Wide-reaching regulation and tough enforcement critical for protecting U.S real estate from illicit funds

The Anti-Corruption Data Collective (ACDC) has urged the Financial Crimes Enforcement Network (FinCEN) to massively scale up its coverage of the real estate sector and its enforcement of suspicious property deals. A new ACDC working paper based on analysis of millions of real estate transactions finds that the temporary and partial Geographical Targeting Orders (GTOs) implemented from 2016 to 2018 led to no discernible difference in market behaviour, likely due to a lack of visible enforcement against bad actors. This finding corrects earlier research.

ACDC welcomes the proposed new rulemaking announced in December 2021 by FinCEN, which seeks to make GTOs permanent and nationwide and make other improvements to minimize existing loopholes that allow money launderers and foreign kleptocrats to stash and clean illicit cash using U.S. real property deals. In a public comment to FinCEN on these proposed changes, ACDC provides a series of concrete recommendations to enhance U.S. national security and ensure that corrupt and criminal actors are effectively deterred from laundering and protecting ill-gotten gains.

Download the working paper

Download the public comment to FinCEN

David Szakonyi, ACDC co-founder and an author of the working paper, said:

“The GTOs bring more transparency to some of the highest-risk property deals in the United States: anonymous shell companies buying high-end real estate in hot markets, which we know are a popular way to launder the proceeds of crime and corruption. Yet when we analyze real estate market data, we see no related decrease in high-end property purchases in the counties the GTOs cover. One explanation is that bad actors didn’t believe the GTO program carried real risk of punishment, so they didn’t change their money laundering techniques.”

Implemented in 22 counties beginning with Miami Dade and Manhattan in 2016, GTOs require title insurance companies in high-risk districts to collect beneficial ownership information from companies making all-cash real estate purchases above a certain value. While GTO reports appear to have contributed to investigations by law enforcement, ACDC could not identify any publicized property seizures or forfeitures resulting from the programme.

Zoe Reiter, ACDC co-founder, said:

“We support proposals by FinCEN to move beyond its so-far too limited approach to preventing illicit activity in the American property market. We strongly recommend that FinCEN collect basic sales and beneficial ownership information for the buyer and seller of every piece of real estate in the country, both residential and commercial, and regardless of whether the purchase was all-cash or financed. It is critical that law enforcement agencies are equipped and prepared to follow up on red flags in the data and bring cases that deter criminals and kleptocrats from profiting from investments in U.S. real estate.”

ACDC emphasizes that in order to be effective, GTOs require adequate implementation that includes effective verification and reporting mechanisms; increased resources and capacities for enforcement; and national coverage that includes both residential and commercial real estate. Otherwise, it will be too easy for malign actors to game the American system, undermining national security at home and contributing to corruption and instability around the world.

For more information:

David Szakonyi, co-founder, ACDC. David@acdatacollective.org

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