Industry Decoded: Billions at stake in Anti-Money Laundering efforts
Money laundering criminals have their eyes on real estate, and with that interest comes heightened scrutiny from the government, as well as heightened risk.
Thinking big about residential real estate success requires a big-picture perspective. Industry Decoded features industry experts who can enrich your understanding of issues affecting the industry as a whole.
Imagine Federal Agents raiding your brokerage as part of their investigation into terrorism or drug trafficking. Could this ever happen?
While the likelihood of a federal raid is extremely low, there are few industries of greater interest to money laundering criminals than that of United States real estate. In fact, from 2015 to 2020, over $2.3 billion was laundered through U.S. real estate transactions, according to a report by Global Financial Integrity, a Washington, D.C.-based think tank.
To date, most real estate brokerages have not been subject to Anti-Money Laundering (AML) compliance duties, but that is not the case for other businesses involved in real estate transactions. AML compliance and detection activities and other Patriot Act compliance matters have been a key focal point for financial institutions, escrow/settlement agents, and title companies. Many in the real estate brokerage industry would prefer to delegate AML compliance activities to financial institutions and settlement agents. I would argue that when it comes to compliance matters, it takes a village, and everyone needs to do their part.
Why is this an industry issue?
Real estate is especially vulnerable to money launderers for the following reasons:
Criminals can launder large amounts in a single transaction
Subjective prices allow overvaluation
Transactions can be completed in all or part cash
Real estate tends to be a stable investment
Additionally, regulatory factors favor U.S. real estate because of lax AML/Countering the Financing of Terrorism (CFT) requirements. This is due to the imperfect enforcement of existing regulations and limited legal power of many agencies.
For these AML/CFT areas, the real estate industry awaits the final rulings to take effect. Regardless of any potential new burdens placed upon real estate brokerages, they should be utilizing a framework for due diligence of their clients — not just to address AML/CFT concerns, but equally or more importantly as a business best practice, and for their agents' own personal and physical safety, which is often given not enough consideration.
Advisory to Financial Institutions and Real Estate Firms and Professionals, published by the U.S. Treasury Department's Financial Crime Enforcement Network (FinCEN). The advisory states that real estate transactions involving luxury property purchased through shell companies, in particular when all cash, can be an "attractive avenue for criminals to launder illegal proceeds while masking their identities."
Anti-Money Laundering Voluntary Guidelines, published by the National Association of Realtors. In that paper, NAR noted that money laundering is a growing concern, discussed the role of real estate agents, identified red flags, and provided suggestions for mitigating risk.
Public comment by NAR in response to FinCEN's proposed rule to address money laundering vulnerabilities in real estate. In its 16-page public comment, NAR states in part that the association remains engaged with this issue and with educating its members on FinCEN's efforts.
Beneficial Ownership Information (BOI) report filing dates and requirements, published by FinCEN.
New Corporate Transparency Act (CTA) BOI regulations go into effect 2024 and beyond, published by FinCEN The CTA is part of the Anti-Money Laundering Act of 2020 (AML Act).
Richard Rosenblum is VP of Strategic Projects at T3 Sixty and is a Certified Fraud Examiner and Certified Financial Crime Specialist. He is a licensed real estate broker who has worked for traditional and proptech brokerages, as well as in the mortgage industry, for almost 35 years. The views expressed in this column are solely those of the author. (Note: T3 Sixty founder Stefan Swanepoel also founded Real Estate News.)