Two Miami experts offer insights on the Panama Papers leak | Crain's Miami

Two Miami experts offer insights on the Panama Papers leak

The Panama Papers leak on the hidden funds of the world's wealthy elite continues to generate enormous buzz in Miami.

Real estate and banking professionals wonder how their industries will be affected by such intense focus on offshore dealings and foreign cash transactions. Here, two Miami professionals offer some insight into how offshore companies are generally used, and how the practice affects business in Miami.

David Schwartz, CEO of the Florida International Bankers Association, works with member banks located in 18 countries spanning four continents. His colleagues often run into issues regarding offshore shell companies. It's not unusual for banks to encounter a "spider" diagram, Schwartz says, when trying to determine the beneficiary of an entity that's been broken down and renamed several times over.

Many of his colleagues are used to dealing with wealthy individuals who are benefitting from clever financial structures and foreign real estate investment, particularly in Latin America, where capital flight is higher due to economic instability and security concerns.

But Schwartz points out that these types of structures aren’t necessarily illegal. It's how a person uses them that can deem such activity as suspicious. "These kinds of structures are perfectly legal, and there's nothing illegal about having these setups," Schwartz says. "It's the use of that structure that the papers are calling into question."

Likewise, George Metcalf Jr., a tax and estate planning attorney at Miami law firm Richman Greer, often assists non-resident clients who own properties in the U.S. by creating foreign corporations that hold title to their assets. Most of the time, Metcalf's clients are using these kinds of structures for their own protection. He says most people don't realize the dangers posed to wealthy individuals living in less secure countries.

"Often times, having a large sum of money in a bank account linked directly to your name can have very dangerous consequences," Metcalf says, adding a firm client was recently the target of a brutal crime. According to Metcalf, the vast majority of these structures are entirely legal as long as beneficiaries are transparent. "The IRS allows it as long as you disclose it," says Metcalf.

Schwartz recognizes that wrongdoing does occur. "The issue of misuse of these types of structures has been known for many years, and I think that's very well evidenced by the attempts to pass legislation in Congress," Schwartz says.

The U.S. Treasury Department now require more disclosure on cash real estate transactions brokered in Miami and Manhattan. As it stands, Miami's real estate market is largely based on financed transactions.

A recent survey by financial crimes enforcement network FinCEN found that 78 percent of Miami real estate transactions valued at $1 million or more were financed. "That tells us there was a bank involved, conducting a lot of due diligence on buyers and sellers involved in the transaction," Schwartz says.

The new federal requirements will allow the Treasury Department to gather information on the remaining 22 percent of transactions. Both Schwartz and Metcalf consider tighter restrictions vital. "Tougher laws will certainly deter bad actors," says Schwartz. "And since this economic boom in Miami isn’t simply built on illicit money, I doubt the market will change," says Schwartz.

For his part, Metcalf hasn't experienced any slowdown. "I'm still primarily working on creating foreign entities to purchase U.S. real estate, and the uptick in work is very dependent on the state of the market," he says. "In Miami, that continues to hold pretty strong."

June 9, 2016 - 5:33pm