US real estate key vehicle for money laundering, and as the ‘FinCEN files’ reveal, anonymous companies are at the heart of it

Washington, D.C. –  September 23, 2020: While the need for affordable housing is at an all-time high amid the pandemic and its economic fallout, the real estate sector is a key vehicle for criminals looking to stash cash, launder money, and buy up homes in a tight market, shows new Global Witness briefing, On The House.

Anonymous companies – just like those exposed in the ‘FinCEN files’ this week – enable the purchase of properties to provide a legal smokescreen for potential criminal or shady activities in the US. This is a gaping loophole that has been closed in the United Kingdom and all 27 European member states. Without urgent intervention around corporate transparency, anonymous companies will continue to undercut and disadvantage everyday Americans looking for housing.

Alexandria Robins, Policy Advisor at Global Witness said:

“The impact of the COVID-19 pandemic and the imminent economic crisis have collided with a longstanding plight in the US housing sector: Anonymous companies. Real estate has long been a preferred vehicle for money laundering, and anonymous companies are a key tool that enable criminal networks to mask their illicit funds and hide their connection to a property.

The major gaps in global anti-money laundering safeguards have been reinforced by this week’s explosive ‘FinCEN files’, which show trillions in tainted dollars flowing freely through major banks and a broken enforcement system in the US. Ultimately, a lack of accountability across the real estate sector sends a clear signal to those wishing to launder illicit funds that the US market is open to business. While those who seek to exploit the US financial system stream in, average renters and homeowners continue to struggle.”

The dynamic of secrecy and lack of accountability in the housing market creates particular risks for cash purchases. Promisingly, the Treasury Department’s Financial Crimes Enforcement (FinCEN) has since January 2016 managed a pilot real estate ownership collection program using a program called the Geographic Targeting Orders (GTO). Under the program, title insurance companies must report to FinCEN the beneficial owners of legal entities used to purchase residential real estate without mortgage financing above certain dollar thresholds in covered counties.

GTOs, currently covering counties within 12 major metropolitan areas across the country, have shown promising results including a seventy percent decline in all-cash purchases by legal entities attributed to a sharp drop-off in anonymity-seeking buyers.

But the US needs urgent policy solutions that will address the problem across the board. Global Witness urges the following recommendations:  

• End anonymous companies by collecting and making public information about all the company’s real, human owners, known as “beneficial owners.”

• Congress should require all reporting entities involved in real estate transactions–including real estate agents and other relevant individuals or entities—to conduct due diligence on customers by repealing the ‘temporary’ U.S. Treasury Department exemption under the USA Patriot Act of 2001.

• The expansion of FinCEN’s Geographic Targeting Orders should cover residential property nationwide and permanently.

“Without swift reform, America will continue to hurdle towards a housing crisis, made worse by the COVID-19 pandemic and related shutdowns and layoffs. Congress and any future administration must act, or face the consequences of another housing meltdown,” says Robins.