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HomePressGFI Submits Comment to FinCEN on Anti-Money Laundering Regulations for Real Estate Transactions

 

GFI Submits Comment to FinCEN on Anti-Money Laundering Regulations for Real Estate Transactions

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February 22, 2022

FinCEN Urged to Create New Regulations to Address the Vulnerabilities of U.S. Real Estate to Money Laundering

Global Financial Integrity (GFI) today submitted a comment on regulations proposed by the Financial Crimes Enforcement Network (FinCEN) which would create effective solutions to address vulnerabilities of the U.S. real estate market to money laundering and other illicit activity. GFI thanks FinCEN for this opportunity to provide input.

The avalanche of high-profile cases over the last several years have shown that kleptocrats, corrupt politicians, organized crime, and sanctions evaders all choose the U.S real estate market as their destination to launder money. Continuing to ignore the problem threatens U.S. national security and empowers the back sliding of democratic norms the world over. GFI’s own research into the sector found that more than US$2.3 billion was laundered through U.S. real estate in cases reported between 2015 and 2020. 82 percent of those cases involved foreign sources of money, and more than 50 percent involved Politically exposed Persons (PEPs). 

“The U.S. remains the only G7 country that does not require real estate professionals to comply with anti-money laundering law,” noted President and CEO of GFI Tom Cardamone.  “This, coupled with the Treasury Secretary’s stunning admission that ‘the best place to hide and launder ill-gotten gains is actually the United States’ suggests that FinCEN’s rulemaking is coming none too soon.”

Much like other money laundering vehicles, real estate money laundering involves the migration of ill-gotten wealth from the developing world into the world’s leading financial centers. In the U.S. context, this has meant easier sanctions evasion by the Iranian government, the loss of hundreds of jobs across West Virginia and Ohio after it was discovered that the millions invested into these states were just a real estate laundering scheme, and the contribution that corrupt money in the U.S real estate sector plays in bolstering authoritarian regimes. The unchecked abuse of the real estate sector also reveals the underbelly of professional money laundering networks, where the very individuals meant to safeguard the financial system instead are given carte blanche over laws and ethical codes.

FinCEN through this ANPRM has embarked on an effort to create a robust regulatory framework. The ANPRM, if incorporated fully into a final rule, will address the systemic vulnerabilities presented by the U.S. real estate sector and limit the ability of criminal actors to use and abuse the U.S. real estate market as a safe haven. More importantly, as outlined in the U.S. Strategy to Counter Corruption, it will provide relief from practices that “negatively impacts average citizens in the United States, tilting the economic playing field against working Americans, […] perpetuating growth-dampening inequality, and contributing to pricing out families from home ownership through real estate purchases.”

GFI recommends that any proposed rule should remedy the weaknesses of the GTO and includes the following elements as key areas of reform:

  1. A permanent, nationwide regime without any monetary reporting threshold for transactions;
  2. Application to both residential and commercial real estate, with a usable definition that distinguishes each category of real estate;
  3. Application of reporting obligations even with respect to ‘transfers of ownership’ that do not constitute a sale. This is to ensure that criminals do not transfer ownership by simply altering the title deed or altering the ownership of the LLC that purchased the property;
  4. A cascading reporting obligation for multiple real estate professionals, including title and escrow companies and agents, real estate attorneys, and real estate agents and brokers, to ensure that a reporting requirement falls on at least one U.S.-based entity in the real estate transaction;
  5. Application to both transactions by natural persons and legal entities including trusts, foundations and other forms of legal arrangements previously excluded from the GTOs;
  6. Requirement to submit beneficial ownership information in line with the standards of the Corporate Transparency Act of both the buyer and the seller, as well as information on the source of funds, identification of PEPs, and other key pieces of information of the transaction to FinCEN;
  7. A clear definition of the terms ‘financed’ and ‘non-financed’ transactions to ensure that real estate transactions that are financed through mechanisms that do not have robust AML/CFT checks are not inadvertently exempt from a reporting obligation under any proposed FinCEN rule.

GFI is confident that the recommendations provided throughout its comment can assist in creating a strong rule that balances the risk to U.S. national security with ongoing practices within the sector.

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ABOUT GFI: Global Financial Integrity (GFI) is a Washington, D.C.-based think tank, producing high-caliber analyses of illicit financial flows, advising governments on effective policy solutions and promoting pragmatic transparency measures in the international financial system as a means to improve global development and security and reduce inequality.

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