Regulation & ComplianceUS Treasury pushed to scrutinise real estate market

US Treasury pushed to scrutinise real estate market

Nonprofit organisations are urging the US Treasury Department to force the real estate industry to subject buyers to tougher identity verification and money-laundering screening.

Nonprofit organisations are urging the US Treasury Department to force the real estate industry to subject buyers to tougher identity verification and money-laundering screening.

Some 17 organisations, including Transparency International, Global Integrity and Global Witness, wrote to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) asking that a temporary exception from the Patriot Act granted to the real estate industry in 2002 be repealed.

The real estate industry lobbied heavily against the Patriot Act, which was signed into law in 2001. The law would have required those involved in real estate closings and settlements to conduct due diligence checks on their customers.

The letter cited a series of New York Times articles, Towers of Secrecy, which documented how wealthy international buyers, including those subject to government inquiry along with politicians, had used shell corporations to buy luxury condos in New York.

Other Justice Department cases and congressional reports have found foreign money tied to corruption used to buy United States real estate under the name of shell corporations.

The real estate industry claims to have voluntary guidelines for performing background checks on purchasers. The NYTimes series, however, quoted several people involved in condominium purchases overlooking Central Park at the Time Warner Center, who admitted that they had performed few checks beyond verifying buyers had the money for a purchase.

Current law in a number of states does not require that the owners of limited liability companies buying such properties reveal their identies.

Spokesman for FinCEN Steve Hudak called potential criminal abuse of the real estate sector a “fundamental priority” in an emailed response to the letter.

“We also continue to explore which requirements imposed on which actors in the real estate sector will best add to transparency beyond what can be obtained via existing and proposed requirements on other financial institutions, and via traditional law enforcement methods,” FinCEN went on to say.

The letter also asked that rules requiring financial institutions to increase their scrutiny of the owners of these limited liability companies and other “legal entity customers” be strengthened. Banks and other similar institutions are not obligated to determine their identity.

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