Proposed Money Laundering Rule for Real Estate Coming Soon

The interest of the U.S. Treasury in addressing potential money laundering in real estate is nothing new. Two years ago, the department’s Financial Crimes Enforcement Network, or FinCEN, bureau started looking for public comments on new rules for commercial real estate.

But things have been delayed. That’s about to end, according to a Reuters report. FinCEN is expected to release its proposed rule in early 2024. Real estate professionals would have to report identities of the beneficial owners of companies looking to pay for real estate with cash.

“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,” the department noted in a recent release. “Since 2016, FinCEN has leveraged its Residential Real Estate Geographic Targeting Order (GTO) program to collect information about certain residential real estate transactions in the United States. In December 2021, Treasury issued an advance notice of proposed rulemaking (ANPRM) to solicit public feedback on how to address the risks associated with this sector. Building on this information and public feedback, Treasury aims to issue a notice of proposed rulemaking (NPRM) in early 2024 that will be an important step toward bringing greater transparency to this sector.”

“This long-delayed step would plug a gaping loophole in our anti-money laundering rules to make sure that drug traffickers, Russian oligarchs, and environmental criminals can’t hide their wealth in U.S. real estate,” Ian Gary, executive director the Financial Accountability and Corporate Transparency (FACT) Coalition, told Reuters.

“Corruption, money laundering, and sanctions evasion are not mutually exclusive crimes and must be addressed holistically in a coordinated, cross-agency manner to prevent and detect loopholes from threatening our national security. This was a major lesson learned from 9/11,” Eric Young, senior managing director at compliance, monitoring, investigations and security firm Guidepost Solutions, tells GlobeSt.com.

“Similarly, the Biden Administration’s announcement of the latest proposal to combat money laundering, corruption, and sanctions evasion reinforces this holistic and needed approach by: 1) closing residential real estate loopholes, 2) requiring investment advisers to comply with AML rules, and 3) further tackle trade-based money laundering,” he continued. “This will enable greater transparency and reporting of beneficial ownership interests to further our national security objectives. Each of these sectors and activities have long been potential threats to our national security and this cumulative risk is even greater today.”

However, Young notes a challenge in the form of “the extreme burden it places on real estate firms and their agents to accurately and in a timely manner identify and report beneficial owners.”