President Joe Biden’s sweeping anti-corruption initiative unveiled Monday includes developments in two key areas of interest for the compliance profession.
The initiative, called the “United States Strategy on Countering Corruption,” reinforced Biden’s previous policy position that combating corruption is “a core national security interest of the United States” that is as much about protecting the U.S. financial system from the harm caused by corruption as it is about promoting similar anti-corruption efforts with like-minded foreign governments, civil society, and private industry.
The first standout item for compliance officers is the administration’s acknowledgement that a U.S. beneficial ownership registry is a key pillar of the plan. The second is a new proposal to expand reporting requirements on cash real estate transactions from major cities across nine states to the entire country.
The establishment of a beneficial ownership registry was authorized by Congress as part of the National Defense Authorization Act for Fiscal Year 2021, which survived a veto attempt by President Donald Trump.
The registry’s purpose is to tear away the anonymity of shell corporations that allow criminals to hide their true identities while committing fraud and funding terrorist activities via the U.S. banking system. The registry will require that new corporations name anyone who owns at least 25 percent of the corporation or receives a “substantial economic benefit”—wording still being clarified by the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), the administrator of the registry.
FinCEN launched rulemaking on the beneficial ownership registry in April.
The largest obstacle to the registry’s success, according to financial crime experts, is a lack of funding. FinCEN has requested approximately $60 million in additional funding from Congress to hire 80 full-time employees to create the registry, along with implementing other anti-money laundering/countering the financing of terrorism (AML/CFT) requirements laid out in the defense spending law.
Senior Biden administration officials, pressed to answer the question of funding the new registry, said in a background press call Sunday: “We have sought funding for additional staffing and resources to be able to carry out the legislation. We still have not received that funding at this point, but we’re still pressing forward in terms of getting as much work done as possible.”
In the same call, senior officials said to expect more announcements soon regarding the status of the beneficial ownership registry. They said regulations for the registry are under review by the Office of Information and Regulatory Affairs.
Real estate reporting requirements
In conjunction with the anti-corruption initiative, FinCEN launched a regulatory process Monday seeking to expand so-called “geographic targeting orders” (GTOs) nationwide, instead of being limited to residential real estate deals worth more than $300,000 in metropolitan areas across nine U.S. states.
“Real estate transactions involving loans or other financing by regulated financial institutions, such as banks, which are subject to federal anti-money laundering rules, are less susceptible to money laundering because those institutions are required to report suspicious activity to FinCEN,” the agency explained. But with real estate transactions completed without such financing, mostly through cash transactions, it “can be nearly impossible to trace the beneficial owners behind shell companies that are often used to purchase the real estate,” FinCEN said.
The rule proposes to “impose nationwide recordkeeping and reporting requirements on certain persons participating in transactions involving non-financed purchases of real estate.”
The recent Pandora Papers report highlighted the role some U.S. states—most prominently South Dakota, but also Delaware, Florida, Nevada, and Texas—play in allowing non-U.S. citizens to create shell companies and trusts that enable wealthy owners to stash money in real estate and other holdings without revealing who is the beneficial owner.
In August, nonprofit Global Financial Integrity published a study finding an estimated $2.3 billion was laundered through U.S. real estate over the previous five years, FinCEN noted in its proposal. The study also found the “‘use of anonymous shell companies and complex corporate structures continue[d] to be the No. 1 money laundering typology” involving real estate.
The agency is seeking comment on whether the proposed rules would benefit law enforcement and how much of a regulatory burden they would place on real estate agencies, brokers, and others who close real estate deals outside of the existing GTOs, which includes all five New York City boroughs; three counties in Texas covering Dallas, Fort Worth, and San Antonio; three Florida counties, including Miami-Dade; five California counties, including Los Angeles, San Diego, and San Francisco; the city and county of Honolulu, Hawaii; Clark County (Las Vegas) in Nevada; King County (Seattle) in Washington; two Massachusetts counties covering Boston and Cambridge; and Cook County (Chicago) in Illinois.
FinCEN indicated it might also consider extending the reporting requirements to apply to commercial properties.
Essentially, what the Biden administration is doing with respect to the rulemaking “is looking for a permanent regulatory solution that would provide information to FinCEN and to law enforcement on a nationwide basis,” a senior administration official said Sunday.
The anti-corruption initiative also recognized the financing of AML/CFT activities would be severely hampered if the gatekeepers who facilitate money laundering—including lawyers, accountants, and trust and company service providers—faced stiffer penalties for aiding and abetting, in some cases unknowingly, the flow of dirty money into the U.S. financial system.
But the Biden administration acknowledged Congress would have to pass laws “targeting those closest to real estate transactions to reveal when real estate is used to hide ill-gotten cash or to launder criminal proceeds.”
- beneficial ownership registry
- cash real estate transactions
- Financial Crimes Enforcement Network
- Financial Services
- geographic targeting orders
- Pandora Papers
- President Biden
- Regulatory Policy
- Risk Management
- Surveys & Benchmarking
- United States
- United States Strategy on Countering Corruption