New Federal Rule Targets Money Laundering in Residential Real Estate

Rows of homes in the Sunset District in San Francisco on Feb. 20, 2023. Justin Sullivan/Getty Images

A new reporting requirement aimed at cracking down on unlawful funding in the residential real estate sector has been introduced by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

The rule, which will take effect on Dec. 1, 2025, requires individuals involved in real estate closings and settlements to report on transfers deemed “high risk for illicit financial activity” by the Treasury Department, according to an Aug. 29 Federal Register notice.

These transactions are identified as “non-financed transfers” of residential real property to legal entities and trusts.

Non-financed transfers do not involve giving credit to the transferees of property and include “all-cash sales,” according to the agency.

The final rule requires that certain individuals involved in such transfers file a “Real Estate Report” on these transactions.

The reporting person should be an individual who played a role in the real estate closing and settlement.

“Transfers to individuals, as well as certain transfers commonly used in estate planning, do not have to be reported,” the Federal Register stated.

FinCEN noted that the Treasury Department has long recognized the illicit finance risks involved in residential real estate transactions, with criminals, corrupt officials, and terrorists using opaque legal entities and trusts to carry out such schemes.

An illicit real estate market poses a threat to the economic and national security of the United States, potentially disadvantaging individuals and small businesses who may seek to compete fairly in the market, the rule states.

The rule will boost transparency about real estate transfers, restrict people from laundering illicit proceeds through the housing market, and boost law enforcement, FinCEN said in an Aug. 28 statement.

“The Treasury Department has been hard at work to disrupt attempts to use the United States to hide and launder ill-gotten gains,” U.S. Secretary of the Treasury Janet Yellen said in the statement.

FinCEN claims that it has worked to minimize burdens on reporting individuals. The final rule allows reporting individuals to rely on information obtained from other individuals to file Real Estate Reports.

In comments submitted to FinCEN by the National Association of Realtors (NAR), the organization said that it supports “pragmatic solutions” to combating illicit financing and money laundering in the real estate sector.

However, the NAR stated, “The rule should not be overly broad for FinCEN to gather more information than is necessary to stop bad actors from engaging in illicit crimes involving real estate.”

The group also asked that FinCEN not require “real estate professionals to provide information regarding the source of funds used to cover the sale of any non-financed real estate transactions.”

“Obtaining source of fund information from consumers or clients can put real estate professionals in a precarious situation and extremely dangerous situation by requiring real estate professionals to serve in a law enforcement or work in an investigatory capacity,” the NAR stated.