• Title insurance companies will be looking to agents and attorneys to discover the identities of overseas buyers investing with shell companies.
  • Real estate agents are being advised against receiving wired money from cash buyers.
  • New York and Miami luxury property agents should expect a flurry of real estate transactions closing in the run-up to March 1, when the reporting is to begin.

As the real estate industry digested the news from The Financial Crimes Enforcement Network (FinCEN) earlier this week — that from March 1, title insurance companies will have to report the identities of cash buyers spending more than $3 million in Manhattan and more than $1 million in Miami — experts said real estate agents and attorneys will have to be better informed about their buyers.

“Both attorneys and agents are going to be under the spotlight more than ever,” said Michael Romer, managing partner of Romer Debbas LLP, a New York real estate law firm experienced with overseas real estate investors, for whom this new rule is especially relevant.

Little lasting effect or part of a bigger anti-laundering initiative?

This week, New York brokerage Douglas Elliman sent out a statement about the news from Treasury. Douglas Elliman chairman Howard Lorber said he did not see the Treasury’s actions as a long-term concern: “We think that this will have little effect on the market.”

Ed Wilson headshot

Ed Wilson

But this was not the message from Ed Wilson, anti-corruption specialist and partner at Washington law firm, Venable LLP, and a founding member of the Office of Foreign Assets Control Working Group.

“This is not going away in six months,” Wilson predicted. “We see it as part of a much larger integration of residential real estate into the anti-laundering compliance world.”

Wilson stressed that the title insurance companies in charge of reporting the identities of cash buyers would be looking to the parties of the transaction — agents and attorneys — to give them certification of ownership.

FinCEN, quoted in this week’s New York Times article, indicated it was likely to extend the initiative to other geographic areas. California is at the top of the list as next, according to real estate commentators.

Said Beverly Hills agent Josh Altman, who heads the Altman Brothers team at Douglas Elliman, “I represent some of the biggest celebrities on the planet — I think we will see it here eventually.”

He is not personally concerned. “For 99.9 percent of the time, I do know who client is — for some, I will sign a confidentiality agreement.”

“If there is any question of something that does not seem right, you just walk away,” he said.

Verify client identity

Michael Romer

Michael Romer

“The message to agents, more so than ever, is to make sure your clients are who they say they are and make sure you refer them to an attorney,” said Romer.

And knowing who clients are is key. If the client identity is obscured, Romer said, “and money is moved, then we are all accomplices to money laundering,” said Romer.

The government is trying to “pierce that corporate veil” of the shell companies commonly used by overseas investors, added Romer.

If agents refer buyers to lawyers who are not thorough with their foreign buyer checks, this will be noticed, he said.

With any overseas cash buyer, the attorney runs the name past the Office of Foreign Assets Control’s blocked persons or sanctioned list to verify whether they are allowed to move money into the U.S.

Meanwhile, Romer’s advice to agents who sometimes receive money wires from buyers directly is simply not to do this anymore.

Legitimate reasons for LLCs

The government is particularly concerned about cash buyers who set up LLCs to mask their identities. Romer explained that New York attorneys will often legitimately advise overseas buyers to set up an LLC so they can avoid the New York state and federal inheritance taxes, which are a punitive 56 percent combined. It is simple estate planning, he said.

For his overseas clients, as long as they know they are still getting the tax exemption, the New York attorney does not think they will be too concerned about their identities being known by the U.S. government.

“As agents, you want to make sure that your duty is to your client, but that does not include receiving money wires — get it sent to the attorney or work with an attorney, and have the client set up a bank account,” he said.

For some overseas buyers whose luxury real estate investment represents “capital flight,” Wilson thought the new restrictions could be off-putting. If their country has a tax treaty with the U.S. and their government discovers that they are moving money overseas, it can look bad for them and their family, he said.

“The 6103 tax code allows the information to be shared, and we have a lot of tax treaties,” said Wilson.

What should Manhattan and Miami expect?

What are the Manhattan and Miami markets going to see next? A lot of deals closed between now and March is the prediction.

“My immediate response to this: We are going to see a lot of deals rushing to close before March,” said Terrence Oved, chairman of Oved & Oved’s real estate department, which advises international high-net-worth clients in real estate throughout the U.S. — and specifically in Manhattan.

He said he expected that if any “fish” are caught with this initiative, the initial six-month deadline set by FinCEN (March 1, 2016, through August 27, 2016) will be extended.

Email Gill South.

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