New US rule targets real estate money laundering


A highly anticipated move by the US Treasury Department aims to tighten the reins on money laundering in the American real estate sector. The upcoming rule, expected to emerge in early 2024, may mandate that real estate professionals disclose the beneficial owners behind cash-purchasing entities to the Financial Crimes Enforcement Network (FinCEN).

Initially set for release in August, the proposed rule encountered delays, pushing the timeline forward without explanation. However, recent insights reveal that FinCEN submitted the rule for review by the White House’s Office of Management and Budget, positioning its formal proposal for February 2024.

This development aligns with the unveiling of a new report by Transparency International, spotlighting the US’s lag in anti-money laundering measures within its real estate domain compared to other affluent nations. The report, analyzing 21 countries, emphasized the US as an outlier. In contrast to other surveyed nations, the US lacks comprehensive anti-money laundering requirements that encompass both residential and commercial real estate transactions throughout the country.

US Department of Treasury Secretary Janet Yellen had previously drawn attention to the sector’s opacity, citing an estimate indicating over US$2.3 billion in illicit funds laundered through US real estate between 2015 and 2020. While banks must monitor fund sources and report suspicious transactions to FinCEN, the real estate sector operates with less stringent oversight.

The impending rule will incorporate public feedback collected since the rulemaking process commenced in December 2021. Additionally, Transparency International’s report urges regulatory measures to address the utilization of discreet trusts in real estate acquisitions, a concern highlighted by ICIJ’s Pandora Papers investigation.

Gary Kalman, Transparency International’s US director, stressed that the clandestine nature of transactions not only obscures illicit money flows but also distorts housing markets. He highlighted how anonymous wealth injection into luxury real estate skews market dynamics, sidelining natural demand for affordable housing and impacting local businesses reliant on foot traffic.

Reports like ICIJ’s Cyprus Confidential investigation shed light on modest properties becoming prime investments. The sale of a New York apartment building through a shell company in 2014, linked to a financier with connections to Russian oligarchs, led to declining maintenance and rising rents, displacing tenants and affecting neighboring businesses.

While some US cities, including New York, have enforced disclosures about beneficial ownership since 2016, the fragmented regulations pose enforcement challenges. Kalman emphasized the necessity for clarity in whether the forthcoming rule would encompass both residential and commercial transactions, emphasizing the need for concrete progress rather than postponing the issue.


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