WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) has announced an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comment on a potential rule to address the vulnerability of the U.S. real estate market to money laundering and other illicit activity.
“The systemic money laundering vulnerabilities presented by the U.S. real estate sector, and consequently, the ability of illicit actors to launder criminal proceeds through the purchase of real estate, threatens U.S. national security and the integrity of the U.S. financial system,” FinCEN said.
FinCEN stated it has “long been concerned” with the potential for corrupt officials and illicit actors to launder the proceeds of criminal activity through the purchase of real estate in the United States and has worked to increase transparency in the real estate sector.
“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 U.S. 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,” FinCEN stated.
The agency noted real estate transactions involving loans or other financing by regulated financial institutions, such as banks, which are subject to federal anti-money laundering rules, are less susceptible to money laundering because those institutions are required to report suspicious activity to FinCEN.
“For example, when most American families buy a home with a mortgage, the bank that makes the loan is subject to rules that require it to identify the buyer and report suspicious activity,” FinCEN said. “In contrast, when real estate is purchased 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 U.S. real estate sector to launder their ill-gotten wealth.”
Curbing Corrupt Officials
FinCEN said the ANPRM will assist it in preparing a proposed rule that would enhance the transparency of the domestic real estate market on a nationwide basis and protect the U.S. real estate market from exploitation by criminals and corrupt officials.
“Increasing transparency in the real estate sector will curb the ability of corrupt officials and criminals to launder the proceeds of their ill-gotten gains through the U.S. real estate market,” said Himamauli Das, Acting Director of FinCEN. “Addressing this risk will strengthen U.S. national security and help protect the integrity of the U.S. financial system. We urge stakeholders to provide input to assist us in developing an approach that enhances transparency while minimizing burden on business.”
According to FinCEN, the ANPRM reflects the concerns highlighted in the newly released U.S. Government Strategy on Countering Corruption, which spotlights the money laundering risks in the U.S. real estate market, as well as the need to protect the sector from abuse by corrupt officials and other illicit actors.
Seeking Variety of Comments
FinCEN noted it has not imposed general recordkeeping and reporting requirements authorized under the Bank Secrecy Act on persons involved in all-cash real estate transactions, but said it has imposed specific transaction reporting requirements on title insurance companies in the form of Geographic Targeting Orders (GTOs). This ANPRM seeks comment on the approach FinCEN should take with respect to both the residential and commercial real estate sectors.
The ANPRM seeks comments both on the benefits to law enforcement and the prevention of illicit finance as well as potential burdens or challenges that such a reporting requirement might present, FinCEN said