{"id":1932,"date":"2021-12-31T10:00:00","date_gmt":"2021-12-31T15:00:00","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=1932"},"modified":"2024-04-25T23:19:22","modified_gmt":"2024-04-26T03:19:22","slug":"cash-home-purchases-draw-renewed-federal-scrutiny","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/cash-home-purchases-draw-renewed-federal-scrutiny\/","title":{"rendered":"Cash Home Purchases Draw Renewed Federal Scrutiny"},"content":{"rendered":"\n
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Anti-Money Laundering Update<\/em><\/strong><\/p>\n\n\n\n

The U.S. Treasury Department is gearing up to expand oversight of real estate deals for cash.<\/p>\n\n\n\n

The Treasury Department has issued notice, through its Financial Crimes Enforcement Network (FinCEN), of a proposed rule<\/a> to deal with money laundering.\u00a0A specific target of the Biden administration\u2019s anti-corruption<\/a> drive is the purchase of real estate for cash. This will likely mean more reporting requirements for the real estate industry \u2014 and possibly rules of the type that banks have had to follow. At this time, FinCEN is beyond whether and where additional anti-money-laundering (AML) and suspicious activity reports (SARs) are needed.<\/p>\n\n\n\n

Read on for the fuller story, and a call for public comment.<\/p>\n\n\n\n\n\n\n\n

Why Are All-Cash Purchases Being Targeted for Special Scrutiny?<\/h2>\n\n\n\n

In fact, most home purchases are screened for hallmarks of money-laundering. When there\u2019s a mortgage, lenders comb over the sources of funds that the buyer brings into the deal.<\/p>\n\n\n\n

Banks, following the Bank Secrecy Act, must adhere to federal reporting rules. All other home mortgage companies, including those in the government-backed and conventional loan areas, must submit suspicious activity reports, and must have AML and anti-terrorism policies in place to review the movement of funds from their origins into the home loan products.<\/p>\n\n\n\n

When a home buyer pays for a home in cash, though, there may be no way for the government to trace the movement of ill-gotten gains into real estate assets. In most areas, businesses involved in an all-cash purchase need not adhere to Bank Secrecy Act reporting provisions (putting aside separate IRS reporting rules for large cash transactions).<\/p>\n\n\n\n

This is a key reason some $2.3 billion has been laundered through property deals in the United States in the five-year period from 2015 to 2020, FinCEN says.<\/p>\n\n\n\n

Who Is Laundering Money Through U.S. Home Purchases?<\/h2>\n\n\n\n

Many upmarket homes in the United States are purchased by legal entities such as LLCs rather than in a personal name. World leaders<\/a> have long been known to buy New York properties under company names. Their habits were scrutinized recently by the International Consortium of Investigative Journalists. The result was the Pandora Papers: millions of documents exposing who has bought what, sometimes though questionable methods. Even where the methods are legal, they allow massive wealth to go untaxed. The whole issue is surrounded by calls for transparency.<\/p>\n\n\n\n

Accordingly, FinCEN says<\/a> its proposed rulemaking is being done to \u201cenhance 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.\u201d<\/p>\n\n\n\n

FinCEN\u2019s announcement came as the Biden administration issued its “U.S. Strategy on Countering Corruption” on December 6.<\/p>\n\n\n\n

Today, Cash Purchases in 12 Cities Get Federal Scrutiny<\/h2>\n\n\n\n
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What has the Financial Crimes Enforcement Network\u00a0done so far? In 2016, FinCEN initiated Geographic Targeting Orders<\/a> (GTOs). These involve areas around specific cities where title companies must report the identities of buyers.<\/p>\n\n\n\n

The GTO regime started off by requiring title insurers in New York City and Miami Dade County to submit information on all-cash home purchases made in the name of companies, whenever a home\u2019s sale price exceeds $300,000. FinCEN has expanded<\/a> this regime several times from 2016 through 2021. To date, the other U.S. cities regulated by this reporting provision are metropolitan Boston, Massachusetts; Chicago, Illinois; Dallas-Fort Worth and San Antonio, Texas; Honolulu, Hawaii; Las Vegas, Nevada; Los Angeles, San Diego, and San Francisco, California; and Seattle, Washington. In all of these cities, the title companies have to disclose the names of individuals who use LLCs or other businesses to buy the homes. When filling out Currency Transaction Reports, GTO title insurers must:<\/p>\n\n\n\n