The Biden administration is tackling money laundering. They aim to clear up funds moving through U.S. financial systems. Enhancing transparency is critical for residential real estate deals. They plan to reveal who's behind all-cash purchases. This move could expose more illegal activities in the sector.
Targeting Professionals - A New Proposition
The FinCEN (Financial Crimes Enforcement Network) of the Treasury Department set forth a new proposal for real estate professionals, necessitating them to disclose information concerning non-financed sales of residential properties to trusts, legal entities, and shell companies to the agency.
The regulation perceives all-cash transactions in residential real estate as a high-risk avenue for money laundering. Despite this, the proposed law would not enforce the reporting of sales to individual buyers.
"Criminal elements are exploiting the U.S. residential real estate market to launder and conceal the proceeds of severe illegal activities," stated Andrea Gacki, FinCEN Director. She views the proposal as crucial to curbing such misuse and protecting the country's economic and national security.
Can Increased Transparency Diminish Money Laundering?
The White House took action against illegal fund laundering. In December 2021, they initiated measures. These are focused on real estate purchases that aim to improve transaction transparency. They're doing this through new recordkeeping mandates.
Due to the ambiguity in reporting rules, real estate transactions often serve as a vehicle for money laundering. Current research is exploring to what extent this criminal activity impacts housing affordability.
A Canadian study on the influence of money laundering on housing prices found that unlawful investments in real estate drive housing prices between 3.7% and 7.5%. The research further illustrates the international dimension and potential consequences of this problem.
The executive director of the FACT Coalition, Ian Gary, a transparency advocacy group, asserts that the proposed regulation signals that the U.S. is determined to close the loopholes used by offenders to stash their illegal earnings within American real estate markets.
Other Initiatives of the Treasury
The Treasury has also implemented other transparency-related initiatives besides the real estate sector. This includes the launch of a new database on small business ownership. Unofficially referred to as the "beneficial ownership registry,." It is anticipated to contain the personal details of at least 32 million U.S. business owners.
Recently, Treasury Secretary Janet Yellen shared some news. She said that 100,000 businesses registered for the new database. However, the move has not been without resistance. The USA's National Small Business Association has petitioned against creating the database in a lawsuit filed in November 2022. They argue that the measure is overly taxing for small businesses and treads on states' authority to regulate their activities.
Overall, implementing these regulations will be vital in unveiling the owners behind cash transactions in real estate and combating prevailing money laundering. A combination of strict rules, cooperation, and active participation of everyone involved would be integral to a successful crackdown on criminals' misuse of the real estate market.
