FinCEN Real Estate Transaction Information Collection under Bank Secrecy Act
Thursday, December 16, 2021
On December 6, 2021, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of the Proposed Regulation (ANPRM) to provide a public comment on possible requirements under the Bank Secrecy Act (BSA) for soliciting certain individuals involved in real estate transactions to collect, report, and store information.
Since September 2002, when it published an independent ANPRM, FinCEN has consistently raised concerns about the systemic money laundering vulnerabilities that the US real estate sector has for both residential and commercial real estate, specifically the ability for illegal actors to gain crime from the sale from real estate to washing estate.
Money Laundering Risks in the US Real Estate Market
In its 2020 National Strategy to Combat Terrorism and Other Illegal Financing, the US Treasury stated that “[c]Criminals with very different financial backgrounds use real estate at all price levels to store, launder, or profit from illicit funds. ”In this report, the Treasury Department identified laundering of illicit income from real estate purchases as a major vulnerability and a key action point in strengthening the US -American anti-money laundering and terrorist financing framework (AML / CFT).
In the ANPRM, FinCEN highlighted an August 2021 study published by Global Financial Integrity, a non-governmental organization, which found that an estimated $ 2.3 billion has been laundered through the U.S. real estate market over the past five years. The study also found that over 50% of the cases examined concerned politically exposed persons (PEPs).
In support of the foregoing, FinCEN has identified regulatory loopholes in unfunded real estate transactions in the United States and identified certain money laundering risks and vulnerabilities associated with residential and commercial property purchases by mailbox companies, including:
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Residential real estate – In transactions with residential real estate, the use of nominees of natural persons can facilitate money laundering with domestic and foreign bribery and corruption systems, sanction evasion, tax evasion, drug trafficking and fraud, among other things.
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Commercial real estate – In commercial real estate transactions, the payment structures can be more complex than in the residential real estate market and pose additional challenges when setting rules, since, among other things, in commercial real estate the boundary between financed and non-financed transactions is relatively clearly defined; in residential real estate transactions, it is not always clear. For example, a company can finance the purchase of a large commercial property by issuing bonds. It is unclear whether such a transaction should be viewed as a cash transaction from the point of view of the reportable companies. A commercial real estate transaction can also include many other transactions, such as: B. in the development of a large commercial real estate project where multiple transactions in the development phase and the subsequent transfer of a commercial real estate can occur over the course of months or years.
Current law1
The Currency and Foreign Transactions Reporting Act of 1970, as amended by Uniting and Strengthening America by Providing Appropriate Tools Required by the Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), the Anti-Money Laundering Act of 2020, and other legislation comprise the legal framework commonly referred to as the BSA.
Under the BSA, any financial institution, including “those involved in property closings and comparisons,” may be required to report suspicious transactions relevant to a possible violation of law or regulation (SAR). However, such BSA reporting laws do not currently extend to all participants in a real estate transaction.
The FinCEN’s regulations implementing the BSA require banks, non-bank residential real estate lenders, and originators to file reports and set up AML / CFT programs, but the same FinCEN regulations (i) exempt other individuals involved in property closings and settlements , of the obligation to establish AML / CFT programs, and (ii) do not impose a reporting requirement on such persons.
Scope of potential rules
Accordingly, it is FinCEN’s goal, through the ANPRM, to implement an effective system to collect and permit the authorized use of information about potential money laundering in connection with unfunded transactions in the US real estate market.
Therefore, FinCEN believes that any proposed regulation should require individuals involved in unfunded property closings and settlements to collect, report (likely by filing suspicious transaction reports) and retain information on certain unfunded property purchases. Such an approach would involve the application of AML / CFT program rules, which traditionally include four requirements: (i) adoption of AML / CFT policies and procedures; (ii) Appointment of an AML / CFT Compliance Officer; (iii) Establish an AML / CFT training program for qualified employees; and (iv) independently testing the program to ensure compliance.
FinCEN is considering proposing such a rule that would apply across the United States and would not include lower thresholds for the US dollar.
FinCEN will accept written comments in response to the ANPRM until February 7, 2022.
1 The BSA is codified in 12 USC § 1829b, 12 USC §§ 1951-1960, 31 USC §§ 5311-5314 and §§ 5316-5336 and implementing provisions in 31 CFR Chapter X.
© 2021 Greenberg Sad, LLP. All rights reserved. National Law Review, Volume XI, Number 350