US set to unveil long-awaited crackdown on real estate money laundering
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[August 10, 2023] By
Luc Cohen and Chris Prentice
NEW YORK (Reuters) - The U.S. Treasury Department will soon propose a
rule that would effectively end anonymous luxury-home purchases, closing
a loophole that the agency says allows corrupt oligarchs, terrorists and
other criminals to hide ill-gotten gains.
The long-awaited rule is expected to require that real estate
professionals such as title insurers report the identities of the
beneficial owners of companies buying real estate in cash to the
Treasury's Financial Crimes Enforcement Network (FinCEN).
FinCEN is slated to propose the rule sometime this month, according to
its regulatory agenda, though the timeline could slip, said two people
briefed on the developments. Anti-corruption advocates and lawmakers
have been pushing for the rule, which will replace the current patchwork
reporting system.
Criminals have for decades anonymously hidden ill-gotten gains in real
estate, Treasury Secretary Janet Yellen said in March, adding that as
much as $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," said Erica Hanichak, government affairs
director of advocacy group the FACT Coalition.
Some advocates say FinCEN, which declined to comment on the timing of
the proposal, has moved too slowly. Officials first said in 2021 that
they planned to implement the rule.
FinCEN has been struggling to complete a related rule that would unmask
shell company owners. A bipartisan group of lawmakers has pressed FinCEN
to tighten up that proposal, according to an April public letter. That
debate has slowed down FinCEN's work on the real estate reporting rule,
one of the sources said.
The American Land Title Association, which represents title insurers,
says it welcomes the new rule but that FinCEN should delay it until the
shell company rule is completed.
The proposed rule will be open to public and industry feedback.
PATCHWORK
While banks have long been required to understand the source of customer
funds and report suspicious transactions, no such rules exist nationwide
for the real estate industry.
Instead, FinCEN has operated real estate purchase disclosure rules,
known as geographic targeting orders (GTOs), in just a handful of cities
including New York, Miami and Los Angeles. The new rule is expected to
effectively expand GTOs nationwide.
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The downtown skyline of Miami, Florida
November 5, 2015. REUTERS/Joe Skipper/File Photo
FinCEN implemented GTOs in 2016 after the New York Times revealed
that nearly half of luxury real estate was bought by anonymous shell
companies.
But the orders are easy to skirt by simply buying property outside
the targeted areas, said Jodi Vittori, an expert on illicit finance
at the Carnegie Endowment for International Peace.
Transparency advocates pushing for a nationwide rule point to the
example of Guo Wengui, an exiled Chinese businessman who, according
to prosecutors, used an anonymous shell company to channel illicit
profit from a fraud scheme into the $26 million purchase of a
50,000-square-foot New Jersey mansion in December 2021.
Had Guo brought property across the Hudson River in Manhattan, it
would have been subject to a GTO and likely flagged immediately to
law enforcement.
Guo, a onetime business partner of former Donald Trump adviser Steve
Bannon, has pleaded not guilty to fraud charges. His lawyers did not
respond to a request for comment.
A FinCEN spokesperson said GTO reports provide valuable data.
Howard Master, a formal federal prosecutor, said law enforcement
uses them to generate leads, but mainly to learn more about assets
owned by individuals already under investigation.
"It'll identify an asset that is beneficially owned by someone that
you might not otherwise have known about," said Master, now a
partner at investigations firm Nardello & Co.
A 2020 report by the Government Accountability Office, Congress'
investigative arm, found that nearly 7% of GTO reports identified
individuals or entities connected to ongoing FBI cases. But the same
report highlighted concerns about the ability of FinCEN, which has
complained of chronic underfunding, to police the program.
For the new rule to be effective, FinCEN will need more enforcement
resources, said David Szakonyi, a political science professor at
George Washington University.
"FinCEN needs more people and more computers to process the
information."
(Reporting by Luc Cohen and Chris Prentice in New York; Editing by
Amy Stevens, Michelle Price and Matthew Lewis)
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