors and developers say their clients

are simply wealthy buyers seeking privacy, not criminals.

But over the past two years, Treasury has moved with force into what had been a largely

unregulated sector of the U.S. financial system. Starting in Miami-Dade County and Manhattan

two years ago, Treasury’s Financial Crimes Enforcement Network (FinCEN) began requiring

anonymous shell companies to disclose their true owners when they bought pricey homes with

cash.

The temporary directives — called “geographic targeting orders” or GTOs — were later expanded

to other housing markets in Florida, New York, Texas, California, and Hawaii where foreign and

anonymous investors are gobbling up real estate and driving up prices. The rules require title

agents to identify the owners of shell companies buying homes with cash and disclose their names

to the federal government.

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Offshore corporations have one main purpose - to create anonymity. Recently leaked documents reveal that some of these shell

companies, cloaked in secrecy, provide cover for dictators, politicians and tax evaders.

By Sohail Al-Jamea and Ali Rizvi

“The GTOs are working, and it’s time they were expanded. Laundering money through real estate

isn’t new, but [what is new is] an effective approach to combat dirty money,” said Clark

Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT)

Coalition, a watchdog nonprofit.

Rubio’s proposal to take the project national, Gascoigne added, “sends a strong message that

we’re serious about protecting the U.S. financial system, the real-estate market, and communities

across the country.”

Stephen Hudak, a spokesman for FinCEN, declined to comment.

Cracking down

The Rubio amendment asks Treasury to consider expanding the FinCEN directive to include all

cash real-estate transactions over $300,000 anywhere in the United States.

It would give Treasury 180 days to submit a study to Congress providing details about the data

that has been collected by FinCEN since 2016 and how it is being used. The agency is also being

asked to determine if it needs more authority to combat money laundering and whether

expanding the targeting order would be of use. In addition, FinCEN is asked if a registry of

company owners — something supported by a bipartisan cast of federal legislators — would help

authorities fight money laundering, tax evasion, election fraud, and other illegal activities.

Rubio Whitehouse Wyden FinCEN GTO amendment.pdf

8/6/2018 Rubio plans national crackdown on real estate money laundering | Miami Herald

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Previously, the FinCEN disclosure requirement kicked in for corporate cash sales that were priced

at $3 million or higher in New York City, $1 million or higher in Miami-Dade, Broward, and Palm

Beach, and at different price points in other states. In May, FinCEN enacted a new directive that

secretly lowered the number to $300,000 in all GTO areas. Sources familiar with the agency’s

thinking say the new order was kept confidential because regulators don’t want to give money

launderers a road map for structuring their transactions to avoid reporting.

Rubio’s amendment would start at that lower price point, covering a major chunk of home sales

nationwide. Last year, the median U.S. home sold for a price of $247,200, according to the

National Association of Realtors.

A cash transaction is one in which there is no mortgage and the property is purchased outright.

Cash doesn’t just mean stacks of greenbacks; it also includes such financial instruments as wire

transfers, checks, and money orders. Unlike mortgages, cash deals don’t involve heavy scrutiny

from banks, which can identify potential money laundering and file suspicious-activity reports to

the feds.

Rubio Whitehouse Wyden FinCEN GTO amendment.pdf

The 2016 publication of the Panama Papers spotlighted how anonymous shell companies in

faraway tax havens were used to camouflage property purchases in the United States by

politicians, drug traffickers, and financial fraudsters. Housing analysts argue that the flow of

anonymous money is driving up prices.

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“There’s hardly a metropolitan area in the country that is not experiencing a real public-policy

issue regarding affordable housing,” said Ned Murray, a housing expert and associate director of

Florida International University’s Metropolitan Center. “The whole focus of the real-estate

industry is on ... supplying homes for wealthy investors that we don’t know much about. It really

is a factor for prices and supply.”

Much of the world has responded to the threat of corruption in real estate by requiring greater

ownership disclosure. The United States has done relatively less, although Rubio’s amendment

could help close the gap.

Those operating in the shadows of the real-estate market certainly seem aware of the Treasury

disclosure requirements — and are working to get around them.

Take Carmelo Urdaneta Aqui, who is the former legal counsel to the Venezuelan Ministry of Oil

and Mining. He was recently among those charged in a federal $1.2 billion money-laundering

case involving funds stolen from Venezuela’s state oil company.

When Urdaneta prepared to close on a brand-new, $5.3 million condo at the Porsche Design

Tower in Sunny Isles Beach, he was informed by paperwork from the developer that “taking title

[to the unit] under a company or trust may trigger FinCEN reporting requirements,” according to

a federal indictment filed last week. He was worried enough about the disclosure that he

discussed how to avoid it with a government informant.

Ultimately, Urdaneta set up a company in his wife’s name to do the deal, prosecutors allege.

8/6/2018 Rubio plans national crackdown on real estate money laundering | Miami Herald

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Developer Gil Dezer’s company built the Porsche Design Tower in Sunny Isles Beach, where units sell for millions

of dollars to wealthy out-of-towners.

David Santiago - [email protected]

Dezer Development did not say why it alerts potential buyers that they might end up on

Treasury’s radar.

“All language relating to legal requirements associated with closings was prepared by Dezer

Development’s outside legal counsel,” a spokeswoman wrote in an email to the Herald on

Monday.

The 60-story Porsche Design Tower is famous for a car elevator that allows owners to park in “sky

garages” within their units. On Friday, federal prosecutors indicated that they would move to seize

the unit.

Bad for brokers?

8/6/2018 Rubio plans national crackdown on real estate money laundering | Miami Herald

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While overall home sales held steady even after the FinCEN rule went into place, the real-estate

study found, luxury home prices were slightly softer in markets affected by the GTO.

That suggests that expanding the GTO could have a dampening effect on the nation’s real-estate

market, said Jeff Morr, a luxury real-estate broker at Douglas Elliman and chairman of the Miami

Master Brokers Forum, an industry group.

“Does it stop money laundering? Probably, yes,” Morr said. “Is it good for the real-estate market?

Probably, no.”

But at least making the rule nationwide might take some of the heat off Miami, he said.

“It may make Florida less unattractive now that it’s everywhere,” Morr said. “We shouldn’t be

treated differently than other areas.”

The crane has become the unofficial city bird of Miami during the latest construction boom.

Miami Herald

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Performers Who Died in Front of Their Audiences Bizarre Things That Happened During the Gold Rush

That was exactly the sentiment of the Miami-Dade County Commission when the rule was first

enacted in 2016. At the time, commissioners passed a symbolic resolution asking regulators to

stop singling out Miami for special scrutiny. The industry still feels the same way.

Legitimate buyers need privacy, too, said Ron Shuffield, president and CEO of EWM Realty

International.

“There are wealthy people who don’t want everyone to know that they live at the end of the

block,” Shuffield said. “If someone is determined to launder money, they can pick anywhere in

the country to do it, from the smallest city in the Midwest to Miami or New York City. It’s only

fair that every area have to report. Otherwise, the rules could be scaring people away from certain

markets.”

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