The financial system of the United States is regulated by the United
States Department of the Treasury. A branch of the Department of the
Treasury is the Financial Crimes Enforcement Network (FinCEN).
FinCEN’s mission is to safeguard the financial system of the United
States from illicit use, combat money laundering and promote national
security. This objective is achieved through the collection, analysis
and dissemination of financial intelligence and the strategic use of
FinCEN is the administrator of the Bank Secrecy Act (BSA), which
requires financial institution’s to report suspicious activity and
maintain programs to detect and report money laundering, terrorist
financing and economic crime.
Real property is a primary vehicle used to launder funds, perpetrate
mortgage fraud and avoid taxes particularly in what is commonly
referred to as an all cash deal. An all cash deal is a term used in the
purchase of real property whereby no third party financing is required.
In most cases third party financing is from a lender regulated under
the Federal Deposit Insurance Corporation (FDIC), Office of the
Comptroller of the Currency (OCC), National Credit Union
Administration (NCUA) and/or various state agencies. Of particular
concern are funds generated from outside the United States.
While there is an element of comfort with a regulated lender, generally
a bank or credit union, there is no guarantee as to the underwriting
standards that ensure that the source of down-payment or ability to
repay is risk free. Moreover, when non-traditional lenders are involved,
lenders not subject to stringent government oversight, the risk for
illegality increases precipitously.
And while many deals involve title companies and attorneys, their
involvement in the transaction is limited as a facilitator. Additionally,
there is no requirement or obligation to report anything they believe is
out of the ordinary except their own good sense. In some cases one
attorney may represent both buyer and seller.
Additionally, property transfers for no consideration, property flips on
the same day, often referred to as table flips; or within a short period
of time for appreciated amounts that make little economic sense,
potentially inflating the value of the property, often have no check and
balance to confirm the transfer of actual funds.
Source of Funds legislation would provide checks and balances,
audits and investigative tools regarding property transfers where properties are sold for
amounts much higher than the fair market value or flipped on the same
day or within a narrow time frame well above the fair market value. It
would require local governments to monitor and report certain
transfers and determine the source of funds regarding those
purchases and investment into real estate.