Federal Crackdown on All-Cash Real Estate Deals?


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Real estate investors who pay cash could face more scrutiny from the federal government. The Treasury Department is proposing new regulations on shell companies, like LLC’s, as a way to crack down on money laundering through real estate deals.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Government’s Plan to Stop Money Laundering

Deputy Secretary of the Treasury, Wally Adeyemo, discussed the government’s plan to fight corruption at the Brookings Institution. He addressed the issue by saying: “Corruption thrives in the financial shadows--in shell corporations that disguise owners’ true identities, in offshore jurisdictions with lax anti-money laundering regulations, and in complex structures that allow the wealthy to hide their income from government authorities.” (1)

Adeyemo is proposing that countries around the world join this effort to separate the bad actors from the good ones, because many shell companies are perfectly legitimate. It’s a recognized strategy to put your residential rental properties, and other kinds of properties, inside something like an LLC as a way to limit any legal liabilities or potential lawsuits to just one property, and not your whole portfolio.

But it’s also possible to set up a shell company, and to use that company to purchase expensive properties with dirty money. That’s what the Treasury Department is targeting.

Three-Pronged Approach

Adeyemo wants to tackle this problem in three different ways:

1 - He wants to improve transparency by forcing certain types of U.S. and foreign companies that are registered in the U.S. to disclose their beneficial owners, which are the people who actually run the companies. He’s implementing this effort under the Corporate Transparency Act which allows the Financial Crimes Enforcement Network to build a central registry for this information. One particular area of concern is the real estate market and all-cash deals that don’t require the disclosure of the buyers who may be hiding behind a shell company. Adeyemo is soliciting public comment on the best way to address this problem.

2 - He also wants to use the new information to improve the investigation and prosecution of any illegal activity, including money laundering, bribery, embezzlement, and extortion, and tax evasion. He says: “Today, the top 1 percent of earners in the United States underpay their taxes by more than $160 billion each year, depriving every other American of the money we need to invest in things that benefit the whole country, like roads, childcare, and education.” Enforcement might include sanctions, as well as criminal law enforcement.

3 - The third leg of his strategy is “partnership.” He wants to expand the effort to allies and partners around the world as well as the private sector, and civil society groups. He says the U.S. can’t address corruption without an international effort. As an example, he says “more than 40% of global payments are conducted in euros or pounds.”

Impact on Real Estate Investors

So what does all this mean for investors who buy and sell residential rental properties inside an LLC? It could mean that the title companies will be required to file reports that identify the beneficial owners of those properties. This is already the law in 12 U.S. cities for transactions over $300,000. That includes Boston; Chicago; Dallas-Fort Worth, Texas; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.

According to realtor.com, the new regulations would expand the disclosure requirement from coast-to-coast. They may also include the purchase of commercial property as well as residential. (2)

Some people say the new rules are long overdue. Attorney and anti-money laundering expert, Ross Delston, told Bloomberg: “I’m not sure where the U.S. Treasury has been for the last decade or two, but give them credit for attempting to address a gap that has festered for years and has resulted in the U.S.A. being the money laundering haven of choice for the world’s corrupt politicians.” (3)

If you’d like to read more about this topic, you’ll find links in the show notes at newsforinvestors.com.

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Thanks for listening. I'm Kathy Fettke.


1 -https://home.treasury.gov/news/press-releases/jy0516

2 -https://magazine.realtor/daily-news/2021/12/07/white-house-seeks-increased-oversight-on-all-cash-deals

3 -https://www.bloomberg.com/news/articles/2021-12-06/biden-eyes-shell-company-real-estate-purchases-for-tighter-rules

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