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A United States district court has struck down a Treasury Department rule that required disclosure of beneficial ownership in all-cash real estate transactions, dealing a setback to efforts to curb money laundering in the property sector. The rule, introduced by the Financial Crimes Enforcement Network in 2024, aimed to expand existing disclosure requirements nationwide. The court held that the agency had exceeded its statutory authority and failed to justify treating such transactions as inherently suspicious. The decision restores the earlier framework under which disclosure rules applied only in select cities. The ruling comes amid concerns over illicit funds flowing into real estate, with estimates indicating billions of dollars laundered through US property markets.
A United States district court has struck down a Treasury Department rule requiring disclosure of beneficial ownership in all-cash real estate transactions, ruling that the Financial Crimes Enforcement Network (FinCEN) had exceeded its statutory authority in expanding anti-money laundering requirements nationwide. The decision was issued in the past week by a federal judge in Texas. Advertisement
The rule, introduced in 2024, sought to mandate identification of ultimate beneficial owners of companies purchasing residential real estate without financing. It was designed to prevent the use of property transactions as a channel for laundering illicit funds by eliminating anonymity in cash purchases.
The challenge to the rule was brought by the Pacific Legal Foundation, which argued that FinCEN had gone beyond its legal mandate in imposing disclosure requirements across the real estate sector. The court agreed with this position, holding that the agency had not adequately demonstrated that all non-financed residential real estate transactions should be treated as suspicious by default.
In its ruling, the court observed that while financial institutions are subject to stringent anti-money laundering requirements, including obligations to verify customer identities and report suspicious activity, similar nationwide rules had not previously applied to real estate transactions. The judge noted that the agency had failed to justify the extension of such obligations to the broader property market.
Prior to the 2024 rule, FinCEN had implemented targeted disclosure measures known as geographic targeting orders in select high-risk markets, including cities such as New York and Miami. These measures required reporting of beneficial ownership details for certain high-value transactions, particularly in areas identified as vulnerable to illicit financial flows. The now-invalidated rule had effectively sought to expand this framework across the country.
The decision means that, for now, disclosure requirements in the real estate sector will revert to the earlier, more limited regime. This may have implications for ongoing efforts to enhance transparency in property transactions and address concerns around the use of real estate as a vehicle for storing illicit wealth.
Estimates cited by US authorities have indicated that as much as USD 2.3 billion was laundered through real estate transactions in the United States between 2015 and 2020, underscoring the scale of the issue. Policymakers have been examining regulatory approaches to address such risks while balancing compliance requirements for industry participants.
The ruling highlights the legal complexities involved in extending financial regulation to the real estate sector, particularly in areas involving cross-cutting concerns such as transparency, privacy, and market functioning.
Source - Reuters
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