New Draft Rules Cracking Down on Dirty Money in U.S. Real Estate and Private Investment Markets Mark Generational Progress
WASHINGTON, DC – This week, the Financial Accountability and Corporate Transparency (FACT) Coalition submitted formal public comments in support of a pair of proposed rules by Treasury which would close long standing loopholes used by foreign and domestic criminals to launder money through U.S. residential real estate and private investment markets.
The roughly $50 trillion U.S. real estate and $130 trillion investment fund sectors have for decades been largely excluded from anti-money laundering requirements, despite dwarfing the commercial banking sector and other types of financial institutions regulated under the Bank Secrecy Act.
“With the release of these proposed rules, Treasury has taken a historic step toward cutting off avenues for money laundering in the U.S. that have long been recognized as major national and economic security risks,” said Ian Gary, executive director of the FACT Coalition. “After decades, the days of the U.S. being one of the easiest places to hide dirty money may be finally coming to an end. Treasury must now finish the job by releasing strong final rules in line with recommendations from anti-money laundering experts and civil society.”
The release of final anti-money laundering safeguards for investment advisers and residential real estate purchases would build upon other transformative achievements that have made this year a turning point for U.S. efforts to detect and deter dirty money. On January 1, 2024, Treasury’s Financial Crimes Enforcement Network (FinCEN) launched the nation’s first federal directory of the true, “beneficial” owners of anonymous shell companies, shining a light on what has long been one of the most common vehicles for criminal actors to shield their identities and launder ill-gotten gains. Beneficial ownership transparency, along with measures tackling money laundering through U.S. real estate and private investment markets, form the backbone of the Biden Administration’s strategy to combat illicit finance and corruption.
Treasury’s pair of new proposed rules were broadly praised by a wide range of stakeholders, with submissions in support lodged by U.S. senators, affordable housing, national security, and anti-corruption groups. Though these comments were largely positive, a number of recommendations to strengthen the proposals formed a common theme – most notably, the need to extend these safeguards to commercial real estate purchases. Treasury has announced its intention to release a separate rule to counter money laundering in U.S. commercial real estate markets later this year.
FACT’s recommendations, beyond the need for new safeguards for commercial real estate markets, included clarifying appropriate penalties for entities that fail to accurately file required information under FinCEN’s proposed real estate rule. Regarding the private investment sector, FACT also urged FinCEN to include family offices – which collectively manage trillions of dollars in assets throughout the U.S., yet are not currently covered by the proposed rule – in its definition of entities required to establish anti-money laundering programs.
“By denying bad actors easy access to U.S. markets through residential real estate and other investments, Treasury has drawn the U.S. closer to shedding its status as the world’s premiere supplier of financial secrecy,” said Erica Hanichak, government affairs director of the FACT Coalition. “Opaque investments endanger our national security, distort housing and other markets, and disadvantage law-abiding citizens. Treasury should move quickly to finalize these proposed rules by the end of the year, and to close remaining loopholes for commercial real estate purchases.”
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Notes to the Editor:
- Click here to read FACT’s full comment on FinCEN’s proposed rule for residential real estate transactions. The full NPRM can be found here.
- Click here to read FACT’s full comment on FinCEN’s proposed rule for investment advisers. The full NPRM can be found here.
- FACT’s comments included substantive recommendations to ensure the efficacy of both rules. The most important of these recommendations include:
- For Real Estate:
- Providing greater enforcement clarity through appropriate stated penalties for failing to accurately file required information;
- Improving the Real Estate Report by adding fields to the filing, including by requiring professionals to verify reported beneficial ownership information, and to determine the source of funds used in a given purchase;
- Addressing risks presented by partially financed transactions, including those conducted by pooled investment vehicles; and
- Covering commercial real estate transactions under similar reporting requirements.
- For Investment Advisers:
- Adding family offices to the definition of investment advisers under the rule;
- Adding foreign private advisers with U.S. clients to the definition of investment advisers under the rule;
- Ensuring real estate funds are covered, regardless of existing, unrelated SEC exemptions; and
- Swiftly finalizing the Customer Identification Program and Customer Due Diligence (CDD) rules in cooperation with the SEC.
- For Real Estate:
- Click here to read a letter of support for FinCEN’s investment adviser rule by U.S. senators, including the chairs of the Senate Armed Services, Banking, Budget, Judiciary, and Finance Committees.
- Click here to read an abbreviated letter of support for Treasury’s draft real estate rule from Transparency International U.S., endorsed by 30 anti-corruption organizations and professionals. TI-US also submitted full comments on Treasury’s proposals for investment advisers and real estate transactions.
- The illicit finance risks associated with the U.S. real estate and private investment sectors are extensively documented in a pair of agenda-setting reports by FACT and its members, Acres of Money Laundering: Why U.S. Real Estate is a Kleptocrat’s Dream and Private Investments, Public Harm.
