US wants to close money laundering loopholes in real estate industry

A downtown area of ​​Miami (Florida, USA)

The U.S. Treasury Department is expected to soon propose rules that would end anonymous purchases of luxury homes, closing a money-laundering loophole that the agency says has allowed corrupt kingpins, terrorists and other criminals to hide their illicit funds.

The long-awaited regulation is expected to force real estate professionals, such as title insurers, to report the identities of beneficial owners of companies that buy properties for cash.

This information is expected to be reported to the Financial Crimes Enforcement Network (FinCEN) under the US Treasury Department, Reuters reported on August 10.

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While banks have long been required to investigate the sources of customers' money and report suspicious transactions, no such rules exist nationwide for the real estate industry.

Instead, FinCEN has real estate disclosure requirements in just a few cities, including New York, Miami, and Los Angeles, which were put in place in 2016 after news reports that nearly half of luxury real estate was purchased by anonymous shell companies.

Transparency advocates have called for nationwide regulation, pointing to the case of exiled Chinese businessman Guo Wengui, who prosecutors say used a shell company to funnel illicit profits to buy a $26 million New Jersey mansion in December 2021.

If Mr. Guo had bought property across the river in Manhattan, New York, he would have been bound by the disclosure requirement. Mr. Guo has denied the fraud.

Meanwhile, states like Delaware, New Mexico and Wyoming allow buyers to use anonymous companies and do not require individuals to disclose their identities when forming their legal entities. Many rich and famous people often use these companies to buy real estate, mainly to hide their identities.

Money laundering 2.3 billion USD

FinCEN will propose new rules this month, though the timing could change, according to sources. Anti-corruption advocates and lawmakers have pushed for the rules, which would replace the current patchwork reporting system.

Treasury Secretary Janet Yellen said in March that criminals have for decades hidden and hidden their ill-gotten gains in real estate, with $2.3 billion laundered through US real estate from 2015 to 2020.

“That’s why FinCEN is taking this important step to formally rule out money laundering in this industry once and for all,” said Erica Hanichak of the advocacy group FACT Coalition.

Some advocates say the proposal is too slow. Officials said in 2021 they planned to adopt the rule. But FinCEN has struggled to complete a related rule to expose the owners of shell companies. A bipartisan group of lawmakers has pressured FinCEN to move forward. The debate has slowed FinCEN’s work on the real estate reporting rule.

The American Land Title Association, which represents title insurance companies, welcomed the new rule but said FinCEN should hold off on the proposal until it completes the shell company rule. The proposal will be open to public and industry comment.

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