Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking to combat and deter money laundering in the U.S. residential real estate sector by increasing transparency.
The proposed rule would require certain professionals involved in real estate closings and settlements to report information to FinCEN about non-financed transfers of residential real estate to legal entities or trusts.
FinCEN’s proposal is tailored to target residential real estate transfers considered to be high-risk for money laundering, while minimizing potential business burden, and it would not require reporting of transfers made to individuals.
The proposed rule describes the circumstances in which a report would be filed; who would file a report; what information would need to be provided, including information about the beneficial owners of the legal entities and trusts; and when a report about the transaction would be due. Data from the reports would assist the Department of the Treasury and its law enforcement and national security partners in addressing vulnerabilities that leave the U.S. residential real estate market exposed to abuse by illicit actors.
The proposed rule builds on the success of FinCEN’s Real Estate Geographic Targeting Order (GTO) program, which requires title insurance companies to file reports identifying the beneficial owners of legal entities that make certain non-financed purchases of residential real estate in select jurisdictions in the United States.
Under the proposed rule, persons involved in real estate closings and settlements would continue to be exempt from the anti-money laundering compliance program requirements of the Bank Secrecy Act.
The NPRM would require businesses, including attorneys, performing specified closing or settlement functions for the non-financed sale or transfer of residential real property to an entity or trust, to collect and report information to FinCEN. This information includes:
Beneficial ownership information for the legal entity (transferee entity) or trust (transferee trust) receiving the property
Information about individuals representing the transferee entity or transferee trust
Information about the business filing the report (the reporting person)
Information about the residential real property being sold or transferred
Information about the transferor (e.g., the seller)
Information about any payments made
The NPRM proposes to require that a modified SAR be filed for any sale or transfer of residential real property that meets the requirements outlined in the proposed rule.
The proposed rule would require reporting on various types of residential real property transfers, including transfers of single-family houses, townhouses, condominiums, and cooperatives, as well as buildings designed for occupancy by one to four families. It would also require reporting on transfers of land that is vacant or unimproved, but that is zoned, or for which a permit has been issued, for occupancy by one to four families.
• In the case of reportable purchases, there is no threshold purchase price for the transfer; in other words, the transfer would be reportable irrespective of purchase price. Likewise, transfers of ownership for which no consideration is exchanged, such as a gift, would need to be reported.
• Exempted types of transfers would be those involving an easement, that occur as the result of the death of the property’s owner, that are the result of a divorce, or that are made to a bankruptcy estate.
• For a transfer to be reportable, it would need to be non-financed, meaning that it does not involve an extension of credit that is (1) secured by the transferred property and (2) extended by a financial institution subject to AML program and SAR reporting obligations. Transfers financed by private lenders that do not have an obligation to maintain an AML program and a requirement to file SARs would be covered by the reporting requirement.
As proposed, a transfer of residential real property would be reported only if at least one of the new owners of residential real property is a “transferee entity” or “transferee trust.” These categories are defined broadly to capture a wide variety of legal vehicles used to own property, such as limited liability companies, corporations, partnerships, and trusts. Both domestic and foreign entities and trusts would be covered by the reporting requirement.
Certain definitional exceptions would apply for highly regulated types of entities and trusts that are less likely to be used by illicit actors to launder money through residential real property.