LLC’s: How the Treasury Department is Piercing the Real Estate Veil in Miami

Ana Cardenas – It is no secret in Miami, Florida that the price of high-rise luxury condominium buildings has skyrocketed in Brickell, Downtown, and South Beach. In recent years, renting rather than buying these condos has become the norm causing the Miami real estate market to become increasingly costly. However, who is purchasing this real estate and how remains a mystery.

In January 2016, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced Geographic Targeting Orders (GTOs). The GTOs require title insurance companies to report to FinCEN the identity of persons who use shell companies to pay all cash for high-end residential real estate in Miami priced at $1 million and above. The GTOs last for a temporary 180-day period. In July 2016, FinCEN renewed the GTOs for another 180 days. On February 23, 2017, when the GTOs were about to expire, FinCEN renewed the orders for an additional 180 days.

Concerns about foreign dirty money driving local residential real estate booms motivated FinCEN to establish the GTOs. With a significant rise in the amount of shell companies—mostly limited liability companies (“LLCs”)—purchasing real estate, FinCEN became concerned that foreign investors were using these transactions for money laundering. Recent sales to secret buyers have placed Miami’s real estate market in the limelight. For instance, an untraceable Delaware shell company was revealed to be the buyer of a $47 million Key Biscayne mansion, and a secret trust spent $19.5 million on a luxury Miami Beach home. Both of these purchases were paid in cash since there are no records of mortgages recorded on either property.

Foreign investors might shield their identity by purchasing real estate through shell companies for money laundering, liability protection, or tax breaks. Some claim, however, that foreign investors hide their identity because of how strongly they value their privacy. Foreign leaders might hide their property for safety reasons or wealthy investors could just be shy about revealing their wealth.

When FinCEN recently renewed the GTOs for another 180 days, it announced that 30% of the deals covered by GTOs revealed buyers who have previously been subjected to suspicious activity reports. The “Panama Papers” incident has shed light on foreign investment money laundering activity in South Florida. The Panama Papers consisted of leaked records from a Panamanian law firm, Mossack Fonseca, that assisted the world’s richest and most powerful people in creating off-shore shell companies. These records demonstrated the strong connection off-shore shell companies have with capital contributions to Miami’s lustrous skyline. The records also revealed that eight out of nineteen foreign nationals who had purchased real estate in South Florida through these off-shore shell companies have been linked to various crimes in their home country including bribery, corruption, embezzlement, and tax evasion. As the Miami Herald noted, the one thing the Panama Papers undoubtedly showed is how secret capital from offshore companies has poured into South Florida real estate.

While it can be said that foreign investors’ investment in the South Florida’s real estate market has contributed to an attractive Miami skyline, this practice has also had a negative effect on those living in South Florida. Two-thirds of Miamians now rent their home rather than buy it. In fact, high housing costs have made Miami one of the least affordable cities to rent in the country. Working and middle class families cannot compete with foreign investors who are willing to buy real estate at the listing price or a greater amount. GTOs coupled with plunging Latin American and European currencies bring uncertainty as to whether foreign investors will continue to have a strong influence in the South Florida real estate market. FinCEN’s recent renewal of the GTO’s, however, is a convincing indication of current increased regulation in the real estate sector. Whether the GTO’s are the start to a long road of regulation in the real estate market comparable to regulation in the banking industry, or whether regulation will halt at the end of these 180 days remains an open inquiry, which could greatly impact the future of local real estate in Miami.

One thought on “LLC’s: How the Treasury Department is Piercing the Real Estate Veil in Miami

  1. Keith Gumbinger

    Could money of unclear origin also be part of last decade’s boom and bust cycle for Florida real estate? If so, some forensics might reveal the extent of the distortion. We know that during the last boom, skyrocketing prices essentially forced homebuyers of more modest means into riskier mortgages that allowed them to accept more risk then they could handle. There is no such mortgage mechanism in the current market climate. Currently, borrowers simply are priced out of the purchase market, putting additional strain on the available rental market, driving up rental costs and worsening the ability for typical folks to be able to secure decent housing.


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