The Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking to combat and deter money laundering in residential real estate by increasing transparency.
The proposed rule would require certain professionals involved in real estate closings and settlements to report information to FinCEN about non-financed transfers of residential real estate to legal entities or trusts. FinCEN’s proposal is tailored to target residential real estate transfers considered to be high-risk for money laundering, while minimizing potential business burden, and it would not require reporting of transfers made to individuals.
“Illicit actors are exploiting the U.S. residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices,” FinCEN Director Andrea Gacki said. “Today marks an important step toward not only curbing abuse of the U.S. residential real estate sector but safeguarding our economic and national security.”
The proposed rule describes the circumstances in which a report would be filed; who would file a report; what information would need to be provided, including information about the beneficial owners of the legal entities and trusts; and when a report about the transaction would be due. Data from the reports would assist the Department of the Treasury and its law enforcement and national security partners in addressing vulnerabilities that leave the U.S. residential real estate market exposed to abuse by illicit actors.
The notice states, “The abuse of U.S. residential real estate markets threatens U.S. economic and national security and can disadvantage individuals and small businesses that seek to compete fairly in the U.S. economy. The proposed rule is designed to enhance transparency nationwide in the U.S. residential real estate market and to assist Treasury, law enforcement, and national security agencies in protecting U.S. economic and national security interests by requiring certain persons involved in real estate closings and settlements to file reports and maintain records related to identified non-financed transfers of residential real estate to specified legal entities and trusts on a nationwide basis, including information regarding beneficial owners of those entities and trusts.
“Among the persons required by the Bank Secrecy Act (BSA) to maintain anti-money laundering (AML) programs are ‘persons involved in real estate closings and settlements,’” the notice continues. “Yet, for many years, FinCEN has exempted such persons from comprehensive regulation under the BSA and has issued a series of time-limited and geographically focused ‘geographic targeting orders’ (GTOs) to the real estate sector in lieu of more comprehensive regulation. Information received in response to FinCEN’s GTOs relating to non-financed transfers of residential real estate (residential real estate GTOs) have demonstrated the need for increased transparency and further regulation of this sector. This notice of proposed rulemaking (NPRM) thus proposes a new reporting requirement for non-financed residential real estate transactions, consistent with the BSA’s longstanding directive to impose AML requirements on persons involved in real estate closings and settlements. At the same time, FinCEN has carefully considered the comments received in response to an advance notice of proposed rulemaking on AntiMoney Laundering Regulations for Real Estate Transactions, and FinCEN appreciates the burdens that traditional AML program and SAR (suspicious activity report) requirements may impose on persons involved in real estate transactions. This NPRM therefore proposes a streamlined reporting framework designed to minimize unnecessary burdens while also enhancing transparency. Although certain information collected under this proposed rule may also be available to law enforcement, in some instances, through the new beneficial ownership reporting requirements imposed by the Corporate Transparency Act (CTA), the CTA’s reporting regime and this proposed rule serve different purposes.
It further states, “In contrast to the beneficial ownership reporting requirements outlined in the CTA, this proposed rule is a tailored reporting requirement that would capture a particular class of activity that Treasury deems high-risk and that warrants reporting on a transaction-specific basis. More specifically, the proposed rule would require certain persons involved in residential real estate closings and settlements to file, and to maintain a record of, a streamlined version of a SAR, referred to here as a ‘real estate report.’ The persons subject to these reporting and recordkeeping requirements would be deemed reporting persons for purposes of the proposed rule and would be determined through a ‘cascading’ approach based on the function performed by the person in the real estate closing and settlement. The ‘cascade’ is designed to minimize burdens on persons involved in real estate closings and settlements while avoiding gaps in reporting and incentives for evasion. To provide some flexibility in this cascade approach, real estate professionals would also have the option to designate a reporting person from among those in the cascade by agreement. “
The rule would require the following information to be included in the real estate report:
- Reporting person.
- Legal entity or trust to which the property being transferred.
- Beneficial owners of that transferee entity or transferee trust.
- The person that transfers the property.
- The property being transferred.
The reporting person would have to file the report within 30 days after closing.
The notice states, “Because of the streamlined nature of these real estate reports compared to traditional SARs, as well as the flexible ‘cascade’ framework, persons subject to this reporting requirement would not need to maintain the types of AML programs otherwise required of financial institutions under the BSA.”
The proposed rule is consistent with the BSA’s longstanding directive to extend anti-money laundering measures to the real estate sector and builds on the success of FinCEN’s Real Estate GTO program, which has demonstrated the need for increased transparency and further regulation of this sector nationwide. Under the proposed rule, persons involved in real estate closings and settlements would continue to be exempt from the anti-money laundering compliance program requirements of the BSA.
The rule will be published in the Federal Register on Feb. 16. The public will then have 60 days to provide comment.