The US government issued a rule that will soon make it more difficult to use cash when buying property. 

What a difference a decade – or two or three – makes. Using a wad of banknotes to make big-ticket purchases was once seen as one of the many rites of passage and newfound financial power of high net worth individuals (HNWIs) in many countries throughout Asia.

But no more – a second generation of AML rules from the noughties and early 2010s, and all the pesky suspicious activity reports (SARs) that have since followed, have dethroned the plain banknote from its once secure throne.

Dollars and Dollars

There are few stories now of mainland citizens, suitcases replete with dollar bills, lining up outside unfinished residential towers in Hong Kong, check-marking units and floors on brochures as if they were on a takeout menu.

Indeed, that was not an isolated instance confined to one city but a relatively widespread practice across the region, as a 2017 «Sydney Morning Herald» article infers.

American Dream

However, a major, unfettered bastion of the anonymous cash-for-homes faction has now been felled, as a message sent overnight by the US Treasury Financial Crime Enforcement Network (FinCEN) shows. 

A newly finalized rule will take effect at the end of 2025 that requires all «non-financed» transactions to be accompanied by a SAR. It is valid for all purchases of residential property that are not financed, including those transferred to a legal entity or a trust regardless of purchase price or value. Gifts are also subject to it although there are several standard exemptions related to death, divorce, and bankruptcy.

Long Time Coming

The real surprise here is why it has taken so long, given the US almost singlehandedly invented the modern financial crime sphere with the 1970 Banking Secrecy Act. The term money laundering itself even reputedly first started to be used during the Watergate scandal later that same decade.

Back then, the act required cash deposits of more than $10,000 to be reported, a threshold and standard that remains unchanged and unchallenged to this day, with updates and revisions to those initial laws prompting the rest of the world to eventually follow suit, willingly or unwillingly.

Primary Responsibility

The actual reporting of the new FinCEN rule, however, is to be undertaken by those who close or settle the properties in question, with a - theoretically elegant - cascade system used to determine who has the primary filing responsibility.

That will surely render the American dream into the American bureaucratic nightmare for certain hapless individuals, particularly those with high net worth who can’t afford their coterie of advisors, unlike the UHNW set. 

It might even end up prompting something similar to the internal bashing inside banks, given financial crime compliance in most jurisdictions is strictly required to file SARs without telling the bankers and clients involved.

University Dorm Rooms

Interestingly, transfers made directly to an individual are not covered by the rule and that is likely to be of relief to many in the region, given that the buying of property for studious relatives and progeny in places like Vancouver, Sydney, and the UK has been a widespread practice for decades.

You can be almost certain that law firms have already been commissioned to look at whether there are any grey areas or discrepancies between the gift requirement and the transfer exemption.

Not Surprising

But still, a SAR is a SAR and only a SAR, and we in the industry tend to overinterpret their significance. Most of the time they don’t amount to anything much except to provide an additional administrative burden to the operations staff involved with blocking and then unblocking the accounts, and the police.

At the same time, in our jaded yet imaginative minds, we would not be unduly surprised if there was an attempt made to buy a Florida McMansion for a kindergartener starting school in the autumn of 2025. You read it here first.