Real estate professionals who handle closings and settlements will need to file a report to the Treasury when an all-cash residential sale is made to shell companies, trusts and legal entities
The U.S. Treasury Department released on Wednesday a new proposed rule for reporting all-cash residential real estate purchases in an effort to curb money laundering through real estate transactions.
The rule will require those real estate professionals who handle closings and settlements nationwide to report information to the Treasury’s Financial Crimes Enforcement Network (FinCEN) when an all-cash sale of a residential property — including single-family homes, vacant land zoned for single-family properties, or coops — is made to a legal entity, shell company or trust.
That means that all-cash sales made to individuals will be exempt from reporting — but faceless LLCs will no longer be able to stay so anonymous.
In most cases, individuals who will handle reporting of such sales will be settlement or closing agents, including title company reps or lawyers, but the proposed rule details a hierarchy of who should report under which circumstances.
“Illicit actors are exploiting the U.S. residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices,” FinCEN Director Andrea Gacki said in a statement. “Today marks an important step toward not only curbing abuse of the U.S. residential real estate sector, but safeguarding our economic and national security.”
The White House first announced the initiative back in 2021.
The Financial Accountability and Corporate Transparency (FACT) Coalition celebrated the proposal as a measure that would dissuade international and domestic bad actors from using the real estate market to obfuscate dirty money.
“This draft rule sends a clear message that the U.S. plans to close off options for criminals looking to hide their ill-gotten gains in our real estate markets,” Ian Gary, executive director of the FACT Coalition, said in a statement. “It is imperative that Treasury now finalize strong, permanent rules to prevent the misuse of U.S. residential and commercial real estate by foreign and domestic criminals, sanctioned Russian oligarchs, drug traffickers, sponsors of international terrorism and other bad actors.”
FinCEN’s proposed rule noted that all-cash transactions by shell companies, trusts and the like have carried a high risk in the past as a vehicle for money laundering, due to few reporting regulations. FinCEN has found that about 42 percent of all-cash real estate sales captured by the Residential Real Estate Geographic Targeting Orders or “GTOs” are conducted by individuals or entities on which a Suspicious Activity Report (SAR) has been filed.
GTOs, real estate purchase disclosure rules on transactions above a specified amount, had already been effect in select cities across the U.S., including New York, Miami and LA, prior to FinCEN’s most recent proposed regulation.
The proposed rule also suggested that money laundering through all-cash sales has the negative impact of inflating U.S. housing prices, although it is unclear by how much.
Last year, Treasury Secretary Janet Yellen estimated that $2.5 billion had been laundered through U.S. real estate from 2015 to 2020, according to Reuters.
The proposed rule is scheduled to be published on February 16, and FinCEN invites the public to submit comments in response to the rule, which will be accepted for 60 days after publication.
The Treasury Department also plans to release a separate rule to combat money laundering in the commercial real estate market later this year.