In a move that the Financial Crimes Enforcement Network said would help combat money laundering in real estate, the federal agency plans to expand the Bank Secrecy Act to require information about the individuals behind all-cash real estate transactions.
FinCEN released an Advanced Notice of Proposed Rulemaking (ANPR) today requesting public input on the agency’s plan to require information on the people behind real estate transactions that do not involve the kind of finance currently subject to federal anti-money laundering rules.
The ANPR would help the agency prepare a proposed rule to enhance transparency in the U.S. real estate market, FinCEN said, and protect the market “from exploitation by criminals and corrupt officials.” Once the ANPR is published in the Federal Register, the public will have 60 days to submit comment.
“Increasing transparency in the real estate sector will curb the ability of corrupt officials and criminals to launder the proceeds of their ill-gotten gains through the U.S. real estate market,” Himamauli Das, acting director of FinCEN, said in the statement. “Addressing this risk will strengthen U.S. national security and help protect the integrity of the U.S. financial system. We urge stakeholders to provide input to assist us in developing an approach that enhances transparency while minimizing burden on business.”
The statement noted that real estate transactions involving loans or other financing by regulated financial institutions, including banks, are subject to federal anti-money laundering rules, making them less susceptible to money laundering because suspicious activity must be reported to FinCEN.
“[W]hen most American families buy a home with a mortgage, the bank that makes the loan is subject to rules that require it to identify the buyer and report suspicious activity,” FinCEN said. “In contrast, when real estate is purchased without such financing, it can be nearly impossible to trace the beneficial owners behind shell companies that are often used to purchase the real estate. As a result, corrupt officials and criminals engaging in illicit activity can exploit the U.S. real estate sector to launder their ill-gotten wealth.”
FinCEN in the ANPR requested comments on the approach it should take when creating new rules, including whether the agency should focus first on the residential market before extending the regulations to commercial real estate, noting complexities and differences in both markets, as well as burdens associated with reporting.
While FinCEN does not require under the Bank Secrecy Act that institutions report on the people involved with all-cash real estate transactions, title insurance companies do have to report the natural person behind all-cash transactions in certain U.S. counties, including Suffolk and Middlesex counties. FinCEN established these requirements in the form of Geographic Targeting Orders (GTOs).
As part of the ANPR, the agency has requested feedback on whether it should use the GTO approach when creating proposed regulations or adopt another approach.
Other topics FinCEN said it wanted input on included who should be subject to the requirements, the types of real estate purchases that should be covered, what information should be reported and retained, the geographic scope of the requirement and the appropriate reporting dollar-value threshold.
“FinCEN strongly encourages the public to submit written comments in response to the ANPRM,” the agency said. “Diverse viewpoints and substantive suggestions will help FinCEN develop a proposed regulation that appropriately balances the need to address the vulnerabilities of the real estate market with any potential costs such measures may impose.”
