In an effort to prevent people from using real estate to launder ill-gotten money, the U.S. Treasury Department in 2016 began requiring title insurance companies
How is money laundering done through real estate?
Say you’re a multinational drug kingpin that wants to hide $10 million by buying up a penthouse in San Diego. You have all of this money in cash, but you don’t want to draw any unnecessary attention to yourself. You can do what a lot of other seasoned criminals do- set up a series of shell companies to conceal your identity.
You call up a firm in Belize, for example, and you tell them you want to set up Company A. For a fee you’ll receive a certificate of incorporation, minutes of board meetings, and this firm will even give you a list of people to add to your company’s board of directors.
You then set up Company B in another country and arrange for Company A to be its parent. Then you set up company C, D, E, and perhaps you have Companies F and G partner to own company H. You can coordinate this funnel however you choose until you’re satisfied with the results. Once you are, you can open up a bank account using Company H and transfer the $10 million you’ll be using to buy that penthouse in San Diego. Once you’ve purchased it, you hold it for a year or so, and once that period has lapsed, you can sell the property. Just like that, your money is clean. Of course, there are a few other nuances, but that’s the idea.
There have been recent efforts made by the U.S. Treasury Department to stop this sort of thing from happening, but most of them are in exploratory stages. For example, in Manhattan and Miami, cash purchases are to be closely scrutinized by title companies. They’re supposed to make an attempt to identify the owners of these shell companies before engaging in any sales. We’ll see how that goes.