FinCEN rolls out residential real estate transparency rules to combat money laundering

FinCEN aims to deter money laundering in the US residential real estate sector.

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) wants to make residential real estate transactions more transparent and combat money laundering by unmasking the owners of certain all-cash purchases.

FinCEN’s proposed regulation would require real estate professionals to report information to the agency about the non-financed sales of residential real estate to legal entities, trusts and shell companies. The rule would not require the reporting of sales to individuals.

Noting that all-cash purchases of residential real estate are considered at high risk for money laundering, FinCEN Director Andrea Gacki said: “Illicit actors are exploiting the US residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices”.

She said the proposal is an “important step toward not only curbing abuse of the US residential real estate sector, but safeguarding our economic and national security”.

Risks with real estate

Real estate is a commonly used vehicle for money laundering, due to opaque reporting rules on purchases. FinCEN has issued an advisory to provide information about the money laundering risks associated with real estate transactions, particularly focusing on those involving high-end property purchased through shell companies without traditional financing.

The real estate market can be an attractive vehicle for laundering illicit gains because of the manner in which it appreciates in value, absorbs (“cleans”) large sums of money in a single transaction, and shields ill-gotten gains from things like exchange-rate fluctuations.

The Treasury Department has also been rolling out a variety of initiatives that revolve around fostering greater transparency in the marketplace, including offering a new database on beneficial ownership registry that contains details about the owners of at least 32 million US businesses. Treasury Secretary Janet Yellen said last month that 100,000 businesses have registered for the new database.

Comments  to the proposed rule will be accepted for 60 days following publication in the Federal Register.