The Financial Crimes Enforcement Network (FinCEN) recently gave an announcement that it had revised Geographic Targeting Orders (GTOs), requiring U.S. title insurance companies to identify individuals behind shell corporations in all-cash purchases of residential real estate. The purchase threshold was lowered to $300,000.
The previous threshold varied by the city but the latest threshold is the same for each covered metropolitan area.
Additionally, FinCEN also stated that covered purchases made using virtual currencies should also be reported.
The main aim for the reissue is to assist in tracking persons implicated or funds used in illicit activities.
As virtual currencies begin to find their foot in the mainstream economy, some sellers and buyers are starting to use the cryptocurrencies to conduct real estate transactions.
This attracted FinCEN attention partly due to the number of complaints they receive concerning suspicious activities.
The director of the agency, Kenneth A. Blanco, recently stated that they receive over 1,500 complaints per month as a result of suspicious activity involving virtual currencies, mostly from financial institutions and the crypto industry.
Blanco stated that in the past few years, FinCEN had issued policies on how companies can operate using virtual currencies.
Back in 2011, FinCEN amended definitions for money transmission businesses, thus including the transfer or acceptance of value (e.g. virtual currencies) that can be exchanged for currency.
This meant that sizeable well-established trading platforms, as well as an individual peer-to-peer exchanger, had to adhere to AML/CFT regulatory obligations.
Cryptocurrency Takes on Real Estate
Since the boom, cryptos have had an increase in global recognition regardless of the warning that it is risky and volatile.
However, it was only a matter of time before virtual currencies took on real estate since cryptos like Bitcoins are already adopted in retail and restaurant businesses.
For instance, Convexity Properties in the U.S. came up with an offering that provides traditional real estate investment but in the form of blockchain tokens.
The offering—a first of its kind—allows investors to acquire a piece (token) of a luxurious student residence located near the University of South Carolina. This is a form of tokenization of securities.
Also, a property management company in the U.S. has integrated a Bitcoin payment option, allowing tenants to pay their deposits using cryptocurrencies.
The coins would then be automatically converted into USD using a built-in API using real-time exchange rates.
Ideally, the benefit cryptocurrencies will bring to real estate is that they will substantially cut out quite a few bypassing fees and payments that generally go to middlemen like banks or lawyers.
However, it has been argued that for cryptocurrencies to have widespread adoption in the $217 trillion real estate industry, it needs to offer more than just a payment alternative.
This would, in turn, drive the adoption of virtual currency transactions not only by sellers and buyers but also by other key playmakers in the industry.
This can be achieved by creating an environment where a crypto ecosystem prospers, allowing strangers transact as well as creating more efficient cross-border transactions.
What to Expect
Regardless of the FinCEN rules, there are vital factors to consider for anyone seeking to integrate virtual currencies into real estate. Here are a few:
- Not every state or country accepts blockchain or cryptocurrency, which means any transaction within that region will need to be done in cash.
- Cryptocurrencies are highly volatile. An understanding of how they work will familiarize one with the risks involved.
- Cryptos are centered on contract, where the involved parties agree on a price and the type of cryptos to be used. At the same time, risks of using cryptocurrency are drafted in the contract.
- Not everyone will be willing to use cryptos or ready for blockchain technology. Therefore one should be prepared to use common currencies (FIAT). Examples of persons who may generally reject cryptocurrency are real estate agents, title insurance companies and lawyers.
- One advantage of cryptocurrencies is that they offer anonymity and security. However, with the latest FinCEN policies requiring title insurance companies to report the identity of the individual(s) behind shell companies, the policies are for somewhat targeting individuals using tumblers to conceal the source and destination of cryptos.
Overall, cryptocurrency in real estate is at its infancy. The use of not only cryptocurrency but also blockchain technology will drive the adoption in this industry.
Ultimately, FinCEN’s objective regarding cryptocurrency is to regulate and ensure all crypto financial transactions abide by U.S. law.