Reported by Buck Wargo

New proposed regulations by the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury might put more pressure on U.S. commercial real estate professionals, including fund managers, to address money laundering in the industry.

Starting in December 2021, FinCEN solicited input from industry professionals on how best to address the issue of excessive secrecy and limited transparency in commercial real estate transactions, focusing on non-financed, or “all-cash,” deals. The organization hasn’t yet given a timeline for when the proposed new rules might be releases to the public, but proponents of stricter regulation say the rules could be introduced as soon as this month, or sometime over this summer, with enactment slated for 2024. FinCEN declined to make any additional comments on the matter, other than a statement that it intends to issue a notice of proposed rules to address money laundering threats in the U.S. real estate sector.

Currently, a lack of financial transparency enables bad actors to use U.S. real estate to launder their money, hiding the true source of their finances, as well as jeopardizing U.S. national security and financial system, according to those backing the measure. These bad actors include domestic and international criminal organizations, such as drug cartels and human traffickers, international terrorists, as well as sanctioned foreign oligarchs and kleptocrats.

According to a study published in August 2021 by Global Financial Integrity (GFI), a Washington, D.C.-headquartered think tank, based on a database of more than 100 international real estate money laundering cases, between 2015 and 2020 more than $2.3 billion in illegal funds had been laundered through U.S. real estate. Even that figure is considered to be “the tip of the iceberg,” since money laundering is so difficult to track.

GFI research found that about 30% of the cases it looked at involved commercial real estate and “the use of anonymous shell companies and complex corporate structures” appeared to be the number one preferred method for money laundering schemes. An overwhelming majority of the U.S. cases (82%) involved the use of a legal entity to conceals true ownership of property.

The think tank, along with other backers of stricter regulation, have centered the discussion around the fact that the U.S. trails behind other developed countries by exempting its real estate professionals from having to follow anti-money laundering regulations. When an investor buys property in the U.S., there’s currently no requirement for real estate professionals, starting from fund managers and ending with title agents, to do any background checks on whom they are selling real estate to. On the other hand, the E.U. has regulated real estate transactions to prevent money laundering since 2001.

Read full report: https://www.wealthmanagement.com/investment/fincen-will-soon-release-proposals-new-real-estate-regulations-how-will-affect-investors