Fed extends investigation into real estate money-laundering

In a surprise move the Fed announced plans to extend an ongoing investigation into six of America’s largest real estate markets. This is an issue which has been heavily publicised by the authorities as they look to control funding for US real estate transactions. There have been allegations for many years that real estate markets such as South Florida, to take one example, have been used by criminals to launder money back into the system. It is very difficult to prove money-laundering beyond reasonable doubt but the authorities are looking to introduce new regulations to make it more difficult.

Registering shell company ownership structure

The use of offshore shell companies has been a very popular means of integrating illicit funds into legitimate real estate transactions. The very fact that the US government is currently targeting such transactions might give the impression this is a “US problem” when in reality it is a worldwide real estate market problem. The UK authorities have been looking into similar issues regarding the acquisition of luxury properties in London and other governments around the world have been looking to tighten their regulations.

Fed keeps pressure on money laundering gangs.
Fed extends investigation into real estate money-laundering

It will be interesting to see any short to medium term impact on transaction numbers in these areas which would indicate the presence of “dodgy deals”. So far transaction numbers have held up but a six-month extension to the investigation could prompt some from the criminal fraternity to take a step back.

Market confidence is the key

Aside from the fact that money-laundering is a major problem in all areas of business we must not underestimate its impact on market confidence. If we look at the Indian real estate market, where the Indian government recently restructured banknote denominations overnight, this had a significant impact upon real estate cash transactions. The allegation was that many were using the real estate market in India to inject illicit funds into the economy. The fact that transaction numbers and property prices in some of India’s more “luxurious markets” have since fallen would indicate this policy has been successful.

The secretive nature of money-laundering makes it very difficult to ascertain accurate figures with some suggesting one in 10 transactions in the likes of South Florida (where properties are changing hands for more than $1 million) involve illicit funds. However, others believe it could be is challenging as one in two transactions although the type of alleged illicit funding is not detailed.

Donald Trump and real estate

Some people expected Donald Trump to end the ongoing investigation into money-laundering which is officially promoted as a “data collection exercise”. However, it seems that he is as keen as the Fed to rid the US real estate market of damaging illicit funds and money-laundering operations. As we touched on above, confidence is the key to any investment market and the “cleaner” a market is seen to be the more confidence this will instil in investors.

It will be very interesting to see how the US property market performs under Donald Trump’s watch as expectations are extremely high at the moment. Will he be able to fulfil these expectations? Can he transfer his business brain to the political arena? Time will tell……

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