By Erik Sherman
Anti-money laundering has become an ongoing topic for the Biden administration. The latest round of reports focuses in part on real estate. As a result, the Treasury Department has proposed new rules that would government CRE transactions.
The report addressed real estate as part of a luxury and high-value goods category. “Money laundering through real estate can negatively affect home prices, particularly since illicit actors seeking to integrate illicit funds may be willing to over or under pay for a property,” the report read.
The report quotes estimates of 20% to 30% of residential real estate transactions are performed as all-cash, making it more difficult to identify the parties involved. Some of the activities the government says the money laundering through real estate transactions supports include “narcotics trafficking, corruption, human trafficking, fraud, and sanctions evasion.” The non-financed transactions may use “legal vehicles or arrangements designed to obfuscate the purchaser’s identity and source of funds to integrate ill-gotten proceeds into the formal economy.”
Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department, issued a “proposed rule to require certain persons involved in real estate closings and settlements to submit reports and keep records on identified non-financed transfers of residential real property to specified legal entities and trusts on a nationwide basis.” The rule wouldn’t cover transfers directly made to an individual.
For “many years,” FinCEN has exempted “persons involved in real estate closings and settlements” from “comprehensive regulation under the [Bank Secrecy Act],” depending instead on geographic targeting orders.
The new rule would mean that non-financed residential real estate transactions would now require fuller reporting but under a “streamlined reporting framework designed to minimize unnecessary burdens while also enhancing transparency.”
The required information would include the identity “the reporting person, the legal entity or trust to which the residential real property is transferred, the beneficial owners of that transferee entity or transferee trust, the person that transfers the residential real property, and the property being transferred, along with certain transactional information about the transfer.”
Reports would be due within 30 days of the closing and because of the structure of the reporting compared to Suspicious Activity Reports, “persons subject to this reporting requirement would not need to maintain the types of AML programs otherwise required of financial institutions under the BSA.”