Anti-Money Laundering Regulations for Real Estate Transactions
Advance notice of proposed rulemaking.
CFR Part: "31 CFR Chapter X"
RIN Number: "RIN 1506-AB54"
Citation: "86 FR 69589"
Page Number: "69589"
"Proposed Rules"
Agency: "
SUMMARY: FinCEN is issuing this advance notice of proposed rulemaking (ANPRM) to solicit public comment on potential requirements under the Bank Secrecy Act (BSA) for certain persons involved in real estate transactions to collect, report, and retain information. The systemic money laundering vulnerabilities presented by the
DATES: Written comments on this advance notice of proposed rulemaking may be submitted on or before
ADDRESSES: Comments may be submitted, identified by Regulatory Identification Number (RIN) 1506-AB54, by any of the following methods:
Federal E-rulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. Include 1506-AB54 in the submission. Refer to Docket Number FINCEN-2021-0007.
Mail:
Please submit comments by one method only.
FOR FURTHER INFORMATION CONTACT: FinCEN: The FinCEN Regulatory Support Section at 1-800-767-2825 or electronically at [email protected].
SUPPLEMENTARY INFORMATION:
I. Background The goal of this rulemaking process is to implement an effective system to collect and permit authorized uses of information concerning potential money laundering associated with non-financed transactions /1/ in
FOOTNOTE 1 For the purposes of this ANPRM, the terms "non-financed purchase," "non-financed transaction," "all-cash purchase," and "all-cash transaction" refer to any real estate purchase or transaction that is not financed via a loan, mortgage, or other similar instrument, issued by a bank or non-bank residential mortgage lender or originator, and that is made, at least in part, using currency or value that substitutes for currency (including convertible virtual currency (CVC)), or a cashier's check, a certified check, a traveler's check, a personal check, a business check, a money order in any form, or a funds transfer. END FOOTNOTE
Money laundering vulnerabilities exist throughout
For this rulemaking process, FinCEN is considering how best to focus its regulatory attention on residential and commercial real estate transactions. FinCEN notes that money laundering risks stem from transactions in both the commercial and residential real estate sectors, and both merit appropriate regulatory treatment. At the same time, FinCEN recognizes that an iterative approach may be warranted given the complexities and differences between different market sectors and the potential burdens that new reporting and recordkeeping requirements may have for businesses. If an iterative approach is warranted, FinCEN could initially focus on residential real estate followed by additional action to promulgate regulations covering the commercial real estate sector, as well as any other regulatory gaps that may exist with money laundering vulnerabilities involving real estate. FinCEN invites comments regarding the approach that it should take with respect to regulatory treatment of residential and commercial real estate and the money laundering threats presented by these sectors.
This ANPRM seeks comment to assist FinCEN in preparing a potential proposed rule that would seek to impose nationwide recordkeeping and reporting requirements on certain persons participating in transactions involving non-financed purchases of real estate. FinCEN has not previously imposed the BSA's general recordkeeping and reporting requirements on businesses involved in non-financed real estate transactions, but FinCEN has imposed more specific transaction reporting requirements on title insurance companies in the form of time-limited Geographic Targeting Orders under 31 U.S.C. 5326(a). This ANPRM seeks public comment on whether FinCEN should impose a similar, ongoing, and expanded reporting requirement through regulations. Such a rule could be promulgated under 31 U.S.C. 5318(a)(2). FinCEN invites comments on alternative approaches to address the risk of money laundering in non-financed real estate transactions, including, for example, potentially promulgating general BSA recordkeeping and reporting requirements for "persons involved in real estate settlements and closings" under 31 U.S.C. 5318(g)(1) and related program requirements under 31 CFR 5318(h). /2/
FOOTNOTE 2 31 U.S.C. 5312(a)(2)(U). END FOOTNOTE
FinCEN seeks comment on the potential scope of any such regulations, including, among other things: The persons who should be subject to the requirements; which types of real estate purchases should be covered; what information should be reported and retained; the geographic scope of such a requirement; and the appropriate reporting dollar-value threshold. FinCEN also invites general comments regarding the risk of money laundering and other illicit financial activities in the real estate market and the extent to which any reporting requirements would address that risk.
II. Money Laundering in Real Estate
FOOTNOTE 3 See, e.g.,
Indeed, as the
FOOTNOTE 4 "Money Laundering in the
FOOTNOTE 5 Id. END FOOTNOTE
Reports by foreign governments, international standard setters, and a variety of reports by non-governmental organizations (NGOs), inter-governmental organizations, academics, trade organizations, media, and other members of civil society confirm the substantial risk that the real estate market presents for the money laundering problem.
In
FOOTNOTE 6 See generally "Money Laundering & Terrorist Financing through the Real Estate Sector,"
FOOTNOTE 7 "Anti-money laundering and counter-terrorist financing measures in
The
FOOTNOTE 8 See "Directive 2001/97/EC of the
FOOTNOTE 9 See
Concerns about the abuse of the real estate market have also been extensively reported by the press, academia, and civil society organizations. For example, in
FOOTNOTE 10 See generally
FOOTNOTE 11 See
FOOTNOTE 12 See also, e.g.,
In
FOOTNOTE 13 "Anti-Money Laundering Voluntary Guidelines for Real Estate Professionals,"
In
FOOTNOTE 14 According to its website, GFI is "a
FOOTNOTE 15 The term "PEP" generally includes a current or former senior foreign political figure, their immediate family, and their close associates. "Politically Exposed Persons--Overview," FFIEC BSA/AML Examination Manual, p. 290 (V5 2015); see also "Joint Statement on Bank Secrecy Act Due Diligence Requirements for Customers Who May Be Considered Politically Exposed Persons,"
FOOTNOTE 16 Lakshmi Kumar &
And most recently, in
FOOTNOTE 17 According to its website, The Sentry "is an investigative and policy team that follows the dirty money connected to African war criminals and transnational war profiteers and seeks to shut those benefiting from violence out of the international financial system." "About The Sentry," The Sentry, https://thesentry.org/about/. END FOOTNOTE
FOOTNOTE 18 "Embezzled Empire: How Kabila's Brother Stashed Millions in
Several key factors contribute to the systemic vulnerability of the
First, the lack of transparency in the real estate market contributes to its vulnerability to money laundering activity. Real estate may be held directly or indirectly through nominees, legal entities (such as one or more shell holding companies), or through various investment vehicles. Buyers may use shell companies in many legitimate circumstances, such as when buyers use legal entities to shield themselves and their assets from liability related to the purchase of real property or as a means of protecting their privacy. Illicit actors, however, can take advantage of the opacity of shell companies or other legal entities or arrangements to mask their identity as the true beneficial owners of the property and their involvement in real estate transactions.
Second, the attractiveness of the
Third, the lack of industry regulation for non-financed transactions exacerbates the money laundering vulnerabilities of the
FinCEN recognizes the efforts by trade organizations for real estate professionals, such as the NAR (real estate agents and brokers) and the
FOOTNOTE 19 See generally "Anti-Money Laundering Guidelines for Real Estate Professionals," https://www.nar.realtor/articles/anti-money-laundering-guidelines-for-real-estate-professionals. END FOOTNOTE
In sum, the
III. Current Law
The Currency and Foreign Transactions Reporting Act of 1970, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("
FOOTNOTE 20 The BSA is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1960, 31 U.S.C. 5311-5314 and 5316-5336, and includes notes thereto, with implementing regulations at 31 CFR chapter X. END FOOTNOTE
FOOTNOTE 21 Treasury Order 180-01 (
FOOTNOTE 22 31 U.S.C. 5311. Section 5311 was amended by Section 6002 of the AML Act to add the following additional purposes of the BSA: To prevent the laundering of money and the financing of terrorism through the establishment by financial institutions of reasonably designed risk-based programs to combat money laundering and the financing of terrorism; facilitate the tracking of money that has been sourced through criminal activity or is intended to promote criminal or terrorist activity; assess the money laundering, terrorism finance, tax evasion, and fraud risks to financial institutions, products, or services to protect the financial system of
Under the BSA, the Secretary may require any financial institution, including "persons involved in real estate closings and settlements," to report any suspicious transaction relevant to a possible violation of law or regulation (a "suspicious activity report," or "SAR"). /23/ The BSA also requires each financial institution to establish AML/CFT programs, including, at a minimum, "(A) the development of internal policies, procedures, and controls; (B) the designation of a compliance officer; (C) an ongoing employee training program; and (D) an independent audit function to test programs." /24/ The Secretary may prescribe minimum standards for such programs, and may exempt any financial institution from the application of such standards. /25/ Under the BSA, as amended by Section 6102(c) of the AML Act, the Secretary is also authorized to "require a class of domestic financial institutions or nonfinancial trades or businesses to maintain appropriate procedures, including the collection and reporting of certain information as the Secretary of the
FOOTNOTE 23 31 U.S.C. 5318(g), 5312(a)(2)(U). END FOOTNOTE
FOOTNOTE 24 31 U.S.C. 5318(h)(1)(A)-(D). END FOOTNOTE
FOOTNOTE 25 31 U.S.C. 5318(h)(2)(A), 5318(a)(6). Public Law 107-56, Title III, Sec. 352(c), 115 Stat. 322 (
FOOTNOTE 26 31 U.S.C. 5318(a)(2) (as amended by Section 6102(c) of the AML Act). END FOOTNOTE
FinCEN's regulations implementing the BSA require banks, non-bank residential mortgage lenders and originators ("RMLOs"), and housing-related
FOOTNOTE 27 31 CFR parts 1020, 1029, 1030. END FOOTNOTE
FOOTNOTE 28 31 CFR 1010.205(b)(1)(v). END FOOTNOTE
IV. Prior Rulemakings
In 2002, FinCEN temporarily exempted certain financial institutions, including "persons involved in real estate closings and settlements" and "loan and finance companies," from the requirement to establish an AML/CFT program. FinCEN explained that it would "continue studying the money laundering risks posed by these institutions in order to develop appropriate anti-money laundering program requirements," but that additional time was needed to consider the businesses that would be subject to such requirements, as well as the nature and scope of the AML/CFT risks associated with those businesses. /29/ FinCEN also explained its concern that many of these financial institutions were sole proprietors or small businesses, and FinCEN intended to avoid imposing "unreasonable regulatory burdens with little or no corresponding anti-money laundering benefits." /30/
FOOTNOTE 29 67 FR 21110-21112 (
FOOTNOTE 30 Id. END FOOTNOTE
In 2003, FinCEN issued an ANPRM regarding the AML/CFT program requirement for "persons involved in real estate closings and settlements" ("2003 ANPRM"). The 2003 ANPRM solicited comments on the money laundering risks in real estate closings and settlements, how to define "persons involved in real estate closings and settlements," whether any persons involved in real estate closings and settlements should be exempted from the AML/CFT program requirement, and how to structure the requirement in light of the size, location, and activities of persons in the real estate industry. /31/ FinCEN received 52 comments on the 2003 ANPRM from individuals, various institutions and associations of interested parties, law firms, state bar associations, an office within the
FOOTNOTE 31 68 FR 17569 (
FOOTNOTE 32 See FinCEN's website to review comments submitted, at https://www.fincen.gov/comments-advance-notice-proposed-rule-anti-money-laundering-programs-persons-involved-real-estate. END FOOTNOTE
FinCEN subsequently focused on the money laundering vulnerabilities in financed real estate transactions, as approximately 80% of real estate transactions are financed by a loan from a financial institution. /33/ FinCEN published a number of reports tracking the rise of mortgage fraud SARs covering geographic trends and fraud typologies. These SARs, which were filed by banks and other financial institutions, underscored the illicit activity that can occur in the primary and secondary residential mortgage markets. /34/
FOOTNOTE 33 The 80% coverage noted here is an estimate based on industry sources discussed below. See Note 45 infra. END FOOTNOTE
FOOTNOTE 34 See, e.g., "Mortgage Loan Fraud: An Industry Assessment Based on Suspicious Activity Report Analysis,"
In a 2012 final rule, FinCEN eliminated the exemption for "loan and finance companies," and required such companies--defined as non-bank residential mortgage lenders and originators ("RMLOs")--to file SARs and comply with AML/CFT program obligations. /35/ In a 2014 final rule, FinCEN extended similar requirements to the housing-related
FOOTNOTE 35 77 FR 8148 (
FOOTNOTE 36 79 FR 10365 (
FOOTNOTE 37 Id. END FOOTNOTE
FOOTNOTE 38 Id. END FOOTNOTE
In a 2020 final rule, FinCEN also imposed additional AML/CFT obligations on banks lacking a federal functional regulator, ensuring that such entities would be subject to requirements to have an AML/CFT program, meet Customer Identification Program (CIP) and Customer Due Diligence (CDD) requirements, including the verification of beneficial owners of legal entity accounts, in addition to their existing SAR obligations (which would include reporting on transactions involving suspicious real estate transactions). /39/
FOOTNOTE 39 85 FR 57129 (
Each of those regulations helped to ensure that many participants in financed real estate transactions were subject to AML/CFT program and reporting requirements, including to evaluate and protect against AML/CFT risks and identify and report suspicious activity.
V. Real Estate Geographic Targeting Orders
FinCEN has taken a different approach to all-cash real estate transactions (i.e., real estate transactions without financing by a bank, RMLO, or GSE), which represent approximately 20% of real estate sales. When property is purchased without financing, the transaction generally does not involve a bank or other financial institution subject to AML/CFT program requirements. Instead, all-cash real estate transactions may involve only relatively small businesses or individuals involved in closing and settlement, and the participants may lack financial incentives to closely monitor the nature of the transactions. Consequently, there exists a vulnerability that illicit actors can exploit to launder the proceeds of criminal activity by purchasing real estate through all-cash transactions.
In addition, all-cash real estate transactions in which individuals use shell companies to purchase high-value residential real estate, primarily in certain large
FOOTNOTE 40 See, e.g., "Advisory to Financial Institutions and Real Estate Firms and Professionals,"
According to the NAR and the
FOOTNOTE 41 Statistics regarding residential real estate transactions are normally divided between new and existing home sales. Generally, the
FOOTNOTE 42 "Quick Real Estate Statistics,"
FOOTNOTE 43 "Existing-Home Sales Recede 2.0% in August,"
FOOTNOTE 44 "Existing-Home Sales Climb 2.0% in July,"
Although a significant portion of those residential real estate transactions are financed by regulated RMLOs, GSEs, and depository institutions, non-financed real estate transactions can largely avoid financial institutions that are subject to AML/CFT requirements. As previously noted, other businesses and professions involved in real estate transactions, such as real estate brokers and agents, title company representatives, and closing agents (including attorneys when involved), currently are not subject to AML/CFT reporting obligations, and some of these, such as title insurance and real estate agents, are not mandatory in many transactions.
According to figures published by NAR, in both 2020 and 2021, approximately 19% of existing residential home sale were non-financed transactions. /45/
FOOTNOTE 45 Lawrence Yun, "2021 International Transactions in
FOOTNOTE 46 "New Houses Sold by Type of Financing (Table Q7),"
FOOTNOTE 47 Other businesses in the real estate industry have estimated even higher rates of non-financed transactions. For instance, Redfin, a nationwide real estate brokerage, reported that 30% of home sales were all-cash transactions between January and
The types of AML/CFT vulnerabilities in these reports led FinCEN to begin issuing Geographic Targeting Orders (GTOs) in
FOOTNOTE 48 See 31 U.S.C. 5326; 86 FR 62914 (
FOOTNOTE 49 For the GTO, "beneficial owner" has been defined as an individual who, directly, or indirectly, owns 25 percent or more of the equity interests of the legal entity that purchased the residential property. For the purposes of this ANPRM the term "beneficial owner" refers to that term as defined in the Real Estate GTOs and not the term as defined by the Corporate Transparency Act, Title LXIV of the AML Act. END FOOTNOTE
FOOTNOTE 50 For the purposes of the 2016 Real Estate GTO, "legal entity" meant a corporation, limited liability company, partnership, or other similar business entity, whether formed under the laws of a state or of
FOOTNOTE 51 For purposes of the Real Estate GTOs, "residential real property" means real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families. END FOOTNOTE
FOOTNOTE 52 Here, "Covered Transaction" means a transaction reportable under the GTO. The 2016 GTO defined Covered Transactions as transactions involving a covered business where: (i) A legal entity; (ii) purchased residential real property; (iii) located in the
FOOTNOTE 53 Such reports were made to FinCEN by submitting existing BSA reporting forms. Initially title insurances companies reported GTO information to FinCEN via FinCEN Form 8300 (Report of Cash Payments Over
The Real Estate GTOs issued in 2016 provided FinCEN and law enforcement with new data that connected non-financed residential property purchases with the individuals who were the beneficial owners of the legal entities making those purchases. FinCEN began to receive feedback from law enforcement partners that the information was useful for generating new investigative leads, identifying new subjects in ongoing cases, and informing forfeiture efforts, among other things. To further understand the links between opaque transactions and individuals engaged in potentially illicit activity, and to give law enforcement more time to analyze and use the newly collected data, FinCEN renewed the initial GTOs and included additional metropolitan areas.
Since 2016, and most recently in
FOOTNOTE 54 These areas are: (1) The
FOOTNOTE 55 This expansion of the GTOs to cover wire transfers was authorized by the Countering America's Adversaries through Sanctions Act ("CAATSA"), Public Law 115-44 (
FOOTNOTE 56 FinCEN found that money laundering risks existed at lower price thresholds, and thus the current GTO set a
FOOTNOTE 57 FinCEN concluded that the beneficial owners of real estate purchases by publicly traded companies are identifiable through other regulatory filings. END FOOTNOTE
Evidence of money laundering via
In evaluating reporting from the Real Estate GTOs issued since 2016, FinCEN and law enforcement agencies believe that a substantial proportion of the reported transactions for the purchase of property involved a beneficial owner who was also the subject of a SAR. /58/ For example, a FinCEN advisory published in
FOOTNOTE 58 Notably, during the GTO program, independent of any GTO reports, SARs filed by banks related to suspected money laundering in residential real estate transactions increased. END FOOTNOTE
FOOTNOTE 59 See "Advisory to Financial Institutions and Real Estate Firms and Professionals,"
Law enforcement input and actions further indicate that residential real estate presents significant money laundering risk. Federal and State law enforcement agencies have informed FinCEN that both SARs and GTO reports related to real estate transactions have provided greater insight regarding assets held by persons of investigative interest, have resulted in asset forfeiture actions, and have helped generate leads and identify new subjects for investigation. Additionally, beyond the investigations that have been described above, a review of complaints, indictments, and prosecuted cases provides numerous examples of the linkages between real estate transactions and money laundering, as well as other illicit activities. /60/ Accordingly, the usefulness of the Real Estate GTO reporting data to law enforcement suggests that a regulatory requirement to ensure consistent reporting on a nationwide basis would facilitate law enforcement and national security agency efforts to combat illicit activity in this sector. /61/
FOOTNOTE 60 See Note 3 supra. END FOOTNOTE
FOOTNOTE 61 Moreover, one study found that the Real Estate GTOs had the added ameliorative effect of decreasing anonymous capital flows into the
VI.
In contrast to FinCEN's use of Real Estate GTOs to focus on all-cash transactions involving residential real estate, FinCEN decided at the time not to impose a reporting requirement on all cash commercial real estate transactions. The commercial real estate market is both more diverse and complicated than the residential real estate market and presents unique challenges to applying the same reporting requirements or methods as residential transactions. In commercial real estate, possible payments structures are more complex than in the residential real estate market. For example, while the line between financed and non-financed transactions is relatively well-defined in the residential real estate market, this is not necessarily the case with commercial real estate transactions. An entity may, for example, finance the purchase of a large commercial property via the issuance of bonds. It is unclear whether such a transaction would be viewed to be a cash transaction from the point of view of the entities required to report such a transaction. A commercial real estate "transaction" may also involve many transactions. In some cases, such as the development of a large commercial real estate project, there may be many transactions involved in the development and conveyance of a commercial real estate property over the course of months or years.
In part due to such added complexity and opacity, the risks and vulnerabilities associated with the residential real estate sector covered by the GTOs may be compounded in transactions involving commercial real estate, as there are additional types of purchasing options and financing arrangements available for parties seeking to build or acquire property worth up to hundreds of millions of dollars. /62/ Lawyers, accountants, and individuals in the private equity fields--all positions with minimal to no AML/CFT obligations under the BSA--often facilitate commercial real estate transactions, working at different stages of the transaction and operating with differing amounts of beneficial ownership and financial information related to buyers and sellers. Commercial real estate transactions also often involve purpose-built legal entities and indirect ownership chains as parties create tailored corporate entities to acquire or invest in a manner that limits their legal liability and financial exposure. /63/ The result is an opaque field full of diverse foreign and
FOOTNOTE 62 "COVID-19 and the Future of Commercial Real Estate Finance,"
FOOTNOTE 63 See generally
Broadly speaking, FinCEN has serious concerns with the money laundering risks associated with the commercial real estate sector. In its 2006 and 2011 reports, FinCEN detailed various types of suspicious transactions indicative of money laundering in the commercial real estate industry. In the 2006 report, FinCEN analyzed a random sampling of SARs involving commercial real estate-related transactions in which the SAR narratives described transactions or activities involving suspected money laundering and related illicit activity. The types of illicit activity found in that analysis included: Structuring, money laundering, international transfers, tax evasion, and other illicit activity. Among the report's key findings, FinCEN found that property management, real estate investment, realty, and real estate development companies were the most commonly reported entities associated with commercial real estate-related money laundering. The most suspicious activity highlighted in the report was money laundering to promote tax evasion. The report further noted that there appeared to be an increasing trend towards using commercial real estate-related accounts to launder money for PEPs. /64/ In the 2011 report, which focused on commercial real estate financing fraud, FinCEN found that SAR filings involving such fraud almost tripled between 2007 and 2010. FinCEN's analysis found that the top four reported fraud categories were: False documents, misappropriation of funds, collusion-bank insider, and false statements. /65/
FOOTNOTE 64 See generally "FinCEN Sees Growth in Suspected Money Laundering in Commercial Real Estate Industry,"
FOOTNOTE 65 See "Commercial Real Estate Financing Fraud: Suspicious Activity Reports by Depository Institutions from
In 2018, the National Money Laundering Risk Assessment noted the vulnerability of commercial real estate to illicit activity, highlighting a 2013 case involving the laundering of drug proceeds by a real estate agent through real estate, including commercial properties. /66/ More recently,
FOOTNOTE 66 "National Money Laundering Risk Assessment," p. 38 (2018). END FOOTNOTE
FOOTNOTE 67 "Justice Department Seeks Forfeiture of Third Commercial Property Purchased with Funds Misappropriated from PrivatBank in
FOOTNOTE 68 "Acting Manhattan
Finally, in
FOOTNOTE 69 "New Report Finds
In sum, while the Real Estate GTOs to date have not included commercial real estate transactions, FinCEN invites comments on the money laundering risks and structure of the commercial real estate sector so that it may proactively consider possible next steps with respect to reporting or other requirements in relation to commercial real estate transactions given the demonstrated vulnerability of the commercial real estate industry to exploitation. FinCEN is particularly interested in comment concerning the volume and/or type of money laundering vulnerabilities associated with commercial and with residential real estate, and any unique factors or complexities regarding non-financed transactions in each segment, to enable FinCEN to assess appropriate regulatory treatment for residential and commercial real estate purchases.
VII. Real Estate Purchases by Natural Persons
FinCEN recognizes the potential for non-financed purchases by natural persons to facilitate money laundering and other illicit activity. Indeed, the use of natural person nominees can facilitate money laundering involving domestic and foreign bribery and corruption schemes, sanctions evasion, tax evasion, drug trafficking, and fraud, among other types of offenses. As highlighted in the 2020 National Strategy for Combating Terrorist and Other Illicit Financing, a
FOOTNOTE 70 "National Strategy for Combatting Terrorist and Other Illicit Financing," pp. 17-18 (2020). END FOOTNOTE
FOOTNOTE 71 Id. END FOOTNOTE
VIII. Scope of Potential Rules
Given the vulnerabilities of the
FinCEN therefore invites comment through this ANPRM on appropriate regulatory frameworks to do so, including possible nationwide recordkeeping and reporting requirements pursuant to 31 U.S.C. 5318(a)(2) or other potential mechanisms. FinCEN believes that any proposed regulation should require certain persons to collect, report, and retain information about specified non-financed purchases of real estate. FinCEN is considering proposing such a rule that would apply throughout
A. Nature of Recordkeeping and Reporting Requirements
As explained above, FinCEN's existing regulations require banks, RMLOs, and GSEs to comply with the BSA's general recordkeeping and reporting requirements, including the requirement to file SARs and to establish AML/CFT programs. In contrast, FinCEN's GTOs have subjected title insurance companies in the non-financed real estate market to a more specific reporting requirement applicable to all covered transactions. FinCEN seeks comment on promulgating a similar specific reporting requirement, either as an alternative or addition to the BSA's general requirements. Such a specific reporting requirement could be imposed under 31 U.S.C. 5318(a)(2), as amended by Section 6102(a) of the AML Act, which authorizes the Secretary to "require a class of domestic financial institutions . . . to maintain appropriate procedures, including the collection and reporting of certain information as the Secretary of the
In the alternative, FinCEN could promulgate more general requirements for certain persons involved in non-financed real estate closings and settlements by requiring such persons to file SARs pursuant to FinCEN's authority under 31 U.S.C. 5318(g)(1) and by requiring them to establish AML/CFT programs under 31 U.S.C. 5318(h)(1)-(2). Such an approach would involve the application of AML/CFT program rules that traditionally include four requirements--adoption of AML/CFT policies and procedures, designation of an AML/CFT compliance officer, establishment of an AML/CFT training program for appropriate employees, and independent testing of the program to ensure compliance. /72/ FinCEN seeks comments on how such requirements, as well the fifth requirement, CDD rules /73/ containing beneficial ownership requirements, would affect the real estate industry. /74/ In evaluating any potential imposition of general AML/CFT requirements, FinCEN must consider the extent to which the standards for AML/CFT programs are commensurate with the size, location, and activities of persons in this industry. Accordingly, FinCEN is especially interested in comments that would allow it to consider such factors. FinCEN is also particularly interested in the costs, burdens, and benefits associated with the implementation of AML/CFT programs, SAR reporting, and other FinCEN regulatory requirements. Commenters are urged to address the ability of various real estate-related businesses to gather this information for greater transactional transparency, as well as to support the effective administration of a SAR reporting program.
FOOTNOTE 72 See, e.g., "Rules for Loan or Finance Companies," 31 CFR 1029.210. END FOOTNOTE
FOOTNOTE 73 81 FR 29398 (
FOOTNOTE 74 See generally 86 FR 17557 (
FinCEN seeks comment on the approach that would most effectively address money laundering concerns and minimize burdens for persons involved in non-financed real estate transactions.
B. Scope of Persons Subject to a Reporting Requirement
FinCEN seeks comment on which persons should be required to collect information, maintain records, and report information regarding non-financed purchases of real estate. Thus far, the Real Estate GTOs have required reporting from title insurance companies. However, title insurance is not mandatory in every jurisdiction within
Typical closing transactions may involve several participants, performing distinct, but complementary, functions, in addition to the buyer and seller. A typical real estate transaction, for example, may involve real estate brokers and agents (representing sellers and buyers); one or more attorneys who represent the buyer or the seller; a title or title insurance company representative, which may include an attorney; a closing agent (title or escrow); an appraiser, who may assess the value of the real estate; and an inspector to identify code violations and needed repairs before closing.
Certain transaction participants may also be better positioned than others to understand the nature and purpose of the transaction, the source of funds, and the identity of the buyer, particularly natural persons or the beneficial owners behind any legal entity purchaser. Other transaction participants may have greater importance to the successful completion of a transaction or face different incentives, which may suggest that they could be well-positioned and motivated to identify owners behind legal entities in the transaction.
In addition, the participants and the nature of their involvement can vary depending on a variety of factors, including state and local laws, the contemplated use of the real estate, the location of the property, the location and nationality of the buyer, the nature of the rights to be acquired, and how such rights are to be held or transferred upon resale of the property or via terms of an investor agreement. Real estate may also be held directly, through one or more shell holding companies, through trusts, or through other investment vehicles. Real estate may be acquired for a number of purposes, including residential or commercial use, portfolio investment, or development purposes, among other reasons. As to the nature of the rights to be acquired, the real estate may be held in fee simple, under a lease agreement, or as security for indebtedness. In addition, real estate transactions can involve the transfer of title, legal ownership, or equitable ownership, or a combination thereof. Each of the variables may influence the participants involved in such real estate transactions.
Real estate professionals may have different roles in different transactions that affect their exposure to money laundering. Some professionals may be directly involved in marketing and structuring a real estate deal and are thus able to identify all relevant parties to the transaction. Other participants may have business roles that may not be customer-facing or may focus specifically on the details of the property without any knowledge of the financing (or lack thereof), and therefore are not in a position to identify parties for recordkeeping and reporting purposes. Finally, it may be relevant to identify those financial institutions or nonfinancial trades or businesses that are primarily involved in the transfer and presentation of purchase funds in exchange for title or other rights.
To address money laundering concerns, it may be necessary to ensure that a recordkeeping and reporting requirement attaches to some entity involved in every non-financed transaction. At the same time, FinCEN seeks to minimize the burden on reporting entities and to avoid unnecessary and duplicative reporting. FinCEN seeks comments on whether to assign a hierarchical, cascading reporting obligation on different entities depending on which are involved in a particular covered transaction, in a manner similar to the
FOOTNOTE 75 See 26 CFR 1.6045-4 (Information reporting on real estate transactions with dates of closing on or after
FinCEN also invites comments on any additional financial institutions or nonfinancial trades or businesses that should be covered by a proposed regulation. Finally, FinCEN is aware that there are substantial differences in practices, customs, and requirements for real estate transactions in different jurisdictions within
C. Geographic Scope and Transaction Threshold
Although the Real Estate GTOs have been targeted at particular geographic locations within
FOOTNOTE 76 See, e.g.,
FinCEN also welcomes comment on the appropriate transaction threshold, if any, for a reporting requirement. FinCEN's GTOs contain a
FOOTNOTE 77 See, e.g., 31 U.S.C. 5316(a)(1)(requirement to report importing or exporting monetary instruments of more than
FOOTNOTE 78 See, e.g.,
FOOTNOTE 79 "Summary of
D. Purchases by Certain Entities
Under the Real Estate GTOs, only cash purchases by the following "legal entities" are reportable transactions: "a corporation, limited liability company, partnership or other similar business entity, whether formed under the laws of a state, or of
Additionally, FinCEN seeks specific comment on whether to include trusts--broadly defined as a legal "relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another"--within the reporting requirement. /80/ FinCEN notes that recent high profile
FOOTNOTE 80 "Definition of Trust,"
FOOTNOTE 81 See United States v. Real Property Located in
Due to the inherent opacity of purchases by legal entities, the Real Estate GTOs focused on purchases by such entities. However, FinCEN is also concerned about real estate money laundering risks involving natural persons, such as the use of nominees or "straw-man" purchasers. FinCEN is thus considering the extent to which any proposed rule should address this issue. FinCEN is particularly interested in comments broadly addressing the most appropriate way to treat natural persons in regulations addressing money laundering in the real estate sector. Moreover, FinCEN seeks views on how the use of natural persons in money laundering schemes could be addressed by potential rules covering entities (which may still be involved in most transactions by natural persons).
E. Type of Real Estate
FinCEN is considering the best approach to extending reporting requirements or other regulatory treatment to both residential and commercial real estate given the important differences between the residential and commercial real estate markets. FinCEN is especially interested in how such a regulation might be structured to address the differences between commercial and residential real estate transactions and whether the risk in non-residential real estate is sufficient to justify the burdens that a reporting requirement for non-residential real estate could impose. FinCEN also invites comments on whether to address both commercial and residential real estate sectors in the same rule or to take an iterative approach.
IX. Request for Comment
FinCEN seeks comments on the questions listed below, but invites any other relevant comments as well. FinCEN encourages commenters to reference specific question numbers to facilitate FinCEN's review of comments.
A. General Information Regarding the Real Estate Market
FinCEN is issuing this ANPRM to solicit public comment on issues pertaining to potential BSA recordkeeping and reporting requirements. FinCEN invites the views of real estate businesses and professionals, trade organizations, law enforcement, federal agencies, state, local, and Tribal governments, NGOs, members of civil society, and any other interested parties. A variety of perspectives on the
1. Describe a typical residential real estate transaction.
2. Describe a typical commercial real estate transaction.
3. What are the products, services, activities, or affiliations associated with residential real estate transactions? Commercial real estate transactions?
4. What percentage of residential real estate transactions involve purchases by legal entities or trusts?
5. What kinds of professionals are most common in real estate transactions, such as real estate brokers, settlement agents, title insurers, attorneys, etc.? Does this differ for residential and commercial real estate? What kinds of professionals or participants are most able to request, verify, and report documentation related to purchasers? Is title insurance required in most of the transactions? If not, how common is the use of title insurance?
6. What are the typical transaction costs to close a residential real estate deal? For commercial real estate? Typically, what percentage of the sale price do these costs represent?
7. What sort of due diligence is normally conducted, before or at closing, regarding (i) the parties to a transaction (particularly of any natural persons who are the beneficial owners of the buyer or seller); (ii) the source of funds for any transaction; and (iii) other key aspects of the transaction? Does this process differ for commercial and residential transactions?
8. What sort of existing recordkeeping or reporting requirements, unrelated to BSA compliance, exist for real estate transactions? If so, what information must be recorded or reported, to whom, for how long, and what entity provides oversight and ensures compliance? Do these requirements differ for residential and commercial real estate transactions?
9. Please describe any "best practices" related to due diligence on the seller and buyer of residential or commercial real estate; confirmation of the legality of the transaction; inquiries as to the source of acquisition funding; and any other issues that may relate to the marketing, negotiation of terms, and closing of the transaction.
10. What percentage of residential real estate purchases are all-cash transactions?
11. What percentage of commercial real estate purchases are all-cash transactions?
12. Are the beneficial owners of legal entity purchasers involved in real estate transactions normally identified by some participant in a real estate transaction?
13. How do due diligence processes, if any, differ for commercial or residential properties?
14. What do persons involved in real estate transactions do if they have any suspicions about a transaction, customer, or source of funds?
15. How often are attorneys used in all-cash residential or commercial real estate transactions? Why are they used?
16. How often are real estate brokers or agents used in all-cash residential real estate transactions? Why are they used?
17. Is the decision to use real estate brokers, or agents, or attorneys different for all-cash real estate transactions?
18. Please describe when an escrow account must be used for a real estate transaction.
19. Please explain how payment is most often tendered for real estate purchases (e.g., mortgage, domestic wires, foreign wires, checks, currency, CVC). Which of these categories of payment are higher-risk?
20. Please note any differences not already covered in provision of services for residential real estate transactions versus those for commercial real estate transactions.
B. What are the money laundering risks in real estate transactions?
FinCEN solicits comment on money laundering activities (in general terms, not identifying actual parties or properties involved) in connection with real estate transactions, the existence of any safeguards in the sector to prevent money laundering, and what additional steps may be necessary to protect the real estate industry from abuse by money launderers.
21. Describe the potential money laundering and illicit finance risks and vulnerabilities arising in the
22. Identify specific activities and services that present the highest and lowest money laundering risks, as well as factors related to parties, the transaction, and the property, bearing on risk and its assessment. What kinds of transactions and customers are highest and lowest risk? How are those risks mitigated and what are the associated costs of that mitigation?
23. What are the money laundering risks associated with all-cash purchases of real estate by natural persons?
24. Is it possible to estimate the extent to which residential property values are affected by money laundering transactions? Is there a similar estimate for commercial real estate?
25. What are the money laundering risks of commercial versus residential transactions?
C. Which real estate transactions should FinCEN's rule cover?
The questions in Part IX, Sections C-E, may be most relevant for any proposed rule imposing a specific reporting requirement pursuant to 31 U.S.C. 5318(a)(2), as amended by Section 6102(c)of the AML Act, but commenters may examine these questions in the context of a proposed rule promulgating traditional AML/CFT requirements for "persons involved in real estate closings and settlements."
26. What general factors should FinCEN consider in determining which transactions to cover?
27. Should FinCEN's proposed rule be limited to residential real estate or should FinCEN cover transactions involving other forms of real estate (e.g., commercial, farmland). If you believe FinCEN should cover other forms of real estate, should FinCEN do so in conjunction with the regulation of residential real estate transactions or separately?
28. How should FinCEN define "residential real estate"? Is the definition used for the Real Estate GTOs either under- or over-inclusive?
29. How should FinCEN define "commercial real estate"?
30. Should FinCEN's proposed rule be limited to transactions involving legal entities or should it cover natural persons as well? If not, why?
31. Assuming FinCEN's proposed rule is limited to purchases by legal entities, which legal entities should any rule cover? Is the definition of "legal entity" in the Real Estate GTOs too broad or too narrow? Should trusts be covered?
32. Should FinCEN's proposed rule be limited to non-financed transactions (all-cash)?
33. Assuming FinCEN's proposed rule is limited to non-financed transactions, how should FinCEN define the term "non-financed transaction"?
34. Should FinCEN geographically limit the scope of any proposed regulation?
35. Are there any jurisdictions or geographic areas within
36. Should FinCEN provide a lower limit or de minimis amount for the reporting threshold for transactions?
D. Which persons should be required to report information concerning real estate transactions to FinCEN?
37. Should FinCEN require any, a subset, or all of the following entities to report information regarding non-financed transactions: (i) Real estate lawyers and law firms; (ii) real estate agents/brokers/settlement agents; (iii) title insurance companies; (iv) title and escrow agents and companies; (v) real estate investment companies; (vi) real estate development companies; (vii) real estate property management companies; (viii) real estate auctions houses; (ix) investment advisers; (x) private money lenders; and (xi) money service businesses?
38. Which financial institutions and nonfinancial trades and businesses are in a position to ascertain and report: (i) The identity of the legal entity or legal arrangement purchaser of the real estate; (ii) the natural person(s) who are the direct or indirect owners of the legal entity or arrangement purchaser; (iii) the specific details of the transactions (e.g., date of sale, location of property, sale price, and any other terms or conditions); (iv) the source of funds; (v) the form of payments (e.g., wire transfer, check, currency, etc.); (vi) the purpose of the transaction; (vii) the intended use of the proceeds of a sale; and (viii) the businesses involved in the transfer of funds?
39. What are the potential benefits and costs of promulgating a transaction reporting requirement that covered real estate brokers and agents, title agencies and/or insurance companies, or attorneys? What burden (quantify if possible) would it places on such entities?
40. What would be the best way to assign reporting requirements to ensure a reporting requirement falls on at least one financial institution or nonfinancial trade or business for every non-financed transaction by a legal entity purchaser?
41. Should FinCEN require reports from multiple financial institutions or nonfinancial trades or businesses involved in a non-financed purchase of residential real estate, or should FinCEN propose a reporting requirement via a cascading hierarchy based on the types of entities involved in a particular transaction, as is the case for
FOOTNOTE 82 See generally 26 CFR 1.6045-4. END FOOTNOTE
42. What should FinCEN consider when assigning the reporting burden with respect to potential evasion of the reporting requirements?
E. What information should FinCEN require regarding real estate transactions covered by a proposed regulation?
43. What information should FinCEN require to be reported regarding the legal entity (or if applicable, natural person) purchasing real estate in a covered transaction?
44. Should FinCEN require information about the seller? If so, what information should FinCEN require regarding the seller?
45. What information should FinCEN require about the financial institution or nonfinancial trade or business reporting the transaction to FinCEN?
46. What information should FinCEN require regarding the real estate underlying the transaction?
47. Should FinCEN require information regarding the source of funds used to purchase real estate?
48. How can FinCEN craft the information required to avoid overly burdensome or duplicative reporting requirements?
49. How should FinCEN require reports under any potential regulation be filed? Should FinCEN utilize an existing BSA form or develop a new reporting form for any proposed regulation?
F. What are the potential burdens or implementation costs of a potential FinCEN regulation?
50. What would be the costs, burdens, and benefits associated with collecting, storing, and reporting real estate transactional information to FinCEN?
51. How would FinCEN's regulatory requirements be integrated into your current compliance program?
52. How much time will you need to successfully integrate these requirements into your current systems and procedures?
53. Estimate the initial projected cost of implementation and the projected long-term support costs for ongoing program maintenance. Do you anticipate being able to integrate implementation costs into your existing compliance-related budget?
54. Would certain financial institutions or nonfinancial trades or businesses incur higher costs compared to others? Why?
55. If program or other requirements were limited to purchases above a certain price threshold, how would this affect: (i) The burden of implementing such potential rules; and (ii) the utility of such potential rules for addressing money laundering issues in the real estate market?
56. What are the key benefits for a particular stakeholder (e.g., a business, if the commenter is a business), if any, assuming issuance of the rules?
57. Are there alternative methods you believe FinCEN should consider as part of the overall rulemaking process that would effectively address the risk of money laundering in the all-cash real estate market? Please describe in detail.
58. What would be the costs, burdens, and benefits associated with requiring a new form that would report key elements of information deemed highly significant by FinCEN?
59. Please list any legislative, regulatory, judicial, corporate, or market-related developments that have transpired since FinCEN issued the 2003 ANPRM that you view as relevant to FinCEN's current proposed issuance of AML regulations.
G. Should FinCEN promulgate general AML/CFT recordkeeping and reporting requirements for "persons involved in real estate closings and settlements"?
As explained above, FinCEN is considering promulgating a specific reporting requirement under 31 U.S.C. 5318(a)(2), as amended by Section 6102(c) of the AML Act, and the questions in Part XI, Sections C-E relate to such a requirement. The following questions for comment are generally intended to collect information about a potential rule that would instead apply traditional AML/CFT requirements to "persons involved in real estate closings and settlements" in lieu of a more specific requirement.
60. How should the term "persons involved in real estate closings and settlements" be defined?
61. What general factors should FinCEN consider in determining the scope of such a rule? That is, what businesses involved in residential or commercial real estate transactions should be required to comply with any potential rules, and what businesses should be excluded? What kinds of transactions, if any, should be excluded?
62. What are the potential benefits and costs to including real estate brokers and agents, title agencies and/or insurance companies, or real estate attorneys in the definition of "persons involved in real estate closings or settlements"?
63. Describe any requirements that FinCEN could promulgate that adequately address these risks apart from typical AML/CFT programs, recordkeeping, and reporting obligations.
64. Describe your views on whether typical customer identification and verification, AML, SAR, and CTR rules would appropriately address risks in the real estate market and what burden they would entail. What specific factors or characteristics in your business model would justify deviating from the typical AML/CFT program, recordkeeping, and reporting obligations?
65. What are the benefits and drawbacks of a new form requirement to file key information deemed important by FinCEN versus full AML/CFT program requirements? Which would be better and why?
66. Are there particular concerns that smaller businesses may have regarding the implementation of an AML/CFT program?
67. Please describe any programs that persons involved in real estate closings and settlements may already have in place to meet existing legal obligations, in addition to the requirement to report on Form 8300 the receipt of over
68. Do you think it is appropriate for customer identification and verification requirements to be applied to persons purchasing and selling real estate? Would such requirements lead to a change in your business practices?
69. Please detail any aspects of possible FinCEN rules that may cause your business to operate at a competitive disadvantage compared to any businesses that offer similar services, if such businesses would be outside the scope of any FinCEN rules.
70. Should due diligence requirements, if any, apply equally with respect to buyers and sellers or should only buyers be included? Should it apply to all or should only certain types of buyers and sellers included?
71. Should AML/CFT programmatic requirements, if any, apply to residential transactions, commercial transactions, or both?
72. Should the rules be structured to require collection of information about only the most vulnerable or high-risk transactions? If so, how could FinCEN minimize the burdens of such a requirement?
73. Should FinCEN implement information collection requirements only for transactions meeting a specified cost or value threshold? Should other criteria or standards be included to trigger such collection requirements?
74. How might such a rule impact your business? What benefits, costs, and burdens does the commenter anticipate if all the AML/CFT requirements in the CDD rules are incorporated into any proposed rules?
75. Assuming FinCEN proposes to issue traditional AML requirements, please describe the major impacts the business expects upon issuance of final rules. What specific requirements in these regulations do you expect may have the greatest impact on your operations?
76. Assuming FinCEN proposed to issue a new form requirement, what information should be included, to what AML/CFT benefit, and would the ability to mitigate or prevent money laundering risk in the industry be reduced when compared to implementing traditional AML/CFT requirements?
77. How would FinCEN's regulatory requirements be integrated into your business' current compliance program?
78. How much time would a covered business need to successfully integrate AML/CFT requirements into current systems and procedures?
79. Estimate the initial projected cost of implementation, and the projected long-term support costs for ongoing program maintenance. Do you anticipate being able to integrate or share implementation costs into your existing compliance-related budget?
80. Would certain businesses incur higher costs compared to others? Why?
81. If program or other requirements were limited to purchases above a certain price threshold, how would this impact: (i) The burden of implementing such potential rules; and (ii) the utility of such potential rules for addressing money laundering issues in the real estate market?
82. What are the key benefits for your business, if any, assuming issuance of the rules?
X. Regulatory Planning and Review
This advance notice of proposed rulemaking is a substantive, non-significant regulatory action under Executive Order 12866 and has not been reviewed by the
XI. Conclusion
With this ANPRM, FinCEN seeks input on the questions set forth above. FinCEN welcomes comments on all aspects of the ANPRM, and all interested parties are encouraged to provide their views.
By the
Dated:
Acting Director,
[FR Doc. 2021-26549 Filed 12-7-21;
BILLING CODE 4810-02-P
AM Best Affirms Credit Ratings of African Reinsurance Corporation
Condo Insurance Market to Witness Huge Growth by 2026: Key Players – Aviva, State Farm, TD Insurance
Advisor News
- Why aligning wealth and protection strategies will define 2026 planning
- Finseca and IAQFP announce merger
- More than half of recent retirees regret how they saved
- Tech group seeks additional context addressing AI risks in CSF 2.0 draft profile connecting frameworks
- How to discuss higher deductibles without losing client trust
More Advisor NewsAnnuity News
- Allianz Life Launches Fixed Index Annuity Content on Interactive Tool
- Great-West Life & Annuity Insurance Company Trademark Application for “SMART WEIGHTING” Filed: Great-West Life & Annuity Insurance Company
- Somerset Re Appoints New Chief Financial Officer and Chief Legal Officer as Firm Builds on Record-Setting Year
- Indexing the industry for IULs and annuities
- United Heritage Life Insurance Company goes live on Equisoft’s cloud-based policy administration system
More Annuity NewsHealth/Employee Benefits News
- After loss of tax credits, WA sees a drop in insurance coverage
- My Spin: The healthcare election
- COLUMN: Working to lower the cost of care for Kentucky families
- Is cost of health care top election issue?
- Indiana to bid $68 billion in Medicaid contracts this summer
More Health/Employee Benefits NewsLife Insurance News