The Biden administration is proposing a new regulation aimed at increasing transparency in the residential real estate market, specifically targeting all-cash purchases made by legal entities, trusts, and shell companies. This move is part of a broader effort to combat money laundering and the flow of illicit funds through the American financial system.
Unveiling the Hidden Hand:
Currently, all-cash purchases, while common, often lack the same level of scrutiny as financed transactions. This anonymity creates a loophole for individuals and entities seeking to launder illegal gains through real estate investments. The proposed regulation, announced by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), seeks to bridge this gap by requiring real estate professionals to report information about these specific types of transactions to FinCEN.
Why the Focus on All-Cash Deals?
All-cash purchases raise red flags for money laundering due to several factors:
- Lack of Paper Trail: Transactions done entirely in cash leave minimal financial records, making it difficult to trace the source of funds.
- Shell Companies and Trusts: Complex legal structures like shell companies and trusts can be used to mask the true identities of the beneficial owners, further clouding the transaction’s legitimacy.
What Does the Rule Entail?
The proposed rule focuses on non-financed residential real estate purchases exceeding a certain threshold, likely above $300,000. Real estate professionals, such as closing attorneys and title companies, would be required to report information about these transactions, including:
- Identifying information of the legal entity, trust, or shell company involved.
- Details of the beneficial owner(s), if known.
- Source of funds used for the purchase.
- Property information.
Expected Impact:
This regulation is expected to deter money laundering activities in the real estate market by:
- Increasing transparency:Â Shining a light on previously opaque transactions.
- Facilitating law enforcement investigations:Â Providing authorities with valuable information to track illicit funds.
- Potentially impacting housing affordability:Â If the rule helps curb inflated prices linked to money laundering.
However, some concerns have been raised about potential burdens on real estate professionals and potential privacy issues. The proposed rule is currently open for public comment before being finalized.
This development highlights the ongoing efforts to combat financial crime and protect the integrity of the US financial system. It remains to be seen how this specific regulation will be implemented and its overall impact on the real estate market.
The proposed law:Â Anti-Money Laundering Regulations for Residential Real Estate Transfers
Billing Code: 4810-02-P
DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Chapter X
RIN 1506-AB54
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: FinCEN is issuing a proposed rule to require certain persons involved in real estate closings and settlements to submit reports and keep records on identified non-financed transfers of residential real property to specified legal entities and trusts on a nationwide basis. Transfers made directly to an individual would not be covered by this proposed rule. The proposed rule describes the circumstances in which a report must be filed, who must file a report, what information must be provided, and when a report is due.
These reports are expected to assist the U.S. Department of the Treasury; Federal, State, and local law enforcement; and national security agencies in addressing illicit finance vulnerabilities in the U.S. residential real estate sector and to curtail the ability of illicit actors to anonymously launder illicit proceeds through the purchase of residential real property, which threatens U.S. economic and national security.
