Propmodo Daily

By Franco Faraudo · Feb. 12, 2024

Greetings!

Government efforts to combat money laundering in real estate now include rules that compel companies to reveal their owners and demand reporting for deals over $300,000, specifically targeting cash transactions susceptible to misuse. The effectiveness of these initiatives in thwarting money laundering might be debatable, but what's evident is the additional strain placed on brokers, who are responsible for reporting.

Also, read the latest on building upcycling. The White House's new Net Zero design standards offer strict guidelines for developers, with hefty fines for non-compliance with carbon emissions laws. This push includes greener practices and recycling building materials to achieve net zero.

Now, let's dig in!

Who Will Bear the Burden of New Money Laundering Rules?

Cracking down on money laundering in real estate has been a government talking point for years, but now we are finally seeing the concrete actions they have decided to take against it. First, the Corporate Transparency Act went into effect at the beginning of the year, which requires LLCs and corporations to disclose information about their owners. Now, a new proposal would require that every residential real estate transaction above $300,000 (for some reason, Baltimore has a lower threshold of $50,000) would have to report all the parties in the transaction.

There are already quite a few financial institutions that require some type of reporting, but this blanket regulation is meant to include “non-financed transfers or all-cash sales” as they are favored by “illicit actors.”

Everyone wants to crack down on money laundering, but this proposed rule would create a new task for property professionals that would increase their work and create a new liability. The proposal spelled out how it would determine who would be responsible for filing the report, but it isn’t exactly straightforward.

The Financial Crimes Enforcement Network (FinCEN), responsible for managing the reporting, plans to create a hierarchy of seven distinct roles involved in a sale, with brokers positioned at the forefront. Should a broker not be part of the transaction, the obligation to report would fall to the next individual on the list. Similar to many aspects of real estate transactions, this process is subject to negotiation. An alternative to this sequential approach is a written agreement specifying an individual designated to submit the report.

The proposed new rule is a significant move towards stopping the use of real estate for money laundering purposes. Currently, it is limited to residential properties, but expanding it to include all types of real estate wouldn't be a major challenge. Given that real estate is recognized as a primary channel for laundering illegal proceeds, we can anticipate further regulations if Biden secures a victory in November.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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