California Attorney General Bonta Supports Closing Real Estate Loophole Used for Financial Crimes – Sierra Sun Times

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Proposed rule to deter bad actors from abusing corporate structures to conceal criminal activity

April 18, 2024 – OAKLAND, CA – California Attorney General Rob Bonta on Wednesday joined a bipartisan coalition of 25 attorney generals in submitting a comment letter in response to the rob bonta california attorney general 2021U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) notice of proposed rulemaking regarding certain real estate transactions. The proposed rule increases transparency by imposing reporting and record keeping requirements to reduce the risk that non-financed residential real estate transactions are used to conceal unlawful activities, such as money laundering.

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“For many Californians, making a real estate purchase is a hard-fought, major life goal; for others, participation in the real estate market is a way to conceal financial crimes. This is unacceptable,” said Attorney General Bonta. “I support the proposed rule and commend the U.S. Department of the Treasury for addressing a critical vulnerability that allows bad actors to anonymously use the real estate market to launder ill-gotten funds.”  

The proposed rule applies to non-financed, residential real estate transactions that are purchased by an entity, like a trust or a limited liability company (LLC), which obscure the identities of their real owners. Transfers made directly to an individual would not be covered by this proposed rule. The relative stability of the U.S. real estate market and its reputation as a reliable source of value has traditionally attracted both legitimate interest and those looking to find a reliable mechanism to launder money. 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 underpay for a property.

The real estate transactions in question are at particular heightened risk of illicit activity because in addition to being anonymous, non-financed residential real estate purchases are not subject to the same regulations as purchases that are financed. 20% to 30% of U.S. residential real estate purchases are made without financing and therefore, are not subject to anti-money laundering checks. Some non-financed transactions, like all-cash offers can be above market value and are preferred by sellers because they are quick. 

The proposed rule would require businesses and people performing specified closing or settlement functions for the sale or transfer of residential real property to collect and report information to FinCEN through a Real Estate Report. The Real Estate Report would collect names, addresses, and unique identifiers for key participants in the transfer of residential real estate along with information about the property, payment for the property including payments to and from any escrow or trust accounts. The Real Estate Reports will also require disclosure of the identities of the beneficial owners of a trust. The Real Estate Reports give law enforcement the tools it needs by creating a record which can be used to investigate suspicious purchases by generating investigative leads, identify assets, and supporting prosecutions.

In the letter, the attorneys general support the proposed regulations and resulting reports and urge FinCEN to apply the same rules to the commercial real estate sector. 

In submitting Wednesday’s letter, Attorney General Bonta joins the attorneys general of Alaska, Arizona, Colorado, Delaware, Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Vermont, the District of Columbia, and the U.S. Virgin Islands.

A copy of the letter can be found here.

Source: CA DOJ

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