Hard to believe it, but the best news of 2016 comes out the US Department of Treasury: an effort to pull the shield off buyers of luxury real estate who hide behind corporate entities like LLC's.
If I close my eyes and say, ok what would be on the list of important things to restore public trust and confidence, at the top of the list is real campaign finance reform, but not far behind: a law requiring the disclosure of identity of big real estate investors.
Why?
Local and state government is largely conducted by secret handshakes involving real estate transactions. Those secret handshakes institutionalize the secretive role of lobbyists in the formation of rules and regulations governing development of communities; a critical, if not the most critical force is shaping the American landscape.
The US Treasury Department's agenda is not to shine light on this dark side of American political life. Instead, it is focusing on the use of luxury real estate to launder illegal gains. One could further argue that the program is inadequate from the start: collecting data over a defined and small period of time is a joke because anyone smart enough to steal money or make money through criminal activity is not going to be stupid enough to give the Treasury Department insight, when it knows the disclosure program is sun-setted. The New York Times reports:
Concerned about illicit money flowing into luxury real estate, the Treasury Department said Wednesday that it would begin identifying and tracking secret buyers of high-end properties. The initiative will start in two of the nation’s major destinations for global wealth: Manhattan and Miami-Dade County. It will shine a light on the darkest corner of the real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities. “We are concerned about the possibility that dirty money is being put into luxury real estate,” said Ms. Calvery, the director of the Financial Crimes Enforcement Network, the Treasury unit running the initiative. “We think some of the bigger risk is around the least transparent transactions."
That's true, but the Treasury Department ought to make the disclosure requirements retroactive, say, for the past twenty years. In Miami-Dade County, all LLC's should be required to show individual ownership. Why?
For one, it would provide transparency to the rampant conversion of open space and farmland into soul-less patches of sprawl, outside the Urban Development Boundary, linked by greed. Disclosure would show the partnerships and alliances the made destruction of the public good such a profitable enterprise in Miami-Dade.
According to the Times, "The Treasury’s program will affect billions of dollars in real estate transactions. In Manhattan, the initiative requires buyers in sales of more than $3 million to be reported; in Miami-Dade County, it requires reporting on sales of more than $1 million. In Manhattan, 1,045 residential sales cost more than $3 million in the second half of 2015, worth some $6.5 billion in aggregate, according to PropertyShark, a real estate data company. In addition to starting in only two markets, the requirement runs from March through August. If Treasury officials find that many sales involved suspicious money, Ms. Calvery said, they would develop permanent reporting requirements across the country. Real estate professionals, especially in the luxury market, often know little about buyers, and until now, they have not been legally required to. In its investigation, The Times found that nearly half of homes nationwide worth at least $5 million are purchased using shell companies. In Manhattan and Los Angeles, the figure is higher."
One problem with the new regulation: there should be no time limit on the disclosure. Furthermore, if the requirement were made retroactive, we would see exactly how real estate bubbles formed out of the toxic gas of financial corruption.
This new measure by the Obama Treasury Department is going to ignite a firestorm.
According to The Times: "It is the first time the federal government has required real estate companies to disclose names behind all-cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers." It is also the case, this is the first time that ordinary, middle class Americans will see what powerful undercurrents are eroding American values.
You are unlikely to read this point of view in the Miami Herald, but this is the best news of 2016. It is long, long overdue.
If I close my eyes and say, ok what would be on the list of important things to restore public trust and confidence, at the top of the list is real campaign finance reform, but not far behind: a law requiring the disclosure of identity of big real estate investors.
Why?
Local and state government is largely conducted by secret handshakes involving real estate transactions. Those secret handshakes institutionalize the secretive role of lobbyists in the formation of rules and regulations governing development of communities; a critical, if not the most critical force is shaping the American landscape.
The US Treasury Department's agenda is not to shine light on this dark side of American political life. Instead, it is focusing on the use of luxury real estate to launder illegal gains. One could further argue that the program is inadequate from the start: collecting data over a defined and small period of time is a joke because anyone smart enough to steal money or make money through criminal activity is not going to be stupid enough to give the Treasury Department insight, when it knows the disclosure program is sun-setted. The New York Times reports:
Concerned about illicit money flowing into luxury real estate, the Treasury Department said Wednesday that it would begin identifying and tracking secret buyers of high-end properties. The initiative will start in two of the nation’s major destinations for global wealth: Manhattan and Miami-Dade County. It will shine a light on the darkest corner of the real estate market: all-cash purchases made by shell companies that often shield purchasers’ identities. “We are concerned about the possibility that dirty money is being put into luxury real estate,” said Ms. Calvery, the director of the Financial Crimes Enforcement Network, the Treasury unit running the initiative. “We think some of the bigger risk is around the least transparent transactions."
That's true, but the Treasury Department ought to make the disclosure requirements retroactive, say, for the past twenty years. In Miami-Dade County, all LLC's should be required to show individual ownership. Why?
For one, it would provide transparency to the rampant conversion of open space and farmland into soul-less patches of sprawl, outside the Urban Development Boundary, linked by greed. Disclosure would show the partnerships and alliances the made destruction of the public good such a profitable enterprise in Miami-Dade.
According to the Times, "The Treasury’s program will affect billions of dollars in real estate transactions. In Manhattan, the initiative requires buyers in sales of more than $3 million to be reported; in Miami-Dade County, it requires reporting on sales of more than $1 million. In Manhattan, 1,045 residential sales cost more than $3 million in the second half of 2015, worth some $6.5 billion in aggregate, according to PropertyShark, a real estate data company. In addition to starting in only two markets, the requirement runs from March through August. If Treasury officials find that many sales involved suspicious money, Ms. Calvery said, they would develop permanent reporting requirements across the country. Real estate professionals, especially in the luxury market, often know little about buyers, and until now, they have not been legally required to. In its investigation, The Times found that nearly half of homes nationwide worth at least $5 million are purchased using shell companies. In Manhattan and Los Angeles, the figure is higher."
One problem with the new regulation: there should be no time limit on the disclosure. Furthermore, if the requirement were made retroactive, we would see exactly how real estate bubbles formed out of the toxic gas of financial corruption.
This new measure by the Obama Treasury Department is going to ignite a firestorm.
According to The Times: "It is the first time the federal government has required real estate companies to disclose names behind all-cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers." It is also the case, this is the first time that ordinary, middle class Americans will see what powerful undercurrents are eroding American values.
You are unlikely to read this point of view in the Miami Herald, but this is the best news of 2016. It is long, long overdue.
5 comments:
You are so right: the Miami Herald features the Powerball Lottery winners. LOLZ.
How many decades has this been going on? How many of those money laundering schemes are just going to buy cheaper properties? It's just too easy to create 10 LLC's and buy 10 different properties under the 1 Million mark, then re sell those taking clean cash. If the Fed's were really serious, they'd create a task force of interns charged with going through the deed of all LLC buyers in Miami Dade. Putting a dollar figure on who they're looking at just made it easier to fly under the radar.
The Miami and Miami Beach condo markets are already suffering. I've caught several LLCs doing illegal work in my condominium building. The board can do nothing about it. Nobody is willing to bring legal action against an unknown owner of unknown financial worth. I've seen LLCs tranfer ownership to avoid building violations in Miami Beach. The city won't pursue violations after a transfer of ownership. They write violations based on owners work not folio numbers. The new title insurance search will never pick this up. If you go back with a private inspector into these units you will find all the existing violations were never repaired.
What seems clear from the short-comings of the program -- at least as outlined in the mainstream press -- is that there must have been tremendous pressure AGAINST this step within the Obama administration by the banking and real estate development supply chain. It is sort a miracle that any light at all leaks into this issue, and probably could only happen in the last year of a president's term.
Good comment on condo abuse by LLCs.
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