News Analysis
When the Biden administration proposed rules to scrutinize all-cash real estate transactions in the United States to crack down on money laundering earlier this month, it apparently attracted more attention in China than other countries, as Chinese officials are believed to engage in such illicit activities.
In the United States, real estate transactions involving financing are scrutinized by financial institutions to prevent money laundering, for laws require those institutions to report any suspicious activity. But when people purchase homes in cash, the transactions are subject to few regulations. If buyers use shell companies to make the deals, it is almost impossible to know who are the true beneficial owners of the real estate.
“As a result, corrupt officials and criminals engaging in illicit activity can exploit the U.S. real estate sector to launder their ill-gotten wealth,” the Treasury’s Financial Crimes Enforcement Network (FinCEN) said on Dec. 6 when it was proposing rules to address the problems.
According to the National Association of Realtors (NAR), all-cash real estate deals account for about one-third of all U.S. property sales. While most American families buy homes with mortgages, foreign nationals are more likely to buy in cash. In 2019, 47 percent of U.S. real estate transactions involving foreigners were all-cash sales.
Chinese nationals have been the top all-cash buyers in recent years. A 2015 joint study by realty research firm RealtyTrac and marketing company Ethnic Technologies found that 46 percent of Mandarin-speaking Chinese purchased U.S. homes in cash that year.
Chinese nationals have led foreign investments in American homes for the past seven years, a NAR report found. In 2019-2020, the U.S. homes they purchased are worth $11.5 billion, more than a sixth of the total.
Most of the Chinese cash buyers may not be involved in money laundering, but it is widely believed that Chinese Communist Party (CCP) kleptocrats and corrupt officials have been using the loopholes to launder their embezzled money and bribery.
Chinese officialdom is notoriously corrupt and many of its high-ranking officials allegedly have assets and high-end homes in America anonymously. Given the CCP’s systematic coverups, revelations of its officials’ alleged money laundering often cannot be confirmed.
FinCEN’s new efforts came after the White House released its strategies to confront domestic and global corruption on the eve of the U.S.-hosted Summit for Democracy. The virtual summit, with anti-corruption as one of its themes, had 110 participants from around the world. China and Russia were not invited.
Washington’s focus on all-cash home deals immediately attracted attention in China and Chinese communities in America. China’s netizens on social media gleefully discussed its implications for corrupt officials’ “American Dreams.”
On Weibo, China’s Twitter, a post said a Chinese immigrant received a notice recently from the U.S government requesting proof of her family funds resource. The immigrant moved to America several years ago, joined later by her husband after he retired from Guangdong Provincial Department of Finance.
Peng Qin, a political observer living in New York, said in his commentary program that the Chinese communist regime became the antagonist of the democracy summit. Speaking of the most likely targets of the anti-corruption crusade, Qin alleged that many CCP leaders’ children and grandchildren are American citizens or permanent residents, and “they have hidden huge amounts of illicit funds in America.”
Qin noted the U.S. government set up a new program to reward whistleblowers who can help find the hidden assets of the corrupt officials in America. He encouraged his Chinese audience who may have some tips to pay attention to the upcoming contact information of the program.
Treasury Secretary Janet Yellen said on Dec. 9 they established a “kleptocracy fund” to provide payments to people for information about where corrupt foreign leaders are hiding their money at U.S. financial institutions. On the same day, the State Department announced a new coordinator on the issue and committed a substantial amount of funding to support media and activists who can expose the corrupt actors.
In response, the Central Commission for Discipline Inspection, CCP’s highest internal anti-corruption agency, alleged at its official website that Washington’s anti-corruption campaign is hypocritical and “the real purpose is advancing American hegemony.”
Under the current U.S. laws, a corrupt actor could ask someone to register a company for him in a U.S. state. He could then transfer illicit funds via a third country to the company as an investment without disclosing who is behind the money. The company then could use the cash to swiftly purchase a luxury home in America. When the company sells the home, the proceeds from the sale would be “clean” and the money could be saved in a U.S. bank.
From February 2022, however, FinCEN will require any limited liability corporation that registers in a U.S. state—new and existing—to provide information on all the individuals who own or control at least 25 percent of the entity, and anyone who exercises “substantial control” over the business. The information includes owners’ names, addresses, passport records, and other identifying documents.
FinCEN is collecting the information to create a national database of the “beneficial” owners of the companies. Lawmakers and activists believe the United States will rely on the database to punish CCP officials and Russian oligarchs.
Global Financial Integrity (GFI), a Washington-based think tank focused on money laundering, estimated that $2.3 billion was laundered through U.S. real estate deals from 2015 to 2020. And the “use of anonymous shell companies and complex corporate structures continued to be the number one money laundering typology” involving real estate.
The GFI report found that more than half of the transactions involved “politically exposed persons,” a term that refers to people who had been entrusted with prominent public functions and at higher risks for bribery and corruption.
“There’s a good argument that, right now, the best place to hide and launder ill-gotten gains is actually the United States,” Yellen said at the democracy summit. “This is about to change.”
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
