BAM Key Details

  • Criminals have for decades anonymously hidden ill-gotten gains in real estate, adding that as much as $2.3 million was laundered through U.S. real estate between 2015 and 2020. 
  • A new rule proposes ending anonymous luxury home purchases in order to cut out money laundering through real estate.  

A new rule has been proposed by the U.S. Treasury Department, which would effectively end anonymous luxury home purchases by cutting off the opportunity for oligarchs, terrorists, and other criminals to hide real estate purchases. 

The rule requires real estate professionals (such as title insurers) to report the identities of the beneficial owners of companies buying real estate in cash to the Treasury’s Financial Crimes Enforcement (FinCEN). 

History of Real Estate in Money Laundering Schemes

Treasury Secretary Janet Yellen said criminals have anonymously hidden ill-gotten gains in real estate for decades. She stated  that as much as $2.3 million was laundered through U.S. real estate between 2015 and 2020. The proposed rule, sought after by anti-corruption activists and legislators, aims to replace the reporting system. 

“That’s why FinCEN is taking this important step to put something officially on the books that would root out money laundering through the sector once and for all,” said Erica Hanichak, government affairs director of advocacy group the FACT Coalition.

FinCEN is expected to introduce the rule later this month, as indicated by its regulatory schedule. However, there is a possibility of delays, according to information provided by two informed sources. 

Patchwork Reporting System

Although banks have had a longstanding obligation to confirm the source of customer funds and report any suspicious activities, there are currently no equivalent regulations for the real estate sector at a national level. Instead, FinCEN has implemented geographic targeting orders (GTOs) for real estate purchases in a limited number of cities, including New York, Miami, and Los Angeles. The upcoming rule is anticipated to widen GTOs’ coverage to surround the entire country.

Expanding GTOs Nationwide

Following a 2016 report by The New York Times, which unveiled that nearly 50% of high-end real estate transactions involved undisclosed shell companies, FinCEN introduced GTOs. 

Advocates promoting transparency on a national scale highlight the case of Guo Wengui, a Chinese entrepreneur in exile. Prosecutors allege that Guo Wengui utilized an unidentified shell company to funnel ill-gotten gains from a fraudulent scheme, ultimately using $26 million to receive a 50,000-square-foot mansion in New Jersey in December 2021.

The new rule aims to  prevent money laundering in the real estate sector. If  the new rule becomes enforced nationwide, FinCEN will have a bigger presence and be able to keep a closer eye on deals that are out of the ordinary. Real estate agents need to stay informed about these regulatory changes to navigate the evolving industry effectively.