FinCEN Considers New Anti-Money Laundering Reporting Requirements For All-Cash Real Estate Transactions | Kramer Levin Naftalis & Frankel LLP
The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced an advance notice of the proposed regulation (ANPRM) last week.[1] seek public comment on a proposed settlement that would remove the vulnerability of the US housing market to money laundering and other illegal activities.[2] FinCEN plans to scrutinize all cash property transactions as part of the Biden government’s broader anti-corruption efforts.[3] These anti-corruption efforts also include the notification from FinCEN on proposed regulations for the implementation of the reporting requirements for beneficial owners under the Corporate Transparency Act, which were also announced last week and discussed in a separate customer announcement.
Typical real estate transactions involving mortgages are scrutinized by the financial institutions involved, which are subject to anti-money laundering regulations and are required to report suspicious activity to the government.[4] However, real estate purchases in pure cash transactions are currently only subject to minimal reporting requirements.[5] According to FinCEN, this can present a significant money laundering vulnerability as it is extremely difficult to determine the true source of money when buying real estate from legal entities that are not funded by regulated institutions.
A senior official at a White House anti-corruption press conference said: “The US housing market has been vulnerable to tampering for too long and has served as a haven for the laundered proceeds from illegal activities, including corruption. Our real estate market is a relatively stable store of value. It can be opaque and there are loopholes in the regulation of the industry. This means that criminals and corrupt officials can exploit real estate far too often. “[6]
From 2015 to 2020, an estimated $ 2.3 billion was laundered through US real estate transactions. More than half of these transactions involved “politically exposed persons” – high-ranking foreign political officials or their close associates.[7] A 2015 New York Times article reported that nearly half of the most expensive homes in the United States were bought by legal entities rather than named individuals.[8]
FinCEN has not yet imposed general banking secrecy reporting requirements on companies involved in unfunded real estate transactions; However, it has placed more specific transaction reporting requirements and required insurance companies in select metropolitan areas – including New York City – to file reports of cash-only residential real estate purchases by legal entities for more than $ 300,000.[9] These rules were enacted in accordance with 31 USC § 5326, which enables FinCEN to impose additional reporting or record-keeping obligations on institutions or companies in a geographic area for a limited period of time if FinCEN has reasonable grounds to believe that the requirements are necessary for implementation are in the sense of banking secrecy. Instead of resorting to these restricted rules, FinCEN could impose an ongoing and expanded reporting requirement through 31 USC § 5318 (a) (2). The ANPRM would like to seek feedback on whether FinCEN should impose such a nationwide rule and expand efforts to include commercial real estate.
New rules could include the introduction of controls and reporting requirements similar to those for financial institutions, such as anti-money laundering rules and reporting requirements for suspicious activity.[10] The scope of the reporting requirements is not yet established, but would likely include title insurers and others involved in unfunded property closings and comparisons.[11] The proposed rule would “increase the transparency of the domestic real estate market nationwide and protect the US real estate market from exploitation by criminals and corrupt officials.”[12]
The ANPRM seeks comments on the approach for both the residential and commercial real estate sectors and seeks to gain insight into any potential pressures or challenges that such reporting could bring. FinCEN is seeking public comments on the types of property purchases that should be covered by the proposed rule, the geographic scope, what information should be reported and retained, the appropriate dollar value threshold for reporting, and the key stakeholders reporting and maintaining Are subject to record-keeping requirements. Written comments must be received by February 7, 2022.[13]
[1] Anti-Money Laundering Regulations for Real Estate Transactions, 86 Fed. Registration number. 69589 (December 8, 2021) (ANPRM), https://www.federalregister.gov/documents/2021/12/08/2021-26549/anti-money-laundering-regulations-for-real-estate-transactions.
[2] FinCEN starts regulatory process for new reporting requirements for the real estate sector to curb illegal financing (December 6, 2021) (FinCEN press release), https://www.fincen.gov/news/news-releases/fincen-launches-regulatory- process-new – Real estate reporting requirements.
[3] See United States Strategy on Countering Corruption (December 2021), https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf. The US Anti-Corruption Strategy, published December 6, 2021, “outlines a nationwide approach to improving the fight against corruption. It places particular emphasis on better understanding and responding to the transnational dimensions of the threat, including through additional steps to reduce the ability of corrupt actors to use the US and international financial systems to hide assets and generate revenues from corrupt actions. “Fact Sheet: US Strategy on Countering Corruption (December 6, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/06/fact-sheet- us-strategy-on- anti-corruption /.
[4] See ANPRM at 69592 (The Bank Secrecy Act gives FinCEN the power to impose reporting requirements on financial institutions. “The Currency and Foreign Transactions Reporting Act of 1970, as amended by Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (‘ USA PATRIOT Act ‘), the Anti-Money Laundering Act of 2020 (‘ AML Act ‘) and other legal provisions are the legal framework that is broadly known as [Bank Secrecy Act]. The Secretary of the Treasury. . . gives the director of FinCEN the authority to implement, manage and enforce compliance with the [Bank Secrecy Act] and related regulations. “).
[5] See ID. (“FinCEN regulations for the implementation of the [Bank Secrecy Act] require banks, non-bank mortgage lenders, and originators. . . and housing-related government-sponsored businesses. . . classify [suspicious activity reports] and establish [anti-money laundering/countering the financing of terrorism] Programs, but FinCEN’s regulations, exempt other persons involved in property closings and comparisons from the obligation to establish [anti-money laundering/countering the financing of terrorism] Programs, and the regulations do not write [suspicious activity reports] Obligation to register for such persons. “).
[6] Background press briefing by senior administrators on the US government’s anti-corruption strategy (December 6, 2021) (White House Briefing), https://www.whitehouse.gov/briefing-room/press-briefings/2021/12/ 06 / background-press-call-from-senior-administrators-on-the-us-government-strategy-to-fight-corruption /.
[7] ANPRM at 69591 (citing study published by Global Financial Integrity); see also Richard Vanderford, US Weighs New Rules for All-Cash Real Estate Deals, Wall Street Journal (December 6, 2021), https://www.wsj.com/articles/us-weighs-new-rules-for- All -Cash-Real Estate-Deals-11638827425.
[8] ANPRM at 69591 (citing Louise Story and Stephanie Saul, “Stream of Foreign Wealth Flows to Elite New York Real Estate”, NY Times (February 7, 2015), https://www.nytimes.com/ 2015 / 02/08 / nyregion / stream-of-foreign-wealth-flows-to-time-warner-condos.html).
[9] ANPRM at 69594-95 (“Geographic Targeting Orders” require title insurers to generate reports and keep records of cash purchases of residential real estate over a certain monetary limit in certain metropolitan areas of the United States. The Information They Need To The Report Contains Information About the transaction, including the price and address of the property purchased, as well as beneficial owner information, such as the name and social security number of the beneficial owners of the legal entities purchasing the property.)
[10] ANPRM at 69597; see also Vanderford, above.
[11] See ANPRM at 69597.
[12] FinCEN press release.
[13] See ANPRM (the comment period is open for 60 days from the date of publication in the federal register).
[View source.]