US set to unveil long-awaited crackdown on real estate money laundering

 The US is set to unveil a long-awaited real estate money laundering crackdown

NEW YORK (Reuters) - The U.S. Treasury Department will soon propose a rule that would effectively end anonymous purchases of luxury homes and close a loophole the agency says allows corrupt oligarchs, terrorists and other criminals to hide ill-gotten gains.

The long-awaited rule is expected to require real estate professionals, such as title insurers, to report the identities of the beneficial owners of companies that buy real estate for cash to the Treasury Department's Financial Crimes Enforcement Network (FinCEN).

FinCEN is slated to propose a rule sometime this month, according to its regulatory agenda, though the timeline could slip, said two people briefed on the development. Anti-corruption advocates and lawmakers have pushed for a rule to replace the current patchwork reporting system.

Criminals have anonymously hidden ill-gotten gains in real estate for decades, Treasury Secretary Janet Yellen said in March, adding that between 2015 and 2020, up to $2.3 billion was laundered through US real estate.

"That's why FinCEN is taking this important step to officially put something on the books that would root out money laundering in this sector once and for all," said Erica Hanichak, director of government affairs for the advocacy group FACT Coalition.Some advocates say FinCEN, which declined to comment on the timing of the proposal, is moving too slowly. Officials first said in 2021 that they planned to implement the rule

FinCEN is working to finalize a related rule that would expose the owners of shell companies. A bipartisan group of lawmakers pressed FinCEN to toughen the proposal, according to an April public letter. That debate has slowed FinCEN's work on the real estate reporting rule, one of the sources said.The American Land Title Association, which represents title insurers, says it welcomes the new rule but that FinCEN should delay it until the shell company rule is finalized.

The proposed rule will be open to public and industry feedback.

While banks have long been required to understand the source of customers' funds and report suspicious transactions, no such rules exist nationwide for the real estate industry.Instead, FinCEN implemented real estate purchase disclosure rules, known as geographic targeting orders (GTOs), in just a few cities, including New York, Miami and Los Angeles. The new rule is expected to effectively expand GTO across the country.FinCEN implemented the GTO in 2016 after the New York Times revealed that nearly half of luxury real estate was purchased by anonymous shell companies.

But the orders can be easily circumvented simply by buying property outside the targeted areas, said Jodi Vittori, an expert on illicit financing at the Carnegie Endowment for International Peace.Transparency advocates pushing for the nationwide rule point to the example of Guo Wengui, an exiled Chinese businessman who prosecutors say used an anonymous shell company to funnel illegal profits from a fraudulent scheme to buy 50,000 square feet for $26 million. Castle in New Jersey in December 2021.

If Guo had brought the property across the Hudson River in Manhattan, he would have been subject to a GTO and would likely have been flagged to law enforcement immediately.Guo, a former business partner of former Donald Trump adviser Steve Bannon, has denied the fraud charges. His lawyers did not respond to a request for comment.

A FinCEN spokesperson said the GTO reports provide valuable data.

Howard Master, the formal federal prosecutor, said law enforcement agencies use them to get leads, but mostly to learn more about assets owned by people already under investigation.“It identifies an asset that is actually owned by someone that you might not otherwise know about,” said Master, now a partner at investigative firm Nardello & Co.

A 2020 report by the Government Accountability Office, the investigative arm of Congress, found that nearly 7% of GTO reports identified individuals or entities connected to ongoing FBI cases. But the same report highlighted concerns about the ability of FinCEN, which has complained of chronic underfunding, to police the program.For the new rule to be effective, FinCEN will need more enforcement resources, said David Szakonyi, a political science professor at George Washington University."FinCEN needs more people and more computers to process the information."

In a major move aimed at boosting financial transparency and protecting the real estate market, the United States is poised to launch a long-awaited crackdown on money laundering in the real estate sector. This major development reflects the government's commitment to combating illicit financial activities and promoting the integrity of the real estate industry. In this article, we'll dive into the key steps of this looming crackdown and explore the potential implications for various stakeholders.

Money Laundering in Real Estate: A Growing ConcernMoney laundering in the real estate market is a growing concern as illicit funds flow through real estate transactions, obscuring the true origin of the money involved. This not only threatens the legitimacy of real estate deals, but also poses a risk to national security and financial stability.

Enhanced regulatory measures

The upcoming crackdown includes a series of strengthened regulatory measures designed to detect and prevent money laundering in the real estate sector. These measures include stricter due diligence requirements, improved reporting mechanisms and increased cooperation between real estate professionals, financial institutions and law enforcement agencies.

Mandatory reporting and transparency

One significant aspect of the crackdown is the introduction of mandatory reporting of high-value real estate transactions. Real estate professionals, including real estate agencies and developers, will be required to report real estate transactions that meet specific thresholds. This transparency will help identify suspicious activities and trace the origin of funds.

Cooperation between agencies

Cooperation between government agencies such as the Financial Crimes Enforcement Network (FinCEN), the Internal Revenue Service (IRS), and the Department of Justice (DOJ) will be enhanced to effectively combat real estate money laundering. This coordinated effort ensures that potential illegal activities are promptly identified, thoroughly investigated and appropriately prosecuted.

Implications for the real estate industry

This intervention has significant implications for various stakeholders in the real estate industry. While the increased regulatory burden may present challenges at first, it ultimately contributes to a more transparent and trustworthy market. Buyers and sellers can have more confidence in the legitimacy of transactions, which is likely to improve the overall health of the real estate sector.

Investor awareness and due diligence

Investors, both domestic and international, should be aware of the evolving regulatory environment. Conducting thorough due diligence on real estate transactions, including sources of funds, will become even more important. Adhering to new reporting requirements and maintaining a commitment to financial transparency will be critical for investors looking to navigate the updated regulatory landscape.

The impending crackdown on real estate money laundering is a significant step toward strengthening the integrity of the U.S. real estate market. Through strengthened regulatory measures, mandatory reporting and increased cooperation between agencies, this initiative aims to curb illicit financial activities and create a more transparent and secure environment for real estate transactions. While there may be challenges during the transition, the long-term benefits for the industry and its stakeholders are promising. Investors and real estate professionals alike should stay informed and adapt to these changes to ensure continued success in an evolving environment.