US wants to plug money laundering loopholes in real estate industry

A downtown area of ​​Miami (Florida, USA)

The U.S. Treasury Department is expected to soon propose rules that would put an end to anonymous purchases of luxury homes, closing a money laundering loophole the agency says has let corrupt kingpins, terrorists and other criminals hide their illicit funds.

The long-awaited regulation is expected to force real estate professionals, such as title insurers, to report the identities of beneficial owners of companies that buy properties for cash.

This information is expected to be reported to the Financial Crimes Enforcement Network (FinCEN) under the US Treasury Department, Reuters reported on August 10.

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While banks have long been required to investigate the sources of customers' money and report suspicious transactions, no such rules exist nationwide for the real estate industry.

Instead, FinCEN has mandated real estate disclosures in just a few cities, including New York, Miami, and Los Angeles, since 2016, after media reports revealed that nearly half of luxury real estate was purchased by anonymous shell companies.

Transparency advocates have called for nationwide regulation, pointing to the case of exiled Chinese businessman Guo Wengui, who prosecutors say used a shell company to funnel illicit profits to buy a $26 million mansion in New Jersey in December 2021.

If Mr. Quach had bought property in Manhattan, New York, across the river, he would have been bound by the disclosure rules. Mr. Quach has denied the fraud.

Meanwhile, states like Delaware, New Mexico and Wyoming allow buyers to be anonymous companies and do not require individuals to disclose their identities when forming a legal entity. Many rich and famous people often use these companies to buy real estate, mainly to hide their identities.

Money laundering 2.3 billion USD

FinCEN will propose new rules this month, though the timing could change, according to sources. Anti-corruption advocates and lawmakers have pushed for the rules, which would replace the current patchwork reporting system.

Treasury Secretary Janet Yellen said in March that criminals have for decades hidden their illicit profits in real estate, with $2.3 billion laundered through US real estate from 2015 to 2020.

“That’s why FinCEN is taking this important step to formally rule to eliminate money laundering in this industry once and for all,” said Erica Hanichak of the advocacy organization FACT Coalition.

Some advocates say the proposal is too slow. Officials announced plans in 2021 to adopt the rule. But FinCEN has struggled to complete a related rule to expose the owners of shell companies. A bipartisan group of lawmakers has pressured FinCEN to move forward. The debate has slowed FinCEN’s work on the real estate reporting rule.

The American Land Title Association, which represents title insurance companies, welcomed the new rule but said FinCEN should delay the proposal until it completes the shell company rule. The proposal will be open for public and industry comment.

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