Treasury Introduces Rules to Enhance Real Estate Transparency

The Biden administration is taking steps to enhance transparency in residential real estate transactions by proposing regulations to unveil the owners of certain all-cash purchases. This initiative is part of a broader effort to combat money laundering and the flow of illicit funds through the American financial system.

Under the proposed regulation by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), real estate professionals would be required to report information to the agency about non-financed sales of residential real estate to legal entities, trusts, and shell companies. The focus is on all-cash purchases, which are considered high-risk transactions for money laundering, with an exemption for reporting sales to individuals.

Andrea Gacki, Director of FinCEN, emphasized the importance of the proposal in addressing the abuse of the U.S. residential real estate sector by illicit actors, stating that it aims to safeguard both economic and national security interests. The move aligns with the administration’s goal of increasing transparency in real estate transactions to prevent corrupt actors from using real estate purchases to launder illicit proceeds.

Real estate has long been a favored avenue for money laundering due to the lack of clear reporting requirements on purchases. Studies have shown the impact of money laundering on housing affordability, with one study in Canada revealing that such investments led to a notable increase in housing prices. Ian Gary, Executive Director of the transparency advocacy group FACT Coalition, views the proposed regulation as a clear message that the U.S. is closing off avenues for criminals seeking to conceal their ill-gotten gains in real estate markets.

In addition to the real estate transparency initiative, the Treasury Department has undertaken other efforts to enhance transparency, including the rollout of a beneficial ownership registry for small businesses. Despite progress, challenges remain, as evidenced by legal opposition to the beneficial ownership registry, citing concerns over burdensome regulations and potential infringement on states’ regulatory authority.