In a bid to enhance transparency and combat money laundering, the Biden administration has put forth a proposal through the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The regulation aims to unveil the owners behind certain all-cash purchases in residential real estate transactions, particularly those involving legal entities, trusts, and shell companies.
The proposed rule, revealed on Wednesday, would mandate real estate professionals to report information to FinCEN regarding non-financed sales of residential real estate. All-cash transactions in the residential real estate sector are identified as high-risk for money laundering activities. Notably, the proposed regulation focuses on reporting sales to legal entities and trusts, rather than individuals.
FinCEN Director Andrea Gacki emphasized the exploitation of the U.S. residential real estate market by illicit actors to launder and conceal proceeds from serious crimes, often with anonymity. Gacki views the proposal as a crucial step in curbing abuse in the residential real estate sector and safeguarding economic and national security. The move aligns with the White House’s commitment, outlined in December 2021, to implement real estate recordkeeping requirements to deter corrupt actors from laundering illicit proceeds through real estate transactions.
Money laundering through real estate has been a longstanding concern due to the lack of transparency in reporting rules, allowing criminal activities to impact housing affordability. The proposed regulation sends a clear message that the U.S. is committed to closing off options for criminals seeking to conceal their ill-gotten gains in the real estate markets, according to Ian Gary, Executive Director of the transparency advocacy group FACT Coalition.
The Treasury Department, spearheading transparency initiatives, recently introduced a beneficial ownership registry containing personal information on the owners of over 32 million U.S. businesses. Treasury Secretary Janet Yellen reported that 100,000 businesses have already registered for the new database. However, challenges persist, with the National Small Business Association filing a lawsuit in November 2022 to halt the creation of the database, citing undue burdens on small firms and concerns about infringing on states’ rights to regulate businesses.
The proposed regulation in the residential real estate sector reflects a broader effort by the Biden administration to fortify the financial system against illicit activities and enhance transparency in key sectors of the economy.