[Federal Register Volume 86, Number 233 (Wednesday, December 8, 2021)]
[Proposed Rules]
[Pages 69589-69602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26549]
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DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Chapter X
RIN 1506-AB54
Anti-Money Laundering Regulations for Real Estate Transactions
AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.
ACTION: Advance notice of proposed rulemaking.
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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 U.S. real estate
sector, and consequently, the ability of illicit actors to launder
criminal proceeds through the purchase of real estate, threatens U.S.
national security and the integrity of the U.S. financial system.
Accordingly, FinCEN intends to begin the rulemaking process to address
such vulnerabilities. As a first step in this rulemaking process,
FinCEN is issuing this ANPRM to seek initial public comment on
questions that will assist FinCEN in the consideration and preparation
of a proposed rule.
DATES: Written comments on this advance notice of proposed rulemaking
may be submitted on or before February 7, 2022.
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: Financial Crimes Enforcement Network, Global Investigations
Division, P.O. Box 39, Vienna, VA 22183. Include 1506-AB54 in the body
of the text. Refer to Docket Number FINCEN-2021-0007.
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 the United States real estate market. FinCEN expects that doing
so will strengthen the United States' national security and the
integrity of the U.S. financial system. With this ANPRM, FinCEN seeks
input on how it should implement such a system, consistent with the
Bank Secrecy Act (BSA), to maximize benefits while minimizing burdens
on reporting financial institutions and nonfinancial trades or
businesses.
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\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.
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[[Page 69590]]
Money laundering vulnerabilities exist throughout the United States
real estate market. These vulnerabilities are not limited to any
particular sector. Although in recent years FinCEN has focused its
information collection efforts on non-financed purchases of residential
real estate by shell companies, FinCEN believes that other areas of the
real estate market, such as commercial real estate and certain real
estate purchases by natural persons, may merit regulatory coverage.
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\
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\2\ 31 U.S.C. 5312(a)(2)(U).
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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
Treasury, working with law enforcement partners, has highlighted
the money laundering risks and typologies associated with the U.S. real
estate market. As Treasury explained in its 2020 National Strategy for
Combating Terrorist and Other Illicit Financing, ``[c]riminals with
widely divergent levels of financial sophistication use real estate at
all price levels to store, launder, or benefit from illicit funds.'' In
that report Treasury identified the risks of the laundering of illicit
proceeds through real estate purchases as a main vulnerability and key
action item for strengthening the U.S. Anti-Money Laundering/Countering
the Financing of Terrorism (AML/CFT) framework. Law enforcement
actions--including complaints, indictments, and prosecuted cases--
confirm the conclusions in the report on the linkages between real
estate transactions and money laundering and other illicit
activities.\3\
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\3\ See, e.g., United States v. Real Property Located in
Potomac, Maryland, Commonly Known as 9908 Bentcross Drive, Potomac,
MD 20854, Case No. 20-cv-02071, Doc. 1 (D. MD Jul. 15, 2020); United
States v. Raul Torres, Case No. 1:19CR390, Doc. 30 (N.D. Ohio Mar.
30, 2020); United States v. Bradley, No. 3:15-cr-00037-2, 2019 U.S.
Dist. LEXIS 141157 (M.D. Tenn. Aug. 20, 2019); United States v. Paul
Manafort, Case 1:18-cr-00083-TSE, Doc. 14 (E.D. Va. Feb. 26, 2018);
United States v. Miller, 295 F. Supp. 3d 690 (E.D. Va. 2018); United
States v. Patrick Ifediba, et al., Case No. 2:18-cr-00103-RDP-JEO,
Doc. 1 (N.D. Alabama Mar. 29, 2018); Atty. Griev. Comm'n of Md. v.
Blair, 188 A.3d 1009 (MD Ct. App. 2018); United States v. Coffman,
859 F. Supp. 2d 871 (E.D. Ky. 2012); United States v. Delgado, 653
F.3d 729 (8th Cir. 2011); United States v. Fernandez, 559 F.3d 303
(5th Cir. 2009); United States v. 10.10 Acres Located on Squires
Rd., 386 F. Supp. 2d 613 (M.D.N.C. 2005); State v. Harris, 861 A.2d
165 (Super. Ct. App. Div. 2004); ``United States Reaches Settlement
to Recover More Than $700 Million in Assets Allegedly Traceable to
Corruption Involving Malaysian Sovereign Wealth Fund,'' Press
Release, Department of Justice (Oct. 30, 2019), https://www.justice.gov/opa/pr/united-states-reaches-settlement-recover-more-700-million-assets-allegedly-traceable; ``Acting Manhattan U.S.
Attorney Announces $5.9 Million Settlement of Civil Money Laundering
And Forfeiture Claims Against Real Estate Corporations Alleged to
Have Laundered Proceeds of Russian Tax Fraud,'' Press Release,
Department of Justice (May 12, 2017), https://www.justice.gov/usao-sdny/pr/acting-manhattan-usattorney-announces-59-million-settlement-civil-money-laundering-and.
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Indeed, as the Congressional Research Service recently noted, real
estate money laundering ``schemes can involve a wide range of
conventional domestic criminals, as well as transnational criminals,
including drug cartels and human traffickers, international terrorists,
and foreign kleptocrats (corrupt high-level officials).'' \4\ As such,
``[t]he purchase of real estate, often combined with methods to conceal
a purchaser's identity and source of funds, can allow criminals to
integrate ill-gotten proceeds into the legal economy[.]'' \5\
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\4\ ``Money Laundering in the U.S. Real Estate Sector,''
Congressional Research Service (Nov. 9, 2021).
\5\ Id.
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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 January 2007, for example, the Financial Action Task Force
(FATF), as the global standard setter for combatting money laundering,
terrorism financing, and proliferation finance, published a wide-
ranging report and series of recommendations that highlighted the vast
scope of the money laundering problem in the real estate sector. The
FATF has issued guidance--most recently in June 2021--recommending AML/
CFT requirements for certain entities involved in real estate
transactions.\6\ Further, in the FATF's 2016 Mutual Evaluation Report
(MER) of the United States, the FATF identified numerous money
laundering vulnerabilities in the U.S. real estate sector, noting that
``purchasers often use legal persons to hold real estate and the
opaqueness of legal persons . . . is a
[[Page 69591]]
vulnerability which can be exploited by illicit actors.'' \7\ Of note,
the FATF found the United States' failure to regulate real estate
transactions in line with the FATF standards to be a significant
deficiency in the U.S. AML/CFT regime.
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\6\ See generally ``Money Laundering & Terrorist Financing
through the Real Estate Sector,'' Financial Action Task Force (Jun.
29, 2007); see ``International Standards on Combating Money
Laundering and the Financing of Terrorism & Proliferation: The FATF
Recommendations,'' Financial Action Task Force, pp. 19-20 (Jun.
2021).
\7\ ``Anti-money laundering and counter-terrorist financing
measures in the United States--2016,'' Mutual Evaluation Report,
Financial Action Task Force, p. 120 (Dec. 2016).
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The European Union has regulated real estate transactions for the
purposes of AML/CFT efforts since 2001.\8\ In 2019, the European
Parliament Research Service (EPRS), the European Parliament's in-house
research service, published a briefing indicating the widespread use of
real estate in money laundering, and in particular, highlighted the
necessity of identifying purchasers of real estate and proper
regulatory coverage of professionals involved in such transactions via
AML reporting mechanisms.\9\
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\8\ See ``Directive 2001/97/EC of the European Parliament and of
the Council of 4 December 2001 amending Council Directive 91/308/EEC
on prevention of the use of the financial system for the purpose of
money laundering,'' OJ. L. 344, pp. 76-82 (Dec. 28, 2001).
\9\ See C[eacute]cile Remeur, ``Understanding money laundering
through real estate transactions,'' European Parliament Research
Service, PE 633.154, pp. 5-7 (Feb. 2019).
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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 February 2015, The New York Times
published a series of articles entitled ``Towers of Secrecy'' on the
use of shell companies to purchase high-value residential real estate
in New York City.\10\ The Times also found that shell companies
purchased nearly half of the most expensive residential properties in
the United States.\11\ The articles identified a specific set of real
estate transactions as a high potential money laundering risk: The use
of shell companies to pay for residential properties in cash at the
time of closing, without a corresponding mortgage.\12\
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\10\ See generally Louise Story, et al., ``Towers of Secrecy,''
Parts 1-7, N.Y. Times, (Feb. 7-Dec. 14, 2015), https://www.nytimes.com/news-event/shell-company-towers-of-secrecy-real-estate.
\11\ See Louise Story & Stephanie Saul, ``Stream of Foreign
Wealth Flows to Elite New York Real Estate,'' N.Y. Times (Feb. 7,
2015), https://www.nytimes.com/2015/02/08/nyregion/stream-of-foreign-wealth-flows-to-time-warner-condos.html.
\12\ See also, e.g., Vandana Ajay Kumar, ``Money Laundering:
Concept, Significance and its Impact,'' European Journal of Business
and Management, p. 117 (Vol 4 No. 2 2012) (``The real estate sector
is the largest and most vulnerable sector for money laundering. Real
estate is important for money laundering, because it is a non-
transparent market where the values of the objects are often
difficult to estimate and where big value increases can happen and
is an efficient method to place large amounts of money.''); see also
generally ``Money Laundering in Real Estate,'' Conference Report,
Terrorism, Transnational Crime and Corruption Center, Schar School
of Policy and Government, George Mason University (Mar. 25, 2018).
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In February 2021, the National Association of Realtors (NAR), an
industry trade organization, issued voluntary guidelines for real
estate professionals that highlighted the vulnerability of the U.S.
real estate market to money laundering, stating that ``many non-
financial businesses and professions are also vulnerable to potential
money laundering schemes'' and ``[r]eal estate is believed to be used
in money laundering schemes, making real estate professionals likely to
encounter money laundering activities in the course of their
business.'' \13\
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\13\ ``Anti-Money Laundering Voluntary Guidelines for Real
Estate Professionals,'' National Association of Realtors, p. 1 (Feb.
21, 2021).
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In August 2021, Global Financial Integrity (GFI),\14\ an NGO,
published a study finding that an estimated $2.3 billion had been
laundered through the U.S. real estate market over the previous five
years. The study further noted that among the cases it reviewed, over
50% involved Politically Exposed Persons (PEPs).\15\ Moreover, the
study found that the ``use of anonymous shell companies and complex
corporate structures continue[d] to be the number one money laundering
typology'' involving real estate.\16\
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\14\ According to its website, GFI is ``a Washington, DC-based
think tank focused on illicit financial flows, corruption, illicit
trade and money laundering.'' ``About us,'' Global Financial
Integrity, https://gfintegrity.org/about/.
\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,'' Board
of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Financial Crimes Enforcement Network,
National Credit Union Administration, Office of the Comptroller of
the Currency (Aug. 21, 2020). For a clear example of the
vulnerabilities of the U.S. residential real estate sector for use
to conceal funds by corrupt PEPs, a 2020 forfeiture complaint filed
by the Department of Justice states that the former president of The
Gambia, Yayha Jammeh, and his spouse, used funds derived from
corruption to purchase residential properties in the United States.
See United States v. Real Property Located in Potomac, Maryland,
Commonly Known as 9908 Bentcross Drive, Potomac, MD 20854, Case No.
20-cv-02071, Doc. 1 (D. MD Jul. 15, 2020).
\16\ Lakshmi Kumar & Kaisa de Bel, ``Acres of Money Laundering:
Why U.S. Real Estate is a Kleptocrat's Dream,'' Global Financial
Integrity, p. 4 (Aug. 2021).
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And most recently, in November 2021, The Sentry,\17\ an NGO,
published a report detailing the use of real estate purchases in the
United States and elsewhere by PEPs to launder proceeds from political
corruption. According to this report, these PEPs used a network of
shell companies to move funds abroad and purchase millions of dollars
of real estate, including 17 properties for a total of $6.6 million in
Washington, DC, and Johannesburg, South Africa. The report further
highlighted the use of shell companies and trusts to obscure the true
owners of the properties.\18\
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\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/.
\18\ ``Embezzled Empire: How Kabila's Brother Stashed Millions
in Overseas Properties,'' The Sentry, p. 3 (Nov. 2021).
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Several key factors contribute to the systemic vulnerability of the
U.S. real estate market to money laundering. Those factors include, but
are not limited to, lack of transparency, attractiveness of the U.S.
real estate market as an investment vehicle, and the lack of industry
regulation.
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 U.S. real estate market as a
stable vehicle for maintaining and increasing investment value also
contributes to its vulnerability to money laundering activity. Illicit
actors seek to conceal the origins of their illicit funds in a way that
grows as an investment, ``cleans'' as much money as possible with each
transaction, and allows them to enjoy the fruits of their illicit
activity while minimizing potential losses from market instability and
fluctuating exchange rates. Consequently, real estate--especially in a
relatively stable market with strong private property protections such
as in the United States--is an attractive asset to facilitate money
laundering.
Third, the lack of industry regulation for non-financed
transactions exacerbates the money laundering vulnerabilities of the
U.S. real estate market. Non-financed purchases of real
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estate currently are not subject to AML/CFT regulatory requirements
because they do not involve financing underwritten by a financial
institution subject to BSA requirements. This leaves a substantial
portion of the real estate market without the same AML/CFT protections
and safeguards as those applicable to banks, casinos, or other
financial institutions. Moreover, data on real estate purchases is held
in a patchwork of different state and county databases, making
investigation and analysis difficult.
FinCEN recognizes the efforts by trade organizations for real
estate professionals, such as the NAR (real estate agents and brokers)
and the American Bar Association (settlement attorneys), to establish
voluntary AML/CFT guidelines that their members may consider
implementing to protect against illicit actors seeking to launder
illicit funds.\19\ FinCEN considers the issuance of such guidelines as
a positive step and indicative of the commitment of the vast majority
of real estate professionals to protecting the U.S. real estate sector
from illicit activity. Such guidelines, however, are not mandatory or
subject to oversight or enforcement and may therefore be avoided by
illicit actors. There is also limited information concerning how widely
the industry has implemented such best practices and voluntary
guidelines, or what other measures are in place to combat money
laundering in the real estate sector. In view of this, FinCEN believes
that there is a need for regulatory action notwithstanding industry
efforts. FinCEN welcomes comments, however, on how the industry has
implemented these voluntary guidelines, any challenges in
implementation, their effectiveness, and whether FinCEN should consider
including elements of existing voluntary guidelines in any potential
rule.
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\19\ See generally ``Anti-Money Laundering Guidelines for Real
Estate Professionals,'' https://www.nar.realtor/articles/anti-money-laundering-guidelines-for-real-estate-professionals.
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In sum, the U.S. real estate market can be an effective vehicle for
money laundering and can involve businesses and professions that
facilitate (even if unwittingly) acquisitions of real estate in the
money laundering process. Accordingly, FinCEN views the structure of
the U.S. real estate market to present money laundering vulnerabilities
and considers that regulatory action is warranted to collect
information from businesses and professions operating in the real
estate sector in order to protect U.S. national security and the U.S.
financial system.
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 (``USA PATRIOT Act''), the Anti-Money Laundering Act of 2020
(``AML Act''), and other legislation, is the legislative framework
commonly referred to as the BSA.\20\ The Secretary of the Treasury
(``Secretary'') has delegated to the Director of FinCEN the authority
to implement, administer, and enforce compliance with the BSA and
associated regulations.\21\ The purposes of the BSA include requiring
certain reports or records that ``are highly useful . . . in criminal,
tax, or regulatory investigations, risk assessments, or proceedings,''
or ``in intelligence or counterintelligence activities, including
analysis, to protect against international terrorism.'' \22\
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\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.
\21\ Treasury Order 180-01 (Jan. 14, 2020).
\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 the United States from criminal abuse; and safeguard the national
security of the United States; and establish appropriate frameworks
for information sharing among financial institutions, their agents
and service providers, their regulatory authorities, associations of
financial institutions, the Department of the Treasury, and law
enforcement authorities to identify, stop, and apprehend money
launderers and those who finance terrorists.
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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 Treasury may prescribe by
regulation, to . . . guard against money laundering, the financing of
terrorism, or other forms of illicit finance.'' \26\
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\23\ 31 U.S.C. 5318(g), 5312(a)(2)(U).
\24\ 31 U.S.C. 5318(h)(1)(A)-(D).
\25\ 31 U.S.C. 5318(h)(2)(A), 5318(a)(6). Public Law 107-56,
Title III, Sec. 352(c), 115 Stat. 322 (Oct. 26, 2001); 31 U.S.C.
5318(h)(2)(B)(i)-(iii).
\26\ 31 U.S.C. 5318(a)(2) (as amended by Section 6102(c) of the
AML Act).
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FinCEN's regulations implementing the BSA require banks, non-bank
residential mortgage lenders and originators (``RMLOs''), and housing-
related Government Sponsored Enterprises (``GSEs'') to file SARs and
establish AML/CFT programs,\27\ but FinCEN's regulations exempt other
persons involved in real estate closings and settlements from the
requirement to establish AML/CFT programs, and the regulations do not
impose a SAR filing requirement on such persons.\28\
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\27\ 31 CFR parts 1020, 1029, 1030.
\28\ 31 CFR 1010.205(b)(1)(v).
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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\
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\29\ 67 FR 21110-21112 (Apr. 29, 2002). FinCEN initially
exempted persons involved in closings and settlements for six
months, and then subsequently extended the temporary exemption
indefinitely. 67 FR 67547 (Nov. 6, 2002).
\30\ Id.
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In 2003, FinCEN issued an ANPRM regarding the AML/CFT program
[[Page 69593]]
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 Department of Justice (DOJ), and an
office within the Internal Revenue Service (IRS).\32\ Many comments
suggested that the threat of money laundering through real estate
warranted appropriate regulation, but commenters disagreed over the
specific businesses that should be covered. FinCEN did not propose
regulations in response to these comments, and persons involved in real
estate closings and settlements continue to be exempt from the AML/CFT
program requirement.
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\31\ 68 FR 17569 (Apr. 10, 2003).
\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.
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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\
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\33\ The 80% coverage noted here is an estimate based on
industry sources discussed below. See Note 45 infra.
\34\ See, e.g., ``Mortgage Loan Fraud: An Industry Assessment
Based on Suspicious Activity Report Analysis,'' Financial Crimes
Enforcement Network (Nov. 2006); ``Suspicious Activity Related to
Mortgage Loan Fraud,'' Financial Crimes Enforcement Network,
Advisory, FIN-2012-A009 (Aug. 16, 2012).
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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
Government Sponsored Enterprises (``GSEs'')--Fannie Mae, Freddie Mac,
and the Federal Home Loan Banks.\36\ FinCEN explained that these
entities were involved in providing financing to the residential
mortgage market, making them vulnerable to fraud and other financial
crimes.\37\ By purchasing mortgage loans, extending loans secured by
mortgages and other real estate-related collateral, and engaging in a
variety of related financial activities, these entities are in a unique
position to provide information on suspected mortgage fraud and money
laundering that has proven valuable to law enforcement and regulators
in the investigation and prosecution of mortgage fraud and other
financial crimes.\38\
---------------------------------------------------------------------------
\35\ 77 FR 8148 (Feb. 14, 2012) (codified at 31 CFR part 1029).
\36\ 79 FR 10365 (Feb. 25, 2014) (codified at 31 CFR part 1030).
\37\ Id.
\38\ Id.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\39\ 85 FR 57129 (Sep. 15, 2020) (codified at 31 CFR 1020.210).
---------------------------------------------------------------------------
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 U.S. cities, are a particular concern.
FinCEN identified money laundering typologies associated with such
transactions and uncovered numerous specific examples of all-cash
purchases of residential real estate that potentially involved money
laundering activities.\40\
---------------------------------------------------------------------------
\40\ See, e.g., ``Advisory to Financial Institutions and Real
Estate Firms and Professionals,'' Financial Crimes Enforcement
Network, FIN-2017-A003 (Aug. 22, 2017).
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According to the NAR and the U.S. Census Bureau,\41\ in 2020, 5.64
million existing residential homes and 822,000 new homes were sold in
the United States, for a total of 6.46 million transactions.\42\ It is
projected that existing and new home sales will total 5.88 million and
740,000, respectively, in 2021.\43\ With a median sale price of
[[Page 69594]]
approximately $350,000 for both new and existing homes as of July
2021,\44\ the total value of U.S. residential real estate sales is
expected to exceed approximately $2.31 trillion in 2021.
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\41\ Statistics regarding residential real estate transactions
are normally divided between new and existing home sales. Generally,
the Census Bureau tracks new home sales, while the most accurate
data for existing home sales is generated by NAR. Existing home
sales constitute approximately 90% of the residential real estate
transaction market. See ``New Home Sales vs. Existing Home Sales,''
U.S. Census Bureau, https://www.census.gov/construction/nrs/newvsexisting.html.
\42\ ``Quick Real Estate Statistics,'' National Association of
Realtors (Nov. 11, 2020), https://www.nar.realtor/research-and-statistics/quick-real-estate-statistics; ``Existing-Home Sales
Recede 2.0% in August,'' National Association of Realtors (Sep. 22,
2021), https://www.nar.realtor/newsroom/existing-home-sales-recede-2-0-in-august; ``Summary of August 2021 Existing Home Sales
Statistics,'' National Association of Realtors (Sep. 22, 2021);
Lawrence Yun, ``2021 International Transactions in U.S. Residential
Real Estate,'' National Association of Realtors (Jul. 21, 2021),
https://cdn.nar.realtor/sites/default/files/documents/2021-07-26-nar-real-estate-forecast-summit-international-transactions-in-us-residential-real-estate-lawrence-yun-presentation-slides-07-26-2021.pdf; ``New Houses Sold by Sales Price: United States (Q1),''
U.S. Census Bureau (2021), https://www.census.gov/construction/nrs/pdf/quarterlysales.pdf.
\43\ ``Existing-Home Sales Recede 2.0% in August,'' National
Association of Realtors (Sep. 22, 2021), https://www.nar.realtor/newsroom/existing-home-sales-recede-2-0-in-august; ``Summary of
August 2021 Existing Home Sales Statistics,'' National Association
of Realtors (Sep. 22, 2021); Lawrence Yun, ``2021 International
Transactions in U.S. Residential Real Estate,'' National Association
of Realtors (Jul. 21, 2021), https://cdn.nar.realtor/sites/default/files/documents/2021-07-26-nar-real-estate-forecast-summit-international-transactions-in-us-residential-real-estate-lawrence-yun-presentation-slides-07-26-2021.pdf; ``Monthly New Residential
Sales,'' U.S. Census Bureau, Release CB21-155 (Sep. 24, 2021),
https://www.census.gov/construction/nrs/pdf/newressales.pdf.
\44\ ``Existing-Home Sales Climb 2.0% in July,'' National
Association of Realtors, (Aug. 23, 2021), https://www.nar.realtor/newsroom/existing-home-sales-climb-2-0-in-july; ``Monthly New
Residential Sales, August 2021,'' U.S. Census Bureau, Release CB21-
155 (Sep. 24, 2021), https://www.census.gov/construction/nrs/pdf/newressales.pdf; see also ``Summary of August 2021 Existing Home
Sales Statistics,'' National Association of Realtors (Sep. 22,
2021), https://cdn.nar.realtor/sites/default/files/documents/ehs-08-2021-summary-2021-09-22.pdf.
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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\ The Census Bureau has further estimated that
approximately 4.4% of new home sales are non-financed transactions.\46\
Given that existing home sales comprise approximately 90% of the
residential real estate market in the United States, FinCEN estimates
that the all-cash purchase rate of real estate transactions in the
United States is approximately 18.5%. Based on the NAR estimates of
total home sales and median sale prices, this means that approximately
1.21 million residential real estate transactions, with an approximate
value of $463 billion, likely proceed without any AML reporting
obligations.\47\
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\45\ Lawrence Yun, ``2021 International Transactions in U.S.
Residential Real Estate,'' National Association of Realtors (Jul.
21, 2021), https://cdn.nar.realtor/sites/default/files/documents/2021-07-26-nar-real-estate-forecast-summit-international-transactions-in-us-residential-real-estate-lawrence-yun-presentation-slides-07-26-2021.pdf.
\46\ ``New Houses Sold by Type of Financing (Table Q7),'' U.S.
Census Bureau (2021), https://www.census.gov/construction/nrs/pdf/quarterlysales.pdf.
\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 April
2021. ``Share of Homes Bought With All Cash Hits 30% for First Time
Since 2014,'' Redfin.com (Jul. 15, 2021), https://www.redfin.com/news/all-cash-home-purchases-2021/; see also ``Buying a house?
Here's where all-cash deals are most competitive,'' CNBC.com (Dec.
12, 2020), https://www.cnbc.com/2020/12/11/buying-a-house-heres-where-all-cash-deals-are-most-competitive.html (reporting that
Realtor.com, a nationwide real estate listing website, indicated
that 36 percent of home sales in the U.S. were non-financed).
Accordingly, the use of the NAR and Census Bureau estimates are
therefore conservative, and if anything, the scope of the money
laundering vulnerability they create is much worse.
---------------------------------------------------------------------------
The types of AML/CFT vulnerabilities in these reports led FinCEN to
begin issuing Geographic Targeting Orders (GTOs) in January 2016
(``Real Estate GTOs''). The Real Estate GTOs required title insurance
companies to file reports and maintain records concerning all-cash
purchases of residential real estate above a certain threshold in
select metropolitan areas of the United States. Under 31 U.S.C. 5326,
FinCEN may issue such GTOs that impose additional reporting or
recordkeeping requirements on financial institutions and nonfinancial
trades or businesses in a geographic area for a limited period of time,
if FinCEN has reasonable grounds to conclude that such requirements are
necessary to carry out the purposes of the BSA or to prevent evasions
thereof.\48\ The Real Estate GTOs initially required some of the
largest title insurance companies in the United States to report
``beneficial ownership'' \49\ information on ``legal entities'' \50\
used to purchase ``residential real property'' \51\ in Manhattan and
Miami in ``Covered Transactions''.\52\ The information that the GTOs
required the title insurance companies to report included: (i)
Information about the transaction, including the price and address of
the real estate purchased; and (ii) beneficial ownership information--
such as name, social security number, and ID number and type--for the
beneficial owners of certain legal entities purchasing property in
Covered Transactions. The responsibility for reporting information to
FinCEN was placed on title insurance companies because the title
insurance industry is concentrated among a limited number of
participants and title insurance companies play a central role in the
vast majority of real estate transactions. This allowed FinCEN to
streamline implementation of the GTOs and the collection of
information.\53\
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\48\ See 31 U.S.C. 5326; 86 FR 62914 (Nov. 15, 2021).
\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.
\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 the United States or a foreign
jurisdiction. In later Real Estate GTOs, FinCEN excluded from the
definition of legal entity any entity for which the shares are
publicly traded on a U.S. stock exchange.
\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.
\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 Borough of Manhattan in NY, or Miami-Dade County in Florida;
(iv) for a total purchase price of $1,000,000 or more in Miami, or
$3,000,000 or more in Manhattan; (v) the purchase was made without a
bank loan or other similar financing; and (vi) the purchase was
made, at least in part, using a monetary instrument (e.g., a
cashier's check, currency or a money order). Later Real Estate GTOs
changed the parameters of Covered Transactions to include new
geographic areas, modify the reporting threshold, and cover
additional payment methods.
\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 $10,000 Received in a Trade or Business). Later iterations of
the Real Estate GTO required the GTO information to be reported via
FinCEN Form 104 (Currency Transaction Report).
---------------------------------------------------------------------------
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 October 2021, FinCEN has renewed
the Real Estate GTOs multiple times (collectively, the Real Estate GTO
program) and made modifications to their terms to address perceived
gaps in the data collected. The number of
[[Page 69595]]
covered jurisdictions has expanded from two to nine metropolitan
areas,\54\ and the orders now cover all U.S. title insurance companies
operating in those areas. Subsequent GTO renewals have expanded the
types of reportable all-cash transactions to include those involving
additional monetary instruments, such as personal and business checks,
and those involving wire transfers.\55\ Over the course of the Real
Estate GTO program, FinCEN lowered the reporting transaction threshold
from $3 million to $300,000 in order to better understand the risks of
transactions in the non-luxury market.\56\ Lastly, real estate
transactions involving purchases by publicly traded companies have been
exempted.\57\
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\54\ These areas are: (1) The Texas counties of Bexar (includes
San Antonio), Tarrant, and Dallas; (2) the Florida counties of
Miami-Dade, Broward, and Palm Beach; (3) all New York City boroughs:
Brooklyn, Queens, Bronx, Staten Island, and Manhattan; (4) the
California counties of San Diego, Los Angeles, San Francisco, San
Mateo, and Santa Clara; (5) the City and County of Honolulu in
Hawaii; (6) the Nevada county of Clark (includes Las Vegas); (7) the
Washington county of King (includes Seattle); (8) the Massachusetts
counties of Suffolk and Middlesex (includes Boston and Cambridge,
respectively); and (9) the Illinois county of Cook (includes
Chicago).
\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 (Aug. 2, 2017) (codified at 31
U.S.C. 5326).
\56\ FinCEN found that money laundering risks existed at lower
price thresholds, and thus the current GTO set a $300,000 threshold
for all covered jurisdictions.
\57\ FinCEN concluded that the beneficial owners of real estate
purchases by publicly traded companies are identifiable through
other regulatory filings.
---------------------------------------------------------------------------
Evidence of money laundering via U.S. real estate transactions has
increased over the last several decades, including during the period
when the Real Estate GTO program has been in place. FinCEN understands
from various law enforcement agencies that the Real Estate GTO data has
been highly useful to the investigation of money laundering and
financial crimes.
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 May 2017 stated that the
proportion of such overlap was more than 30%.\59\ In other words, a
significant number of the beneficial owners of the legal entities
engaged in non-financed real estate purchases reported under the GTOs
have a nexus to reported suspicious activity. The overlap between
subjects of GTO reports and SARs suggests a link between all-cash
purchases of residential real estate and individuals determined by
financial institutions to have been engaged in suspicious activity.
These connections between Real Estate GTO reports and other illicit
activity have proven highly useful for FinCEN and law enforcement in
identifying patterns of criminal activity and links between various
illicit enterprises to support investigations.
---------------------------------------------------------------------------
\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.
\59\ See ``Advisory to Financial Institutions and Real Estate
Firms and Professionals,'' Financial Crimes Enforcement Network,
FIN-2017-A003, p. 5 (Aug. 22, 2017).
---------------------------------------------------------------------------
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\
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\60\ See Note 3 supra.
\61\ Moreover, one study found that the Real Estate GTOs had the
added ameliorative effect of decreasing anonymous capital flows into
the U.S. housing markets, thereby lessening the overall likelihood
of BSA evasion via the real estate sector. See Hundtofte, C. Sean
and Rantala, Ville, ``Anonymous Capital Flows and U.S. Housing
Markets,'' University of Miami Business School, p. 23 (May 28,
2018); see also Nicholas Nehemas & Rene Rodriguez, ``How dirty is
Miami Real Estate? Secret home deals dried up when feds starting
watching,'' Miami Herald (Jul. 18 2018), https://www.miamiherald.com/news/business/real-estate-news/article213797269.html.
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VI. Commercial Real Estate
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
U.S. domiciled legal entities associated with transactions worth
hundreds of millions
[[Page 69596]]
of dollars that makes up one of the United States' most lucrative
industries.
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\62\ ``COVID-19 and the Future of Commercial Real Estate
Finance,'' Congressional Research Service (Oct. 19, 2020).
\63\ See generally Douglas E. Cornelius, Esq. Goodwin Procter
LLP, John P. O'Neill, Esq. Holland & Knight, LLP, ``Closing
Commercial Real Estate Transactions,'' (May 9, 1995).
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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\
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\64\ See generally ``FinCEN Sees Growth in Suspected Money
Laundering in Commercial Real Estate Industry,'' Financial Crimes
Enforcement Network (Dec. 05, 2006).
\65\ See ``Commercial Real Estate Financing Fraud: Suspicious
Activity Reports by Depository Institutions from January 1, 2007-
December 31, 2010,'' Financial Crimes Enforcement Network, p. 1
(Mar. 2011).
---------------------------------------------------------------------------
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, DOJ actions have demonstrated that
vulnerabilities associated with the commercial real estate sector are
actively being exploited by criminals to launder a significant amount
of funds. DOJ actions have exposed, for example, drug trafficking
organizations funneling illicit proceeds into an investment firm and
then using the proceeds to invest in commercial real estate
ventures,\67\ and corrupt Russian officials and organized crime figures
defrauding the Russian Treasury and then transferring the fraud
proceeds through shell corporations into Manhattan commercial real
estate.\68\
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\66\ ``National Money Laundering Risk Assessment,'' p. 38
(2018).
\67\ ``Justice Department Seeks Forfeiture of Third Commercial
Property Purchased with Funds Misappropriated from PrivatBank in
Ukraine,'' Press Release, Department of Justice (Dec. 30, 2020),
https://www.justice.gov/opa/pr/justice-department-seeks-forfeiture-third-commercial-property-purchased-funds-misappropriated; U.S. v.
Real Property at 7505 and 7171 Forest Lane, Dallas, Texas 75230,
Case No. 1:20-cv-23278, Doc. 1 (S.D. Fl. Aug. 6, 2020).
\68\ ``Acting Manhattan U.S. Attorney Announces $5.9 Million
Settlement of Civil Money Laundering and Forfeiture Claims Against
Real Estate Corporations Alleged to Have Laundered Proceeds of
Russian Tax Fraud,'' Press Release, Department of Justice (May 12,
2017), https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-59-million-settlement-civil-money-laundering-and.
---------------------------------------------------------------------------
Finally, in August 2021, the NGO GFI reported that based on its
review of 125 cases from the United States, United Kingdom, and Canada
involving real estate money laundering, more than 30% of the cases
involved commercial real estate and those cases generally involved
significantly higher property values than the residential real estate
cases studied.\69\
---------------------------------------------------------------------------
\69\ ``New Report Finds U.S. Real Estate Sector a Safe Haven for
Money Laundering,'' Press Release, Global Financial Integrity (Aug.
9, 2021), https://gfintegrity.org/press-release/new-report-finds-u-s-real-estate-sector-a-safe-haven-for-money-laundering/.
---------------------------------------------------------------------------
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
Treasury assessment of federal cases involving real properties
forfeited to DOJ's Assets Forfeiture Fund between 2014 and June 2017
that were valued at over $150,000 identified that, in addition to the
use of complicit professionals and misuse of legal entities,
``criminals often attempted to conceal the true ownership of property
by using nominee purchasers or title holders.'' \70\ These individuals
were sometimes another member of the criminal organization but were
often a family member or personal associate of the criminal.'' \71\
FinCEN is considering the extent to which these risks can be addressed.
Accordingly, FinCEN solicits comments on money laundering risks
associated with non-financed real estate transactions conducted by
natural persons, the extent to which rules that apply to entities
(which may still be involved in transactions by natural persons) would
address those risks, and whether additional regulatory or statutory
measures should be considered to close remaining gaps with regard to
natural persons associated with real estate transactions.
---------------------------------------------------------------------------
\70\ ``National Strategy for Combatting Terrorist and Other
Illicit Financing,'' pp. 17-18 (2020).
\71\ Id.
---------------------------------------------------------------------------
VIII. Scope of Potential Rules
Given the vulnerabilities of the U.S. real estate sector to money
laundering and other illicit activities, FinCEN believes that
additional regulatory steps may be needed to ensure consistent
reporting on a nationwide basis.
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 the United States and would contain no lower reporting
dollar threshold.
[[Page 69597]]
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 Treasury may prescribe by
regulation, to . . . guard against money laundering, the financing of
terrorism, or other forms of illicit finance.'' A specific reporting
requirement issued under this authority may be an appropriately
tailored way to increase the transparency of the non-financed sector of
the real estate market and provide law enforcement, national security
agencies, and financial institutions with highly useful information
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.
---------------------------------------------------------------------------
\72\ See, e.g., ``Rules for Loan or Finance Companies,'' 31 CFR
1029.210.
\73\ 81 FR 29398 (May 11, 2016) (codified at 31 CFR 1010.230 and
other sections in chapter X). For certain categories of financial
institutions, FinCEN has included explicit requirements to conduct
customer due diligence and to identify and verify the identity of
beneficial owners of legal entity customers, subject to certain
exclusions and conditions. See generally id.
\74\ See generally 86 FR 17557 (Apr. 5, 2021).
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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 the United
States, and declining to purchase title insurance could enable evasion
of a reporting requirement limited to title insurance companies. FinCEN
therefore seeks comment on whether there are other persons involved in
non-financed real estate closings and settlements who should be
considered.
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
[[Page 69598]]
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 IRS's regulation for submitting Form 1099-S (``Proceeds from Real
Estate Transactions'').\75\ For that IRS regulation, the ``person
responsible for closing the transaction,'' which may be a settlement
agent or attorney, for instance, depending on the nature of the
transaction, is required to file the Form 1099-S. And if there is no
``person responsible for closing the transaction,'' the reporting
requirement then falls to other persons involved in the transaction,
such as the purchaser's broker. In that way, the IRS regulation ensures
that for every transaction, some entity involved is required to report.
FinCEN is considering, and invites comments on, such an approach.
FinCEN also solicits comments on whether and how to assign a reporting
requirement to any or all of the following entities: Title insurance
companies, title or escrow companies, real estate agents or brokers,
real estate attorneys or law firms, settlement or closing agents, as
well as other entities listed below in the comments section.
---------------------------------------------------------------------------
\75\ See 26 CFR 1.6045-4 (Information reporting on real estate
transactions with dates of closing on or after January 1, 1991).
---------------------------------------------------------------------------
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 the United
States and invites comment on those differences and how to best design
a rule that takes into account such jurisdictional differences.
C. Geographic Scope and Transaction Threshold
Although the Real Estate GTOs have been targeted at particular
geographic locations within the United States, FinCEN's preliminary
view is that fully addressing the money laundering vulnerabilities in
the real estate market requires a nationwide rule. While money
laundering activity in real estate transactions may be more common in
some areas than others, it can occur in any location. Indeed, a survey
of recent state and federal court indictments and prosecuted cases
demonstrates that real estate money laundering is not limited to the
jurisdictions covered by the Real Estate GTOs.\76\ Because such
activity can occur in any location, limiting the scope of the
regulations by geography may simply push money laundering activity into
other locations. A uniform national requirement would also provide
consistency and predictability to businesses required to maintain
records and make reports. FinCEN nevertheless invites comment on the
geographic reach of any proposed regulation, whether the geographic
coverage should be limited, and any underlying information to support
such limitations. Commenters are invited to comment particularly on the
differences in practices, customs, and requirements for real estate
transactions in geographic areas of the United States that merit
specific consideration because of their relevance to the potential for
the abuse of real estate transactions by money launderers.
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\76\ See, e.g., United States v. Real Property Located in
Potomac, Maryland, Commonly Known as 9908 Bentcross Drive, Potomac,
MD 20854, Case No. 20-cv-02071, Doc. 1 (D. Md. Jul. 15, 2020)
(purchase of property in Potomac, MD); United States v. Raul Torres,
Case No. 1:19CR390, Doc. 30 (N.D. Ohio Mar. 30, 2020) (purchase of
multiple properties in Cleveland, OH); United States v. Bradley, No.
3:15-cr-00037-2, 2019 U.S. Dist. LEXIS 141157 (M.D. Tenn. Aug. 20,
2019) (purchase of multiple properties in Wayne County, MI); United
States v. Coffman, 859 F. Supp. 2d 871 (E.D. Ky. 2012) (purchases of
properties in Kentucky and South Carolina); United States v. Paul
Manafort, Case 1:18-cr-00083-TSE, Doc. 14 (E.D. Va. Feb. 26, 2018)
(purchase of a property in Virginia); United States v. Miller, 295
F. Supp. 3d 690 (E.D. Va. 2018) (purchase of properties in Virginia
and Delaware); Atty. Griev. Comm'n of Md. v. Blair, 188 A.3d 1009
(MD Ct. App. 2018) (purchase of properties in Washington, DC and
Maryland); United States v. Patrick Ifediba, et al., Case No. 2:18-
cr-00103-RDP-JEO, Doc. 1 (N.D. Ala. Mar. 29, 2018) (purchase of
multiple properties in Alabama); United States v. Delgado, 653 F.3d
729 (8th Cir. 2011) (purchase of multiple properties in Kansas City,
MO), United States v. Fernandez, 559 F.3d 303 (5th Cir. 2009)
(purchase of multiple properties in El Paso, TX); United States v.
10.10 Acres Located on Squires Rd., 386 F. Supp. 2d 613 (M.D.N.C.
2005) (purchase of two properties in North Carolina); State v.
Harris, 861 A.2d 165 (Super. Ct. App. Div. 2004) (purchase of
multiple properties in a non-GTO-covered jurisdiction in New
Jersey); see also Lakshmi Kumar & Kaisa de Bel, ``Acres of Money
Laundering: Why U.S. Real Estate is a Kleptocrat's Dream,'' Global
Financial Integrity, p. 29 (Aug. 2021) (highlighting money
laundering cases outside of jurisdictions covered by the Real Estate
GTOs).
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FinCEN also welcomes comment on the appropriate transaction
threshold, if any, for a reporting requirement. FinCEN's GTOs contain a
$300,000 threshold. Other BSA reporting requirements have other
thresholds.\77\ However, any transaction threshold may enable money
launderers to structure their behavior to avoid a reporting
requirement. A survey of court cases indicates that real estate used in
money laundering is not limited to properties that sell for greater
than $300,000, the current GTO threshold.\78\ For these reasons, FinCEN
is considering a reporting requirement with no transaction threshold.
According to figures published by NAR, existing residential home sales
of less than $100,000 constitute less than 5% of overall sales.\79\
Therefore, not setting a minimum threshold appears unlikely to
substantially increase the burden on entities required to report under
any future regulation. FinCEN solicits comments, however, on whether a
minimum threshold should be included.
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\77\ See, e.g., 31 U.S.C. 5316(a)(1)(requirement to report
importing or exporting monetary instruments of more than $10,000 at
one time); 31 CFR 1010.330(a)(requirement to report receipt of
currency in excess of $10,000 in the course of trade or business).
\78\ See, e.g., United States v. Bradley, No. 3:15-cr-00037-2,
2019 U.S. Dist. LEXIS 141157 (M.D. Tenn. Aug. 20, 2019) (multiple
transactions under $10,000); Atty. Griev. Comm'n of Md. v. Blair,
188 A.3d 1009 (MD Ct. App. 2018) (several transactions under
$20,000); United States v. Coffman, 859 F. Supp. 2d 871 (E.D. Ky.
2012) (purchases of property for under $150,000); United States v.
Delgado, 653 F.3d 729 (8th Cir. 2011) (multiple transactions under
$100,000); United States v. 10.10 Acres Located on Squires Rd., 386
F. Supp. 2d 613 (M.D.N.C. 2005) (transaction under $50,000).
\79\ ``Summary of August 2021 Existing Home Sales Statistics,''
National Association of Realtors (Sep. 22, 2021).
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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 the United
States, or a foreign jurisdiction, other than a business whose common
stock or analogous equity interests are listed on a securities exchange
regulated by the Securities and Exchange Commission (``SEC'') or a
self-regulatory organization registered with the SEC, or an entity
solely owned by such a business.'' Given the known money laundering
typology of using shell companies to obscure the ultimate owners of
real estate, FinCEN believes these entities should likely be covered in
any proposed regulation. FinCEN seeks comment on which ``legal
entities'' should be included.
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
[[Page 69599]]
requirement.\80\ FinCEN notes that recent high profile DOJ enforcement
actions, including a forfeiture action to recover an alleged $3.5
million in corrupt proceeds laundered through the purchase of a
Potomac, Maryland, mansion via a trust, indicate that consideration of
any proposed rule should also include the risks presented by U.S. and
foreign trusts.\81\
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\80\ ``Definition of Trust,'' Internal Revenue Service, https://www.irs.gov/charities-non-profits/definition-of-a-trust.
\81\ See United States v. Real Property Located in Potomac,
Maryland, Commonly Known as 9908 Bentcross Drive, Potomac, MD 20854,
Case No. 20-cv-02071, Doc. 1 (D. Md. Jul. 15, 2020).
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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 U.S. real estate
market will provide FinCEN with the information essential for any
future rulemaking.
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 U.S. real estate market. Are
these risks different for the residential and commercial real estate
sectors?
22. Identify specific activities and services that present the
highest and
[[Page 69600]]
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 the
United States in which residential real estate transactions have unique
customs or requirements that would make designing a rule to cover such
jurisdictions in conjunction with the remainder of the country
problematic?
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 IRS
Form 1099-S? \82\
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\82\ See generally 26 CFR 1.6045-4.
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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
[[Page 69601]]
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 $10,000 in currency and certain monetary
instruments. In addition, detail your views on any voluntary best
practices or guidelines you adopted to prevent money laundering, fraud
or other financial crimes, the effectiveness of those programs, and
whether any such practices should be integrated into any AML/CFT or SAR
rules.
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 Office of Management and Budget.
[[Page 69602]]
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 Department of the Treasury.
Dated: December 2, 2021.
Himamauli Das,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 2021-26549 Filed 12-7-21; 8:45 am]
BILLING CODE 4810-02-P