Treliant Takeaway…Addressing Money Laundering in Residential Real Estate

Fact Sheet: FinCEN Issues Notice of Proposed Rulemaking to Increase Transparency in Residential Real Estate

• Source: fincen.gov

Takeaway

The Financial Crimes Enforcement Network (FinCEN) released a Notice of Proposed Rulemaking (NPRM) which imposes new Anti-Money Laundering (AML) compliance requirements in the real estate industry. The proposed FinCEN rule will replace existing reporting requirements that apply only to title companies with rules that apply more broadly in the real estate market. The reporting requirements which apply to non-financial sales and transfers aim to establish more transparency into the players and beneficial owners in non-financial property transactions, such as the use of trusts or other legal entities. The proposed requirements can potentially cause disruptions to how real estate sales and purchase transactions are executed. If approved, new reporting requirements would apply nationwide to all businesses, including attorneys, performing specified closing or settlement functions for the non-financed sale or transfer of residential real property to an entity or trust.

Treliant provides tailored solutions to seamlessly integrate the proposed rule into affected parties’ operating processes. With comprehensive training, streamlined reporting frameworks, and ongoing support, Treliant can help businesses, including attorneys, smoothly implement the new reporting requirements and minimize disruptions to “business as usual” processes.

Highlights

FinCEN’s recent notice outlines a proposed rule designed to strengthen transparency in the U.S. residential real estate sector, specifically non-financial or cash transactions, by imposing requirements to report certain information to FinCEN.

This proposal replaces the Residential Real Estate Geographic Targeting Order (GTO) program with a nationwide reporting requirement. The notice targets “all-cash” sales or non-financial that are not subject to traditional AML controls at financial institutions.

The required information addresses beneficial ownership, the property subject to the transaction, the transferor, and the transferee entities or trusts.

According to FinCEN, the Real Estate Reports’ filing obligation will primarily impact settlement agents, title insurance agents, escrow agents, and attorneys involved in residential real estate transactions. However, to streamline the process, FinCEN will require only one business within the process to file a report for a specific transaction (the report would constitute a modified Suspicious Activity Report or SAR). The rule proposes two methods for determining the reporting person: a “cascade” method, where the obligation applies to the business with the highest function in a predefined list of seven, and an alternative method, allowing businesses to enter into written agreements to designate a professional for filing, offering flexibility and reducing potential business burdens.

While FinCEN notes that these entities and persons will not be required to establish AML programs under the Bank Secrecy Act, FinCEN is clearly expanding its scrutiny and oversight beyond the financial services industry. Entities and professionals in the real estate industry should closely monitor developments to proactively ensure compliance with any final rule.

What This Means for Institutions

The proposed FinCEN rule applies primarily to non-financial players in residential real estate market transactions. Financial institutions are already subject to AML regulations and are as such exempt from this rule.

For those impacted, requirements may pose a significant change to operating processes. The scope of reportable property is extensive and applies to various types of residential real property transfers, including transfers of single-family houses, townhouses, condominiums, and cooperatives.  Furthermore, there is no financial threshold for the purchase price.  The proposed rule also applies to transfers of ownership for which no consideration is exchanged, such as a gift.