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Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Proposed Rules
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vulnerability which can be exploited by illicit actors. 7 Of note, the FATF found the United States failure to regulate real estate transactions in line with the FATF standards to be a significant deficiency in the U.S. AML/CFT regime.
The European Union has regulated real estate transactions for the purposes of AML/CFT efforts since 2001.8 In 2019, the European Parliament Research Service EPRS, the European Parliaments in-house research service, published a briefing indicating the widespread use of real estate in money laundering, and in particular, highlighted the necessity of identifying purchasers of real estate and proper regulatory coverage of professionals involved in such transactions via AML
reporting mechanisms.9
Concerns about the abuse of the real estate market have also been extensively reported by the press, academia, and civil society organizations. For example, in February 2015, The New York Times published a series of articles entitled Towers of Secrecy on the use of shell companies to purchase high-value residential real estate in New York City.10 The Times also found that shell companies purchased nearly half of the most expensive residential properties in the United States.11 The articles identified a specific set of real estate transactions as a high potential money laundering risk: The use of shell companies to pay for residential properties in cash at the time of closing, without a corresponding mortgage.12
7 Anti-money laundering and counter-terrorist financing measures in the United States2016, Mutual Evaluation Report, Financial Action Task Force, p. 120 Dec. 2016.
8 See Directive 2001/97/EC of the European Parliament and of the Council of 4 December 2001
amending Council Directive 91/308/EEC on prevention of the use of the financial system for the purpose of money laundering, OJ. L. 344, pp. 76
82 Dec. 28, 2001.
9 See Ce cile Remeur, Understanding money laundering through real estate transactions, European Parliament Research Service, PE 633.154, pp. 57 Feb. 2019.
10 See generally Louise Story, et al., Towers of Secrecy, Parts 17, N.Y. Times, Feb. 7Dec. 14, 2015, https www.nytimes.com/news-event/shellcompany-towers-of-secrecy-real-estate.
11 See Louise Story & Stephanie Saul, Stream of Foreign Wealth Flows to Elite New York Real Estate, N.Y. Times Feb. 7, 2015, https
www.nytimes.com/2015/02/08/nyregion/stream-offoreign-wealth-flows-to-time-warner-condos.html.
12 See also, e.g., Vandana Ajay Kumar, Money Laundering: Concept, Significance and its Impact, European Journal of Business and Management, p.
117 Vol 4 No. 2 2012 The real estate sector is the largest and most vulnerable sector for money laundering. Real estate is important for money laundering, because it is a non-transparent market where the values of the objects are often difficult to estimate and where big value increases can happen and is an efficient method to place large amounts of money.; see also generally Money Laundering in Real Estate, Conference Report,
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In February 2021, the National Association of Realtors NAR, an industry trade organization, issued voluntary guidelines for real estate professionals that highlighted the vulnerability of the U.S. real estate market to money laundering, stating that many non-financial businesses and professions are also vulnerable to potential money laundering schemes and real estate is believed to be used in money laundering schemes, making real estate professionals likely to encounter money laundering activities in the course of their business. 13
In August 2021, Global Financial Integrity GFI,14 an NGO, published a study finding that an estimated $2.3
billion had been laundered through the U.S. real estate market over the previous five years. The study further noted that among the cases it reviewed, over 50%
involved Politically Exposed Persons PEPs.15 Moreover, the study found that the use of anonymous shell companies and complex corporate structures continued to be the number one money laundering typology involving real estate.16
And most recently, in November 2021, The Sentry,17 an NGO, published Terrorism, Transnational Crime and Corruption Center, Schar School of Policy and Government, George Mason University Mar. 25, 2018.
13 Anti-Money Laundering Voluntary Guidelines for Real Estate Professionals, National Association of Realtors, p. 1 Feb. 21, 2021.
14 According to its website, GFI is a Washington, DC-based think tank focused on illicit financial flows, corruption, illicit trade and money laundering. About us, Global Financial Integrity, https gfintegrity.org/about/.
15 The term PEP generally includes a current or former senior foreign political figure, their immediate family, and their close associates.
Politically Exposed PersonsOverview, FFIEC
BSA/AML Examination Manual, p. 290 V5 2015;
see also Joint Statement on Bank Secrecy Act Due Diligence Requirements for Customers Who May Be Considered Politically Exposed Persons, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, National Credit Union Administration, Office of the Comptroller of the Currency Aug. 21, 2020. For a clear example of the vulnerabilities of the U.S. residential real estate sector for use to conceal funds by corrupt PEPs, a 2020 forfeiture complaint filed by the Department of Justice states that the former president of The Gambia, Yayha Jammeh, and his spouse, used funds derived from corruption to purchase residential properties in the United States. See United States v. Real Property Located in Potomac, Maryland, Commonly Known as 9908 Bentcross Drive, Potomac, MD 20854, Case No. 20cv02071, Doc.
1 D. MD Jul. 15, 2020.
16 Lakshmi Kumar & Kaisa de Bel, Acres of Money Laundering: Why U.S. Real Estate is a Kleptocrats Dream, Global Financial Integrity, p.
4 Aug. 2021.
17 According to its website, The Sentry is an investigative and policy team that follows the dirty money connected to African war criminals and transnational war profiteers and seeks to shut those benefiting from violence out of the international financial system. About The Sentry, The Sentry, https thesentry.org/about/.

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a report detailing the use of real estate purchases in the United States and elsewhere by PEPs to launder proceeds from political corruption. According to this report, these PEPs used a network of shell companies to move funds abroad and purchase millions of dollars of real estate, including 17 properties for a total of $6.6 million in Washington, DC, and Johannesburg, South Africa.
The report further highlighted the use of shell companies and trusts to obscure the true owners of the properties.18
Several key factors contribute to the systemic vulnerability of the U.S. real estate market to money laundering.
Those factors include, but are not limited to, lack of transparency, attractiveness of the U.S. real estate market as an investment vehicle, and the lack of industry regulation.
First, the lack of transparency in the real estate market contributes to its vulnerability to money laundering activity. Real estate may be held directly or indirectly through nominees, legal entities such as one or more shell holding companies, or through various investment vehicles. Buyers may use shell companies in many legitimate circumstances, such as when buyers use legal entities to shield themselves and their assets from liability related to the purchase of real property or as a means of protecting their privacy. Illicit actors, however, can take advantage of the opacity of shell companies or other legal entities or arrangements to mask their identity as the true beneficial owners of the property and their involvement in real estate transactions.
Second, the attractiveness of the U.S.
real estate market as a stable vehicle for maintaining and increasing investment value also contributes to its vulnerability to money laundering activity. Illicit actors seek to conceal the origins of their illicit funds in a way that grows as an investment, cleans as much money as possible with each transaction, and allows them to enjoy the fruits of their illicit activity while minimizing potential losses from market instability and fluctuating exchange rates. Consequently, real estate especially in a relatively stable market with strong private property protections such as in the United Statesis an attractive asset to facilitate money laundering.
Third, the lack of industry regulation for non-financed transactions exacerbates the money laundering vulnerabilities of the U.S. real estate market. Non-financed purchases of real 18 Embezzled Empire: How Kabilas Brother Stashed Millions in Overseas Properties, The Sentry, p. 3 Nov. 2021.

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