Los Angeles is a renowned market for luxury homebuyers, attracting wealthy individuals from all corners of world willing to spend millions on that perfect piece of paradise. But Los Angeles and Hollywood are also attracting a rather unsavory type of character: international criminals looking to launder dirty money by plowing it in expensive mega-mansions. As a result of some shady dealings, high-end homebuyers may soon have to reveal more personal information when paying in cash for a luxury home in the City of Angels.
The Treasury Department announced on Wednesday that it will soon require buyers of luxury homes in Los Angeles and other California counties to reveal their identities when purchasing a luxury home through a shell company. The move marks an expansion of the government’s recent efforts to fight money laundering in the real estate market. The Treasury Department mandated similar requirements in Manhattan and Miami-Dade County in Florida earlier this year.
Although similar rules have been passed in other high-end real estate markets, recent events in Asia have triggered the government’s renewed focus in America’s luxury real estate market. Last week, the Justice Department accused public officials in Malaysia of using shell companies to launder $1 billion stolen from a public development fund. Prosecutors with the Justice Department say that the Malaysian officials used a variety of instruments to launder the dirty money, including four luxury homes in the Los Angeles area.
The houses names included an estate formerly owned by Ricardo Montalban, and a property in Beverly Hills that sold for $31 million in 2014. Both homes were purchased through a limited liability company using millions of dollars sent through international wire transfers.
The counties of Los Angeles, San Diego, San Francisco, San Mateo and Santa Clara will now be covered by the new disclosure rules, plus all boroughs of New York City. They apply to all all-cash real estate transactions of $2 million or more, which would have covered more than 3,500 sales in Los Angeles County alone last year, according to the real estate analytics firm CoreLogic. In pricey Manhattan, the threshold is $3 million, while in San Antonio’s Bexar County the limit is $500,000. The new rules will not cover purchases made through wire transfers.
Even so, the new rules are only temporary while the Treasury Department and other regulatory agencies work out a permanent solution. But according to the Treasury Department’s Financial Crimes Enforcement Network, the new requirements in Miami and Manhattan have already helped stop money laundering. About twenty-five percent of the reported deals in those markets involved a buyer who was already suspected of involvement in criminal activity, according to FICEN.
In California and many other states, owners can establish up limited liability corporations without telling state officials who they are, which allows criminals to game the system in order to facilitate money laundering through the luxury real estate market.
If you’re looking for a luxury home in Los Angeles County, contact one of our highly experienced real estate professionals today. We specialize in properties throughout Southern California’s more exclusive communities.
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(all data current as of 5/25/2017)
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