In a move that aligns with the Biden administration’s broader push for regulatory control, the Treasury Department has rolled out new regulations designed to clamp down on laundering money through the U.S. real estate market. But as with many of the administration’s efforts, these new rules come with both praise and criticism.
The regulations, finalized this week, place a new burden on investment advisers and real estate professionals, requiring them to report all-cash transactions for residential properties sold to legal entities like trusts and shell companies. Interestingly, these rules don’t apply to individual buyers or transactions involving traditional mortgages or financing. The Treasury’s Financial Crimes Enforcement Network, or FinCEN, will be the agency overseeing these new measures.
This crackdown is part of a broader strategy by the Biden administration to root out what they perceive as “dirty money” in the American financial system. They argue that all-cash real estate purchases represent a significant risk for money laundering activities. While the administration touts these regulations as a much-needed step to combat financial crimes, critics argue that this is yet another example of government overreach that could have unintended consequences for the real estate market and small business owners.
Treasury Secretary Janet Yellen has hailed the new rules as essential to closing gaps in the nation’s financial regulatory framework. “These steps will make it harder for criminals to exploit our strong residential real estate and investment adviser sectors,” Yellen said in a statement.
On the surface, it may seem like a positive move, but let’s dig a little deeper. Money laundering in real estate can, indeed, drive up housing costs, an issue that has become increasingly concerning for many Americans. A 2019 study conducted by Canadian academics found that money laundering in the real estate sector could increase home prices by as much as 7.5%. This is especially relevant as rising home prices have become a significant issue in the current presidential campaign. However, the real question is whether these new regulations will effectively target criminals or simply create additional red tape for legitimate real estate transactions.
Ian Gary, the executive director of the FACT Coalition, a nonprofit advocating for corporate transparency, called the rules “much-needed safeguards.” He went as far as to suggest that the era of financial secrecy and impunity for financial criminals in the U.S. is coming to an end. “After years of advocacy by lawmakers, anti-money laundering experts, and civil society, the era of unmitigated financial secrecy and impunity for financial criminals in the U.S. seems to finally be over,” Gary said.
But let’s not forget that not everyone is on board with these changes. While some in the real estate industry have expressed support for the new rules, others are concerned about the potential for overregulation. Tori Syrek, a spokesperson for the National Association of Realtors, described FinCEN’s final rule as a “pragmatic, risk-based approach to combating money laundering.” Yet, one can’t ignore the fact that this move adds another layer of bureaucracy that could slow down the real estate market and potentially stifle economic growth.
Moreover, the Biden administration’s push for corporate transparency doesn’t stop at real estate. They have also introduced a requirement for tens of millions of small businesses to register with the government to prevent the misuse of anonymous shell companies. However, this aspect of their agenda has already faced legal challenges. In March, an Alabama federal district judge ruled that the Treasury Department could not mandate small business owners to report detailed information on their owners and beneficiaries, citing concerns over privacy and government overreach.
In summary, while the Treasury’s new regulations may be a step toward combating financial crime, they also raise important questions about the balance between security and freedom. As the Biden administration continues to expand its regulatory reach, it’s crucial to consider the broader implications for businesses, the economy, and individual freedoms. Are these new rules truly about protecting the financial system, or are they another example of an administration eager to assert control at any cost? Only time will tell.
