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.

Among measures FinCEN was evaluating to curb such abuses was requiring people involved in all-cash commercial real estate closings to follow the requirements of its AML/CFT program and SAR reporting; ensuring that a record-keeping and reporting requirement be attached to at least one entity involved in every all-cash real estate transaction; expanding anti-money laundering regulations for the real estate industry from a number of targeted geographic locations to a nationwide status for transactions over a certain amount; and extending reporting requirements to trusts.

Any proposed new rules for U.S. real estate professionals and fund managers should require them to do their due diligence by getting to know who their customers are and the source of their money, and to report anything suspicious, noted Gary Kalman, executive director of Transparency International U.S., part of a global coalition against corruption. The rules need to apply to both residential and commercial real estate, he added.

FinCEN’s December 2021 request for input in part sought to address the question of how much commercial real estate transactions can be regulated without imposing undue burdens on the professionals involved, given the wider array of methods for investing in commercial real estate—for example, through CMBS bonds.

Yet if stricter regulations are imposed on investment in residential real estate, but not commercial transactions, money launderers would just “play a game of whack-a-mole” and switch their hiding places from one sector to the other, according to Zoe Reiter, co-founder of the advocacy group Anti-Corruption Data Collective. “We need to strike while the fire is hot and the attention is there,” she noted.

Right now, residential real estate is getting the bulk of illicit money, in spite of the fact that there are a few more regulations surrounding it, such as a Geographic Targeting Order requiring U.S. title insurers to identify the natural persons behind the shell companies used in all-cash residential purchases, according to Kalman.

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