The US Treasury Plans To Crackdown On Money Laundering Through Real Estate

If you’ve been laundering money through US real estate, you might encounter a few hurdles soon. Today the US Treasury’s Financial Crime Enforcement Network (FinCEN) gave notice of upcoming rule changes for home buying. They warn that real estate is vulnerable to money laundering by a wide range of criminals. Consequently, the regulator believes it presents a risk to “national security” and the financial system. 

Money Laundering Through Real Estate Is An Increasing Concern

The US Treasury has become increasingly concerned with real estate used for money laundering. In a 2020 illicit financing report, the Treasury warned it is becoming widespread. “Criminals with widely divergent levels of financial sophistication use real estate at all price levels to store, launder, or benefit from illicit funds,” wrote the regulator. 

Varying level of sophistication is a key point that should warrant more attention from the public. It no longer takes a network of high-priced professionals to launder money in housing. It’s become increasingly more accessible for criminals with varying levels of resources. Greater access to money laundering tools tends to increase the volume it occurs.

Over $2.1 Billion Laundered Through Real Estate Has Been Found

The regulator used a recent Global Financial Integrity (GFI) study to highlight their point. The anti-corruption organization found the minimum amount laundered through US real estate was US$2.1 billion over the past 5-years. The majority of cases (82%) involved a corporate shell to obfuscate ownership. 

“Given the relative stability of the real estate sector as store of value, the opacity of the real estate market, and gaps in industry regulation, the US real estate market continues to be used as a vehicle for money laundering and can involve businesses and professions that facilitate (even if unwittingly) acquisitions of real estate in the money laundering process,” said the regulator. 

US Will Focus On Non-Financed Home Purchases

FinCEN plans to focus its resources on under-regulated areas, such as all-cash buyers. Homes purchased with financing already go through several checks from the lender. All-cash buyers rarely do, especially before this year. If the buy is through a shell company, it becomes even more challenging to detect any anomalies. Without any sort of beneficial ownership data, there’s no way to figure out who owns the asset ultimately. 

“In contrast, when real estate is bought without such financing, it can be nearly impossible to trace the beneficial owners behind shell companies that are often used to purchase the real estate. As a result, corrupt officials and criminals engaging in illicit activity can exploit the US real estate sector to launder their ill-gotten wealth,” wrote FinCEN. 

The rule changes have yet to be shared publicly, and they might not even totally exist as of yet. FinCEN only took the first step by filling an advanced notice of proposed rulemaking (ANPRM). The filing initiates a 60-day public consultation to voice any concerns or suggestions. At a minimum, we can probably expect an expansion of regional rules.

Earlier this year, FinCEN expanded geo-targeting orders (GTO) to include real estate transactions. GTOs implement higher reporting requirements in cities targeted by criminals. The expansion of GTOs earlier this year implemented new rules for property title insurers. Now they are required to file a report for any home purchase over $300,000 in 12 cities. FinCEN rules have yet to be written, but it’s probably a safe bet to see rules like this expanded nationally.