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Real estate in the US maintains an exemption from anti-money laundering statutes, such that large cash transactions used to purchase a property are possible 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.

Overtime and 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 one exists.

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.

closed as off-topic by keshlam, Joe, Dheer, Victor, Daniel Anderson Oct 18 '16 at 11:45

  • This question does not appear to be about Personal Finance within the scope defined in the help center.
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  • Notwithstanding your disclaimer, this sounds like a question of politics more than personal finance. – Chris W. Rea Oct 17 '16 at 21:38
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    I'm voting to close this question as off-topic because it's an interesting economic/tax theory question, but not a personal finance question per se. – keshlam Oct 17 '16 at 21:42
  • @ChrisW.Rea its more of a question of how to lower transaction costs, it could also be a question of how to obfuscate the origin of funds – CQM Oct 17 '16 at 21:45
  • Obfuscation is off topic. If you want to legitimately minimize cost of a transaction, ask that specific question. – keshlam Oct 17 '16 at 21:48
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    @keshlam it could also be about the mysterious purchasers of nearby real estate raising all of my rents or housing prices and I want to know what they stood to gain by doing all cash transactions through an LLC, especially if the funds were at one point from an illegitimate origin – CQM Oct 17 '16 at 22:32
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One reason is wealthy families use this to avoid taxes and gift money without hitting the million dollar life time giving limit. In some states one can even hold an LLC without anyone but the owners attorney knowing who owns the LLC. This is also used by people who want their wealth kept private not just for hiding illicit funds.

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    If you gift property, you are still gifting something of value that has an appraised value, and the appraised amount above the exemption is still taxable. How does a cash transfer avoid that problem? Can you explain how "Older Wealthy Person Who Owns Expensive Property" transfers property to "Younger Person in Wealthy Family" with this system? "Through an LLC" for bonus points" – CQM Oct 17 '16 at 23:41

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