As a result of several recent investigations of money laundering through the use of shell companies buying real estate, the Treasury Department is implementing a pilot program in Los Angeles that requires the the controlling members of an LLC or other corporate entity to be identified by name, when making an all cash purchase in excess of $2 million.
The majority of people that buy real estate and hold title in what I’ll refer to as a business entity do so for openly legitimate reasons. For instance, the owner of a rental property might want to shield him or herself from liability buy holding the property in an LLC, and getting the legal protections such ownership offers. Celebrities, wealthy individuals and anyone else might also buy property in the name of a corporation or other entity because they value their privacy.
So, why are they doing this?
The problem comes when people are not doing this for legitimate reasons. We only have to look as far as the Panama Papers to see what I mean. If you remember, a few months ago WikiLeaks released a treasure trove of documents that revealed how very wealthy foreign and domestic individuals, many of them in government positions, were secretly investing in real estate and hiding their names behind LLCs and corporations. The Treasury Department delved a bit further into this, and you may remember a series of NY Times articles a few months back, about the mysterious owners of some of the City’s most expensive real estate. The end result is that real estate turns out to be an excellent way to launder illicit funds because a holding company can be owned by another holding company, and so on and so on, so that the ownership structure may span several different countries, many different companies so that they start to look like those Russian Nesting dolls on steroids.
Is this the end of privacy?
The short answer, no. First off, this is a test program and is only in place through February. Seconds, people will still be able to buy property and hold it in LLCs and other legal entities, the only change is that the title company will be required to keep a record of who the actual principal is, and report this to the Treasury Department. Even then, this won’t change what is shown on public records, so people that want to own property without announcing it to the world can do so… They just have to announce it to the badge-carrying folks at Treasury.