THE United States Treasury Department says it is exploring ways to enhance the transparency of the American real estate market as it works to implement corporate transparency legislation as part of efforts to clamp down on money laundering.

Young Lee, director for financial transparency and regulatory policy in the Office of Terrorist Financing and Financial Crimes at the US Department of the Treasury, points out that lack of transparency into certain parts of the real estate market is a significant regulatory gap that people have been able to exploit.

“For example, one non-governmental organisation study published in 2020 estimates that approximately $2.3 billion has been laundered through the US real estate market over the previous five years. While we have insight into real estate purchases that are financed through mortgages issued by banks and other institutions that are subject to anti-money laundering requirements, there’s a lack of transparency in all cash transactions,” he explained at a recent virtual reporting tour on US’s efforts to counter corruption.

The programme was offered from March 14 to April 1 by the Foreign Press Centres — part of the US State Department’s Bureau of Global Public Affairs — to 50 journalists from more than 100 nominations from US embassies and consulates around the world.

Lee said the department has been able to address this gap in real estate transactions, through the use of geographic targeting orders, which have required title insurance companies to disclose beneficial ownership information for non-financed, that is all cash purchases, made by legal entities.

“These are, however, only a temporary authority and therefore only a temporary solution to the issue,” he pointed out, noting that a regulatory process was started in December 2021 to seek public comment on the approach. “This advanced notice of proposed rule making on real estate will assist Treasury to develop a proposed rule that would enhance the transparency of the real estate market on a nationwide basis and protect the US real estate market from exploitation by criminals and corrupt officials.”

In January 2021, Congress enacted major reforms to the Anti-money Laundering (AML) Act of 2020, passed as a part of the National Defense Authorisation Act for fiscal year 2020. Lee noted that one of the most important provisions of the AML Act is the Corporation Transparency Act (CTA).

“This legislation passed with bipartisan support was the culmination of many years of effort to address one of the most significant deficiencies in the US AML regime,” he stressed.

Lee and co-presenter Jefferey Coleman — supervisory special agent in the International Corruption Unit of the Federal Bureau of Investigation — were addressing the topic ‘Curbing illicit finance’.

Under the CTA certain US and foreign companies are required to disclose their beneficial owners to the US Financial Intelligence Unit (FinCEN),when they are formed or registered in the US, and when their beneficial owners change.

The CTA also requires FinCEN to build a non-public central registry of this information, which will be accessible to competent authorities, and to regulators, and to international partners under certain circumstances.

Lee said FinCEN is now moving quickly to implement the requirements of the CTA, and has already issued a notice of proposed rule-making on the beneficial ownership information reporting requirements of that law. He said the comments received indicates strong interest for this rule-making.

The next step in the CTA rule-making process will be FinCEN’s publication of proposed rules on BOI access and disclosure requirements, which FinCEN anticipates publishing later this year. Those rules will determine the circumstances under which authorities, financial institutions, and others will be able to access this information under appropriate protocols.

The final set of rule-making will be on revising FinCEN’s customer due diligence rule. “That is the regulations that require certain types of financial institutions in the US, like banks and securities broker dealers, to collect and verify beneficial ownership information when legal entities open up new accounts at their institutions in order to conform those regulations to the framework of the CTA,” Lee explained.

He noted that the US has taken a whole of Government approach to pushing the fight against corruption organising efforts under five pillars: modernising, coordinating, and resourcing US Government efforts; curbing illicit finance; holding corrupt factors accountable; preserving and strengthening the multilateral anti-corruption architecture; and improving diplomatic engagement and leveraging foreign assistance resources to achieve anti-corruption foreign policy goals.

He noted that while the Treasury plays a key role across all five pillars, the bulk of attention is on curbing illicit finance with a special focus on curbing the ability of criminals to hide their identities behind corporate structures and to launder their illicit proceeds through real estate.

“The bottom line is that our overarching goal is to meaningfully curb activities that undermine and impair good government governance, reducing threats to the national security and prosperity of the United States,” he said.

Lee stressed that using this regulatory process to develop a systematic solution to the misuse of real estate is a key priority for Treasury.

He assured that the US Treasury is committed to partnering with the private sector on anti-corruption efforts, as these initiatives depend not only on implementation and compliance by the private sector, but also on the sector’s proactive vigilance.