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Beverly Hills News – Federal Government Cracks Down on LLCs Purchasing Luxury Homes

Posted: Saturday, July 30, 2016 – 6:07 PM

By Victoria Talbot

The Feds are finally cracking down on the lucrative money-laundering business that has infiltrated the luxury real estate market, and one of the homes in the crossfire seems to be the notorious 1201 Laurel Way, a hillside mote-house that has raised the ire of surrounding residents whose views are defined by the multiple tiers of retaining walls.

The home is one of those purchased by a limited liability company for $31 million in 2014. In California and many states across the country, LLCs can set up ownerships without revealing to state officials who is behind them. 

The LLC has become a tool for criminals who want to buy their legitimate piece of the American pie. It is a great tool for tax evasion and money laundering, for ill-gotten gains from drug or human trafficking or even, embezzlement.

Following last week’s revelation that Malaysian investors may have purchased assets such as the 5-star L’Ermitage Hotel with embezzled funds, as well as four luxury homes in Beverly Hills, the government is looking for individuals using shell companies to hide stolen funds by paying for expensive homes in Beverly Hills to launder money.

The US Treasury is expanding the scope of their hunt for international money launderers who launder money through high end real estate investments. The Feds are ordering all insurance companies to report all-cash buyers’ identities in parts of California, Texas, New York and Florida. 

Hiding behind shell companies, these individuals purchase houses anonymously with cash; now they will be required to identify themselves.

Los Angeles, San Diego, San Francisco, San Mateo and Santa Clara counties are now covered under the reporting rules in California, but the requirements are temporary and are being utilized as a means of providing guidance for permanent rules in the future. They take affect in late August and run through February 2017. 

In California the rules apply to all cash transactions over $2 million. Last year in Los Angeles County, that made up 3,500 sales, according to CoreLogic.

Elsewhere, reporting starts at $500,000 in San Antonio and $3 million in Manhattan.

Law enforcement is using the information to discover potential criminal activity,  according to Acting Director Jamal El-Hindi of the Treasury Department’s Financial Crimes Enforcement Network.

Buyers use shell companies to protect their personal assets; doing so does not imply criminal activity. The LLC provides legal separation between the business and personal assets.  In some cases the LLC is a means of concealing a celebrity from being identified with a home purchase for security.

Now, buyers will have to provide their true names with documentation for law enforcement and regulatory authorities. The laws do not cover wire transfers, and lenders are already required to report. 

The Los Angeles expansion reflects a luxury real estate market with attractively-inflated prices to suck up large wads of cash in a single real estate transaction that has real value and appreciation. 

Will the crackdown affect the market for Beverly Hills real estate? “I don’t think so. Forty percent of Hilton & Hyland sales are high end and of these, eighty percent are to Americans,” said Jeff Hyland. “Look at all the sales over the last few years and you’ll see things like Malaysia and the Russians and Chinese are rare sales overall.”

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