Buying a house with cash? Proposal explores reporting requirement to thwart money laundering

Real estate buyers using cash to purchase residential or commercial properties would be subject to new reporting requirements aimed at spoiling money laundering schemes under a new proposal being explored by the Treasury’s financial crimes unit and announced Monday.

According to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), its advance notice of proposed rulemaking (ANPR) seeks responses on what approach it should take toward residential and commercial real estate transactions to address the “vulnerability of the U.S. real estate market to money laundering and other illicit activity.”

“FinCEN has long been concerned with the potential for corrupt officials and illicit actors to launder the proceeds of criminal activity through the purchase of real estate in the United States and has worked to increase transparency in the real estate sector,” the agency said in a release. “Given the relative stability of the real estate sector as store of value, the opacity of the real estate market, and gaps in industry regulation, the U.S. real estate market continues to be used as a vehicle for money laundering and can involve businesses and professions that facilitate (even if unwittingly) acquisitions of real estate in the money laundering process.”

FinCEN asserted that real estate transactions involving loans or other financing by banks and other regulated financial institutions, which are subject to federal anti-money laundering rules, are less susceptible to money laundering because those institutions are required to report suspicious activity to the agency.

By contrast, the agency stated, when real estate is purchased without such financing, it can be “nearly impossible to trace the beneficial owners behind shell companies that are often used to purchase the real estate. As a result, corrupt officials and criminals engaging in illicit activity can exploit the U.S. real estate sector to launder their ill-gotten wealth.”

According to the agency, the ANPR would assist FinCEN in preparing a proposed rule that would enhance the transparency of the domestic real estate market on a nationwide basis and protect the U.S. real estate market from exploitation by criminals and corrupt officials.

FinCEN noted that it has not imposed general recordkeeping and reporting requirements authorized under the Bank Secrecy Act (BSA) on persons involved in all-cash real estate transactions. However, it added that it has imposed specific transaction reporting requirements on title insurance companies in the form of Geographic Targeting Orders (GTOs). The ANPR, the agency said, seeks comment on the approach FinCEN should take with respect to both the residential and commercial real estate sectors.

Comments are being sought on the proposal for 60 days after publication in the Federal Register.

FinCEN Launches Regulatory Process for New Real Estate Sector Reporting Requirements to Curb Illicit Finance