Too frequently, the battle against global corruption and illicit financial flows is viewed solely as a national security issue for US foreign policy, with little to no connection to domestic policy objectives. Yet, as drug traffickers, kleptocrats, and sanctions evaders use anonymous shell companies to launder money through the relatively opaque U.S. real estate market, they gobble up available residential housing and commercial real estate. These money laundering schemes may drive housing prices upward, leave renters vulnerable, and hollow out communities, yielding serious implications for the pursuit of affordable housing. At a recent FACT Coalition event, anti-corruption campaigners and housing advocates argued that the Treasury Department, in parallel with state and municipal actors, should implement permanent reforms to pull back the veil on the anonymous purchase of U.S. real estate to fight money laundering and corruption and, as a result, cultivate fairer housing markets here at home..
Researchers and some policy makers have known that criminals and kleptocrats use real estate to launder money: A recent report by Global Financial Integrity (GFI) found that at a minimum, $2.3 billion was laundered through real estate over the last five years. Aware of the problem, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) established what are called “geographic targeting orders” (GTOs) for U.S. residential real estate in 2016. These temporary, six-month orders require title insurance agents to collect information on the true, “beneficial” owner of a corporation, trust, LLC, and other legal entity used to purchase residential property above $300,000 across a dozen major metropolitan cities. These disclosures to FinCEN – made available to federal, state, and local law enforcement – provide valuable data for criminal investigations and other law enforcement activities. The orders have so far been helpful: in the first year, 30 percent of the owners identified through the GTOs were also named as being engaged in “suspicious” activity by other financial institutions with anti-money laundering obligations. The orders have been helpful enough that FinCEN has renewed them nearly 10 more times and expanded ad hoc to new cities. The GTOs are an important federal tool to create transparency in real estate.
Yet the GTOs, temporary and geographically limited as they are, are insufficient for understanding and addressing the full-scale of money laundering through U.S. real estate. The same GFI report points, for instance, to a scheme by Kenneth Zong, who helped the Iranian government evade sanctions by transferring $1 billion to various businesses and individuals around the world through real estate purchases in non-GTO counties in Anchorage (AK), Eugene (OR), Colorado Springs (CO) and Costa Mesa (CA). Likewise, Tomas Yarrington, the former governor of Mexico’s Tamaulipas state, pled guilty in 2021 to laundering drug cartel bribes through Texas real estate, especially in non-GTO regions such as Port Isobel and South Padre Island. Lakshmi Kumar of GFI noted that 60 percent of the cases examined in the GFI study for money laundering occurred in non-GTO counties. Investigators need more tools to tackle corruption and money laundering.
As bad actors park more money in U.S. real estate, access to affordable housing in local communities can be affected. At best, these anonymous owners will leave a property vacant. At worst, these anonymous owners are absentee landlords, allowing conditions in rental properties to deteriorate without any recourse for renters. Further, corporate landlords are aggressive evictors, and with corporate landlords with large concentrations of holdings, they are evicting vulnerable residents in rent-controlled properties in favor of raising the prices for new tenants. The anonymity and lack of reporting measures mean that the LLCs and other legal entities that purchase these properties use that anonymity to evade accountability and to hide their bad behavior. As Jyotswaroop Kaur from the California Reinvest Coalition noted in the recent FACT event, “Without knowing who the landlords are, we can’t address fair housing concerns.” Not only does access to fair housing become an issue, but the quality of U.S. housing is affected as well. As Sofia Lopez, deputy campaign director for housing at the Action Center on Race and the Economy remarked during her presentation at the event, tenants’ ability to hold building owners accountable for unlivable conditions is also hampered by real estate opacity.
So what can be done? President Biden designated anti-corruption as a core national security objective of the United States on June 3, and made a G7 commitment to counter money laundering through real estate as part of this initiative. On the federal level, FinCEN should meet its commitments by advancing a rulemaking to establish a permanent nationwide disclosure framework – inspired by the Geographic Targeting Orders – that requires beneficial ownership disclosure in all corporate, all-cash purchases of real estate, regardless of monetary threshold. While the current order only applies to residential purchases, inclusion of commercial properties would better help policymakers counter money laundering and promote better accountability on corporate landlords. Not only will these changes bring more transparency to the American people, but they will be a tool for policymakers to enact reforms..
Likewise, federal efforts should take cues from state and local initiatives to promote greater transparency in the housing sector. Take, for instance, California, where legislative bill AB1199 is gaining interest: the measure would bring beneficial ownership details to light in a public database for properties that are otherwise anonymously owned. Or, in Massachusetts, where advocates are pushing for public disclosure of beneficial ownership information as a condition to move forward with other real estate activities: for example, in addressing a lien with the municipal Registry of Deeds. These efforts are pushing in the right direction for greater transparency in real estate.
In the words of another speaker at the event, Chuck Collins, Director of the Program on Inequality and the Common Good at the Institute for Policy Studies, “If you don’t know who is buying your community, you will not be able to pass reforms to protect tenants and to protect our communities from these outside owners.” Federal-level reform should happen as soon as possible to deliver beneficial ownership transparency for real estate to better protect American communities from harmful money laundering activities.