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Risk Fraud & Compliance

US announces new anti-corruption strategy, Treasury weighs anti-laundering rule for real estate sector

Brett Wolf  Regulatory Intelligence

· 5 minute read

Brett Wolf  Regulatory Intelligence

· 5 minute read

The government moves to stop money laundering schemes done through the buying and selling of real estate designed to hide illicit gains

The U.S. Treasury Department earlier this month announced a push to extend anti-money laundering (AML) obligations to the real estate sector and issued the first of a number of sanctions expected this week as part of an anti-corruption push tied to the newly released U.S. Government Strategy on Countering Corruption.

The strategy, which U.S. President Joe Biden directed his national security team to begin crafting in June, outlines a raft of measures aimed at more effectively uprooting corruption. These include Treasury AML rules aimed at policing the real estate market, the issuance of beneficial ownership transparency regulations already under development, and a drive to prevent “gatekeepers” to the financial system — such as lawyers, accountants, and trust and company service providers — from helping hide ill-gotten gains.

The strategy and this month’s actions from Treasury’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC) came out as Pres. Biden hosted the virtual U.S. Summit for Democracy with 110 participants just days after the announcement.

New rules for real estate

FinCEN also issued an Advance Notice of Proposed Rulemaking (ANPRM) aimed at “preparing a proposed rule that would enhance the transparency of the domestic real estate market on a nationwide basis and protect the U.S. real estate market from exploitation by criminals and corrupt officials.” While stating it wants to focus on all-cash real estate transactions, the Treasury AML bureau noted that it “has long been concerned with the potential for corrupt officials and illicit actors to launder the proceeds of criminal activity through the purchase of real estate in the United States.”

Himamauli Das, acting Director of FinCEN, said in a written statement, that “increasing transparency in the real estate sector will curb the ability of corrupt officials and criminals to launder the proceeds of their ill-gotten gains through the U.S. real estate market. Addressing this risk will strengthen U.S. national security and help protect the integrity of the U.S. financial system. We urge stakeholders to provide input to assist us in developing an approach that enhances transparency while minimizing burden on business.”

A spokeswoman for the National Association of Realtors declined comment. The public will have 60 days to comment once the ANPRM is published in the Federal Register.

If FinCEN opts to move forward after receiving public comment, the next step would be to issue a proposed rule for real estate players, at which time the public would have another opportunity to comment prior to the potential issuance of a final rule. The process would be a lengthy one apt to face fierce resistance from real estate trade groups.

Treasury’s concern about money laundering through real estate is not new. In 2002, FinCEN began an AML rule-making process for “persons involved in real estate closings and settlements,” similarly issuing an ANPRM aimed at addressing the financial crime risk posed by real estate deals. That rule-making push withered without public explanation, although sources familiar with the matter say the complexities of the market and its many and diverse players created a substantial challenge for FinCEN, which was widely seen as underfunded even before the AML Act of 2020 created a slew of new obligations for the small bureau.

FinCEN is also working to create a national beneficial ownership registry to house information on the individuals behind shell companies, which are a favored tool of criminals seeking to mask their ownership of assets. Speaking at an AML conference in September, Scott Rembrandt, deputy assistant secretary for strategic policy at Treasury, said the registry was “the key priority — our biggest focus.” FinCEN expects to announce soon its progress toward creating the registry, according to press reports.

Anti-corruption push

Washington’s anti-corruption push comes after a series of leaked documents, including October’s release of the Pandora Papers, raised questions about ways in which government officials and others discreetly move money abroad, potentially to dodge taxes or accountability for wrongdoing.

Also earlier this month, OFAC sanctioned a Democratic Republic of Congo national for allegedly providing support to Israeli mining magnate Dan Gertler, as part of a push to target corruption in the central African country. In a written statement, OFAC said that Alain Mukonda made payments into proxy bank accounts for Gertler after Treasury blacklisted him in 2017. Mukonda allegedly made cash deposits totaling between $11 million and $13.5 million into accounts of companies he incorporated that ultimately belong to Gertler’s family.

Treasury’s targeting of Mukonda was the first in a series of sanctions announcements ahead of Biden’s virtual summit.

This article includes reporting by Reuters.

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