No more anonymous home buyers: New law requires shell companies to name their owners
14 Jan 2021

A new federal law is putting an end to anonymous shell companies used to launder dirty money through high-priced real estate, automobiles and works of fine art.

Until this year, Limited Liability Corporations — known as LLCs — often used to purchase real estate enabled buyers to block their identity from the view of the public and law enforcement.

The new law will require domestic and foreign LLCs doing business in the U.S. to disclose “who is the real, natural person (aka beneficial owner) who owns and controls an entity at the point of formation,” as well as update the information if the company changes ownership. The information will be stored in a federal database accessible to banks and law enforcement agencies but not available to the general public.

Violators of the law can face penalties and jail time.

LLCs — often referred to as shell companies — have legitimate business purposes that include limiting owner liability in case of an accident such as a slip-and-fall. LLCs are also used by businesses for tax purposes and grouping subsidiaries under one name. But their cloaking properties also offer an opportunity to launder and stash illegal money without consequences.

“This is a big step in combating money laundering,” said Ville Rantala, an assistant professor of finance at the University of Miami Herbert Business School. “It’s notable that other countries such as Germany and British Columbia in Canada have recently passed similar regulation targeting the beneficial owners of shell companies buying or owning real estate. If the U.S. had not acted now, there is a risk that we would have become a safe haven for real estate buyers who wish to remain anonymous.”


The law, known as the Corporate Transparency Act, is part of the $740 billion National Defense Authorization Act that was vetoed by President Donald Trump in December but voted into law by the House and Senate on Jan. 1, 2021. The law was a bipartisan effort, with Sen. Marco Rubio as one of its most vocal supporters.

Criminal activity conducted by shell companies in real estate transactions has been the focus of an anti-money laundering initiative by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) since 2016. The government’s interest in secret offshore money was fueled in part by the Pulitzer Prize-winning Panama Papers series, which showed how dirty money was fueling South Florida’s luxury home market.

But the initial probe — which required cash buyers using LLCs to report their true owners to title insurance companies involved in the sale — focused primarily on luxury real estate sales over $1 million.

By 2018, the FinCEN probe dropped the price threshold to cash transactions of $300,000 and higher.

The FinCEN probe had an immediate impact on the local real estate market. According to a research paper co-written by Rantala and financial economist Sean Hundhofte in 2018, Miami-Dade saw a drop of 95% in the amount of cash shell companies spent on homes over the first two years of the new requirements.

By Rene Rodriguez, Miami Herald, 13 January 2021

Read more at Miami Herald

RiskScreen: Tackling Financial Crime with Smart Technology

You can claim CPD minutes for this content, by signing up to our CPD Wallet