Southern California is an attractive home to movie stars, financial executives, and foreign millionaires and billionaires looking to live a glamorous lifestyle, and the hills above Los Angeles and the beautiful coastline.
The area is also attractive to criminals with millions of dollars in illegal funds from drug dealing, money laundering, and other illicit activity. While Los Angeles County is happy to be home to movie stars and business executives, new U.S. Treasury Department rules will make it much more difficult for criminals to buy luxury homes in the area.
Shell Companies and Luxury Los Angeles Homes
Foreign buyers and illegal buyers have found that using shell companies to buy American real estate can shield them from the prying eyes of government officials. However, a new regulation is putting that to an end.
Earlier this year, the Treasury Department issued a similar rule for Manhattan, a popular real estate investment destination for Chinese buyers. That net has been widened to include Miami-Dade County in Florida and now Los Angeles County, and several other counties home to high end real estate, in California.
The anti-money laundering effort is aimed at stemming the use of illegal funds for real estate purchases thanks to laws that allow businesses to buy real estate keeping the true owner’s identity hidden under a veil of secrecy.
Recent Luxury Homes Purchased with Stolen Funds
The Feds have many examples of using a Limited Liability Company as a shell to avoid reporting. Recent stories include Malaysian officials accused by the Justice Department of using a portion of $1 billion in funds stolen from a public development fund for United States real estate purchases.
Prosecutors have linked shell company purchases of four luxury Los Angeles homes and the Beverly Hills Hotel were purchased with stolen funds linked to the movie industry.
A $40 million 2012 home sale and a $31 million 2014 home sale were both purchased using limited liability companies and multi-million dollar wire transfers.
California Luxury Counties on the Radar
In addition to Los Angeles County, San Diego, San Francisco, San Mateo, and Santa Clara counties are now covered by the anti-money laundering rules. In those counties, all-cash real estate transactions over $2 million must disclose the true purchaser. Los Angeles County alone had more than 3,500 real estate sales last year.
In other parts of the country, different thresholds apply. In San Antonio, the threshold is $500,000. In Manhattan, it is $3 million.
Between Manhattan and Miami, an estimated twenty-five percent of reported real estate deals had ties to a previously investigated suspicious financial activity.
Like some other states, California allows the creation of an LLC without disclosing the identity of the owners. The LLCs can then be used for tax evasion, money laundering, and fraud without a direct link to the perpetrator.
However, it is important to note that many celebrities use LLCs to purchase luxury Los Angeles homes to hide their address from the public and the media.
Learn more at the Los Angeles Times.
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