It is not a novel development for the U.S. Treasury to investigate potential money laundering in real estate. The Financial Crimes Enforcement Network (FinCEN), a department bureau, initiated the solicitation of public feedback on proposed regulations for commercial real estate two years ago.
However, everything has taken longer than expected. According to a news agency report, this is about to change. In early 2024, FinCEN is expected to publish its proposed rule. Real estate agents would be required to report the identities of beneficial owners of businesses seeking to purchase real estate with cash.
In a recent release, the department stated, “Treasury has advanced its efforts to prevent corrupt and other illicit actors from misusing anonymous, non-financed (i.e., all-cash) purchases of residential real estate to launder or hide the proceeds of crime.” FinCEN has been gathering data on specific residential real estate transactions in the U.S. since 2016, utilizing its Residential Real Estate Geographic Targeting Order (GTO) program.
Treasury published an advance notice of proposed rulemaking (ANPRM) in December 2021 to gather input from the general public on how to handle the risks related to this industry. Treasury plans to release a notice of proposed rulemaking (NPRM) in early 2024, marking a significant step toward increasing transparency in this industry, based on the information provided and comments from the public.
Ian Gary, executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition, told Reuters, “This long-delayed step would plug a gaping loophole in our anti-money laundering rules to ensure that drug traffickers, Russian oligarchs, and environmental criminals can’t hide their wealth in U.S. real estate.”
“To prevent and detect loopholes that could endanger our national security, corruption, money laundering, and sanctions evasion must be addressed holistically in a coordinated, cross-agency manner,” says Eric Young, senior managing director at compliance, monitoring, investigations, and security firm Guidepost Solutions, telling GlobeSt.com that “this was a major lesson learned from 9/11.”
According to him, “The Biden Administration’s announcement of the latest proposal to combat money laundering, corruption, and sanctions evasion reinforces this comprehensive and necessary approach by requiring investment advisers to comply with AML regulations, closing loopholes in residential real estate, and further addressing trade-based money laundering.” This move aims to achieve national security goals by enabling the reporting of beneficial ownership interests with greater transparency. Our national security has long been at risk from each of these industries and pursuits, and the total risk is now even higher.
Eric Young acknowledges the “extreme burden it places on real estate firms and their agents to accurately and in a timely manner identify and report beneficial owners” as a significant challenge.
As the clock ticks towards 2024, the impending FinCEN rule emerges as a beacon of transparency in the real estate domain. With a clear directive to expose the beneficial owners of cash-fueled real estate endeavours, the landscape is poised for a significant shift. This proactive stance not only addresses longstanding loopholes but aligns with broader efforts to safeguard national security.
In the words of industry experts, including Ian Gary and Eric Young, this move is an overdue yet essential stride towards closing gaps that have posed risks to the integrity of the U.S. financial system. The real estate industry, despite facing challenges, is bracing itself for a new era of accountability and heightened scrutiny.
