In the United States, real estate maintains an exemption from anti-money laundering (AML) statutes. Hence, it is possible to purchase a property via large cash transactions without reporting to a federal regulatory body and no beneficial owner or question of the source is necessary. This is further compounded when a business entity is formed for the purchase, with no other operations than being the listed owner of the property.
Over time, an increasing number of transparency groups have brought this to light, especially as more people take advantage of it.
What I don't understand is how a cash purchase for an expensive property using cash from illegitimate and unreported sources could survive an audit or any regulatory scrutiny.
It just seems that with municipalities keeping deed transfer records, one could easily look at the property and the owner and guess the price necessary to obtain ownership of the property, and wonder where the funds came from, easily revealing improprieties if they exist.
If someone lived in a residential property and paid property taxes, is it really so foolproof that no authority would ask where the funds to purchase the home came from? Given the capabilities of any governmental authority in the US to seize properties for dubious reasons, it seems like there would have to be another layer of legitimacy necessary that I'm missing.
Do the residents have to nominally say that they are renting from the parent corporation?
Is it still possible to borrow against the property? I suppose the bank doesn't need to care.
The "real estate lobby" argued successfully that anti-money laundering provisions would unnecessarily burden real estate transactions. Lobbyists maintaining an exemption from Congress is never presented in an objective light, so I am wondering about the merits of their claims. It seems to me there may be some merit, since there are so many other ways to question the source of funds for a real estate transaction, even if retroactively.
The real question is how do cash purchases for real estate survive regulatory scrutiny. It is presented as a loophole in anti-money laundering laws, but seems to me to be a very conspicuous way of doing so.
Although I do like the idea of the tenants paying rent to the corporate owner of the home. Where of course the tenants are the likely owner of the corporation, but this fact isn't listed any where.
Disclaimer: This affects my personal finances.