U.S. Treasury Makes a Bold Move to Combat Money Laundering — And Home Buyers Could Be Affected

The U.S. Treasury Department plans to introduce a rule aimed at ending anonymous purchases of luxury homes, which allow corrupt individuals, terrorists and criminals to conceal their illicit profits, Reuters reported.

The initiative would require real estate professionals, including title insurers, to report the true owners of companies buying high-value properties with cash to the Treasury’s Financial Crimes Enforcement Network (FinCEN).

The proposed rule, which is expected to be introduced this month, seeks to replace the current fragmented reporting system. The objective is to combat money laundering through real estate transactions, as criminals have exploited the sector to launder money for years. A report from the organization Global Financial Integrity found that about $2.3 billion was laundered through U.S. real estate between 2015 and 2020.

“That’s why FinCEN is taking this important step to put something officially on the books that would root out money laundering through the sector once and for all,” Erica Hanichak, government affairs director of advocacy group the FACT Coalition, told Reuters.

The new rule is set to expand on existing geographic targeting orders (GTOs), which have been implemented in select cities like New York, Miami and Los Angeles since 2016. These GTOs aim to reveal the true purchasers of luxury real estate and curb anonymous transactions.

However, Jodi Vittori, an illicit finance expert at the Carnegie Endowment for International Peace, noted to Reuters that these orders can be evaded by purchasing properties outside the targeted zones.

The Global Financial Integrity report found that 60.7% of cases of money laundering in real estate involved one or more properties in non-GTO counties. The new rule is expected to broaden the coverage of GTOs nationwide.

The process has been further complicated by the challenge of revealing the owners of shell companies, which has diverted attention from implementing the real estate reporting rule. In 2020, the U.S. Senate passed a bill banning anonymous shell companies, requiring them to state the owners. However, the bill is still in the process of completion.

Various stakeholders have differing opinions on the timing and implementation of the new rule. Although transparency advocates welcome the move, others, like the American Land Title Association, suggest delaying it until the shell company rule is finalized.

For the rule to be effective, it is important for FinCEN to receive increased resources for enforcement, David Szakonyi, a political science professor at George Washington University, told Reuters. The success of the initiative hinges on the ability to process the information and take necessary actions against suspicious transactions.

“FinCEN needs more people and more computers to process the information,” Szakonyi told the outlet.