US set to unveil long-awaited crackdown on real estate money laundering

NEW YORK – The US Treasury Department will soon propose a rule that would effectively end anonymous purchases of luxury homes, closing a legal loophole the agency says allows corrupt oligarchs, terrorists and other criminals to hide profits poorly. had.

The long-awaited rule is expected to require real estate professionals, such as title insurers, to report the identities of beneficial owners of companies buying real estate for cash to Treasury’s Financial Crimes Enforcement Network (FinCEN). .

FinCEN is scheduled to propose the rule sometime this month, in line with its regulatory schedule, though the schedule could be pushed back, two people briefed on the developments said. Anti-corruption advocates and lawmakers have been pushing for the rule, which will replace the current patchwork reporting system.

For decades, criminals have anonymously concealed ill-gotten gains in real estate, Treasury Secretary Janet Yellen said in March, adding that up to $2.3 billion was laundered through U.S. real estate between 2015 and 2020.

“That is why FinCEN is taking this important step to officially put something on the books that would stamp out money laundering in the industry once and for all,” said Erica Hanichak, director of government affairs for advocacy group FACT Coalition.

Some advocates say FinCEN, which declined to comment on the timing of the proposal, has moved too slowly. Officials first said in 2021 that they planned to implement the rule.

FinCEN has been fighting to complete a related rule that would expose owners of shell companies. A bipartisan group of lawmakers has pressured FinCEN to toughen that proposal, according to a public letter from April. That debate has delayed FinCEN’s work on the real estate reporting rule, one of the sources said.

The American Land Title Association, which represents title insurers, says it welcomes the new rule, but FinCEN should hold it off until the shell company rule is completed.

The proposed rule will be open to public and industry comment.

Patchwork

While banks have long been required to understand the source of customer funds and report suspicious transactions, there are no such nationwide rules for the real estate industry.

Instead, FinCEN has operated real estate purchase disclosure rules, known as geographic targeting orders (GTOs), in only a handful of cities, including New York, Miami, and Los Angeles. The new rule is expected to effectively expand GTOs across the country.

FinCEN implemented GTO in 2016 after the New York Times revealed that nearly half of luxury real estate was bought by anonymous shell companies.

But the warrants are easy to circumvent simply by buying property outside of the targeted areas, said Jodi Vittori, an illicit finance expert with the Carnegie Endowment for International Peace.

Transparency advocates pushing for a national rule point to the example of Guo Wengui, an exiled Chinese businessman who prosecutors say used an anonymous shell company to funnel illicit proceeds from a fraud scheme into the purchase of $26 million in a 50,000 square foot building. New Jersey mansion in December 2021.

If Guo had brought property across the Hudson River in Manhattan, it would have been subject to a GTO and likely immediately reported to the police.

Guo, a former business associate of former Donald Trump adviser Steve Bannon, has pleaded not guilty to fraud charges. His lawyers did not respond to a request for comment.

A FinCEN spokesperson said the GTO reports provide valuable data.

Howard Master, a formal federal prosecutor, said law enforcement uses them to generate leads, but mainly to get more information about assets belonging to people already under investigation.

“It will identify an asset that is owned by someone who otherwise would not have known,” said Master, now a partner at research firm Nardello & Co.

A 2020 report from the Government Accountability Office, the investigative arm of Congress, found that nearly 7 percent of GTO reports identified people or entities related to ongoing FBI cases. But the same report highlighted concerns about the ability of FinCEN, which has complained of chronic underfunding, to police the program.

For the new rule to be effective, FinCEN will need more enforcement resources, said David Szakonyi, a professor of political science at George Washington University.

“FinCEN needs more people and more computers to process the information.”

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