Cash Homebuyers Beware: The Anti-Money Laundering Feds Are Watching You

Cash purchases of residential real estate in the U.S. are on the rise and the Treasury Department on Wednesday proposed new measures aimed at detecting illicit funds flowing through non-financed purchases in the property sector.

In a far-reaching paper on money laundering, terrorist financing and other illegal financial activities, the Treasury Department said that the relative stability of the U.S. real estate market and its historic reputation as a reliable store of long-term value has traditionally attracted both legitimate interest and those looking to find a reliable mechanism to launder money.

It added: “Money laundering through real estate can negatively affect home prices, particularly since illicit actors seeking to integrate illicit funds may be willing to over or under pay for a property.”

Proposals to curb such activity would require real estate professionals to alert authorities to any suspicious activity in cash purchases of residential property — especially when the buyer anonymizes their identity or the source of funds through a legal entity or trust.

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) would require parties involved in non-financed deals — including lawyers, insurance companies and realtors — to file reports on the entity’s ownership.

Also Read: Mortgage Rates Soar, Cash Buyers Score: The New Homebuying Playbook

Cash Sales Growth

Benzinga recently reported that cash sales of residential property were on the increase. Property data provider ATTOM said that the national average share for cash sales rose to 38% in 2023, up from 36.1% in 2022 and 33.5% in 2021.

The Treasury Department report mentioned several examples, including the case in April 2023 when a New York-based attorney helped a sanctioned Russian oligarch maintain his ownership of six U.S. properties through a series of shell companies and 90 wire payments totaling $18.5 million.

And, in November 2022 a Delaware man was sentenced to 45 years in prison after he and his wife laundered more than $1 million in drug trafficking proceeds through the purchase of real estate using their company as a front.

“Illicit actors often make non-financed purchases using legal vehicles or arrangements designed to obfuscate the purchaser's identity and source of funds to integrate ill-gotten proceeds into the formal economy,” the report said.

The Department has estimated that around $2.3 billion was laundered through non-financed real estate sales between 2015 and 2020.

If legitimate investors want to invest in real estate, but don’t want to buy a home, there are plenty of ways to go about it. The iShares U.S. Home Construction ETF ITB is an exchange trade fund whose assets include the main U.S. home builders such as D.R. Horton DHI and Lennar LEN.

Or, there’s the iShares U.S. Real Estate ETF IYR which holds real estate investment trusts such as Prologis Inc. PLD.

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