The White House is set to review a long-awaited rule that aims to crack down on money laundering schemes in the real estate industry.
The new rule, created and put forth by the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury, has reached the Office of Information and Regulatory Affairs on Monday, as first reported by Reuters, citing government records.
What is in the new rule?
The new rule is expected to require real estate professionals such as title insurers and brokers to report the identities of the beneficial owners of companies buying real estate in cash to FinCEN. If approved, the rule will put an end to anonymous luxury home purchases. It will also close a loophole that allows oligarchs, terrorists, and other criminals to hide any ill-gotten gains.
What led to the new anti-money laundering rule?
Criminals have, for decades, used real estate to hide their ill-gotten gains. In 2021, a report titled "Acres of Money Laundering: Why U.S. Real Estate is a Kleptocrat's Dream" found that more than $2.3 billion had been laundered through the U.S. real estate industry between 2015 and 2020. Those ill-gotten gains included artworks, jewelry, and yachts.
The study also found that more than 50% of reported cases of money laundering in the U.S. involved politically exposed persons. At least 82% of cases in the country involved the use of a legal entity to mask ownership.
Among sectors of the real estate industry, commercial real estate featured in over 30% of all money laundering cases.
The report also found that gatekeepers usually include real estate attorneys, agents, investment advisers, and employees of financial institutions who were either willfully blind or directly complicit.
"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," Erica Hanichak, government affairs director of advocacy group the FACT Coalition, said.
Banks have long been required to determine the source of customer funds. Banks are also required to report any transactions they deem suspicious. However, no such rules exist nationwide for the real estate industry. Only a few cities, including New York and Miami, have real estate purchase disclosure rules. The new rule is expected to expand disclosure rules nationwide.
