"U.S. Cracks Down on Real Estate Money Laundering with New Oversight Rule"

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In a decisive move to tackle money laundering in the U.S. real estate market, the Financial Crimes Enforcement Network (FinCEN) has unveiled a pivotal rule aimed at curbing illicit financial flows through residential properties. Proposed on February 7, this regulation seeks to enhance transparency and accountability in the sector, targeting transactions conducted through trusts and other opaque legal entities.

“For decades, illicit actors have exploited the anonymity of cash transactions in residential real estate to launder money and evade detection,” explained a senior FinCEN official. “All-cash deals are particularly appealing to criminals as they bypass the scrutiny faced by financial institutions under stringent anti-money laundering measures.”

Under the proposed rule, real estate professionals would be required to report “high-risk” transactions to FinCEN via “real estate reports,” akin to the suspicious activity reports (SARs) filed by banks. These reports would disclose the true owners of entities or trusts acquiring properties, with the data stored in a confidential database accessible only to law enforcement and national security agencies.

This initiative aligns with the broader goals of the Corporate Transparency Act, which provides a snapshot of entity ownership but lacks insight into risky transactions, according to Erica Hanichak, government affairs director of the FACT Coalition. Hanichak emphasized the importance of this reform, noting that it fills a significant gap left by the long-standing exemption for real estate professionals from anti-money laundering obligations under the Bank Secrecy Act.

“The introduction of this rule is a crucial step toward mitigating the infiltration of dirty money into our real estate system,” Hanichak asserted.

The U.S. real estate market, valued at $47 trillion in 2023, remains a prime target for criminals and unscrupulous investors due to its stability and high value. The new rule aims to address how such transactions distort property prices and exacerbate housing shortages by keeping properties vacant or inflating their value through all-cash offers.

Notably, investigations like the Pandora Papers and Cyprus Confidential have highlighted the extent of these issues. In 2021, the Pandora Papers exposed 206 U.S.-based trusts with over $1 billion in assets linked to various international scandals. More recently, Cyprus Confidential reported how a New York apartment building was acquired by a shell company, resulting in higher rents for tenants and connections to sanctioned individuals.

By enhancing oversight and transparency, FinCEN’s proposed rule represents a significant stride toward ensuring the integrity of the U.S. real estate market and safeguarding it from misuse.