Anti-Money Laundering Regulations for Real Estate Transactions, 69589-69602 [2021-26549]
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Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Proposed Rules
basis, to be determined at the time a request
is made, for the following reasons:
(a) From subsection (c)(3) and (4)
(Accounting for Disclosures) because release
of the accounting of disclosures could alert
the subject of an investigation of an actual or
potential criminal, civil, or regulatory
violation to the existence of that investigation
and reveal investigative interest on the part
of DHS as well as the recipient agency.
Disclosure of the accounting would therefore
present a serious impediment to law
enforcement efforts and efforts to preserve
national security. Disclosure of the
accounting would also permit the individual
who is the subject of a record to impede the
investigation, to tamper with witnesses or
evidence, and to avoid detection or
apprehension, which would undermine the
entire investigative process. When an
investigation has been completed,
information on disclosures made may
continue to be exempted if the fact that an
investigation occurred remains sensitive after
completion.
(b) From subsection (d) (Access and
Amendment to Records) because access to
the records contained in this system of
records could inform the subject of an
investigation of an actual or potential
criminal, civil, or regulatory violation to the
existence of that investigation and reveal
investigative interest on the part of DHS or
another agency. Access to the records could
permit the individual who is the subject of
a record to impede the investigation, to
tamper with witnesses or evidence, and to
avoid detection or apprehension.
Amendment of the records could interfere
with ongoing investigations and law
enforcement activities and would impose an
unreasonable administrative burden by
requiring investigations to be continually
reinvestigated. In addition, permitting access
and amendment to such information could
disclose security-sensitive information that
could be detrimental to homeland security.
(c) From subsection (e)(1) (Relevancy and
Necessity of Information) because in the
course of investigations into potential
violations of federal law, the accuracy of
information obtained or introduced
occasionally may be unclear, or the
information may not be strictly relevant or
necessary to a specific investigation. In the
interest of effective law enforcement, it is
appropriate to retain all information that may
aid in establishing patterns of unlawful
activity.
(d) From subsection (e)(2) (Collection of
Information from Individuals) because
requiring that information be collected from
the subject of an investigation would alert the
subject to the nature or existence of the
investigation, thereby interfering with that
investigation and related law enforcement
activities.
(e) From subsection (e)(3) (Notice to
Subjects) because providing such detailed
information could impede law enforcement
by compromising the existence of a
confidential investigation or reveal the
identity of witnesses or confidential
informants.
(f) From subsections (e)(4)(G) through (I)
(Agency Requirements) and (f) (Agency
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Rules), because portions of this system are
exempt from the individual access provisions
of subsection (d) for the reasons noted above,
and therefore DHS is not required to establish
requirements, rules, or procedures with
respect to such access. Providing notice to
individuals with respect to the existence of
records pertaining to them in the system of
records or otherwise setting up procedures
pursuant to which individuals may access
and view records pertaining to themselves in
the system would undermine investigative
efforts and reveal the identities of witnesses,
potential witnesses, and confidential
informants.
(g) From subsection (e)(5) (Collection of
Information) because, with the collection of
information for law enforcement purposes, it
is impossible to determine in advance what
information is accurate, relevant, timely, and
complete. Compliance with subsection (e)(5)
would preclude DHS agents from using their
investigative training and exercise of good
judgment to both conduct and report on
investigations.
(h) From subsection (e)(8) (Notice on
Individuals) because compliance would
interfere with DHS’s ability to obtain, serve,
and issue subpoenas, warrants, and other law
enforcement mechanisms that may be filed
under seal and could result in the disclosure
of investigative techniques, procedures, and
evidence.
(j) From subsection (g)(1) (Civil Remedies)
to the extent that the system is exempt from
other specific subsections of the Privacy Act.
*
*
*
*
*
Lynn Parker Dupree,
Chief Privacy Officer, Department of
Homeland Security.
[FR Doc. 2021–26478 Filed 12–7–21; 8:45 am]
DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Chapter X
RIN 1506–AB54
Anti-Money Laundering Regulations
for Real Estate Transactions
Financial Crimes Enforcement
Network (‘‘FinCEN’’), Treasury.
ACTION: Advance notice of proposed
rulemaking.
AGENCY:
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
SUMMARY:
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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: https://
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 frc@fincen.gov.
SUPPLEMENTARY INFORMATION:
I. Background
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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 nonfinanced 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.
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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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,
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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
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
2 31
U.S.C. 5312(a)(2)(U).
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
3 See,
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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
Reports by foreign governments,
international standard setters, and a
variety of reports by non-governmental
organizations (NGOs), intergovernmental 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
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/unitedstates-reaches-settlement-recover-more-700-millionassets-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/actingmanhattan-usattorney-announces-59-millionsettlement-civil-money-laundering-and.
4 ‘‘Money Laundering in the U.S. Real Estate
Sector,’’ Congressional Research Service (Nov. 9,
2021).
5 Id.
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).
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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.
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
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
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).
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 Ce
´ cile Remeur, ‘‘Understanding money
laundering through real estate transactions,’’
European Parliament Research Service, PE 633.154,
pp. 5–7 (Feb. 2019).
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/shellcompany-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-offoreign-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,
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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
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
And most recently, in November
2021, The Sentry,17 an NGO, published
Terrorism, Transnational Crime and Corruption
Center, Schar School of Policy and Government,
George Mason University (Mar. 25, 2018).
13 ‘‘Anti-Money Laundering Voluntary Guidelines
for Real Estate Professionals,’’ National Association
of Realtors, p. 1 (Feb. 21, 2021).
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).
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/.
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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
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
18 ‘‘Embezzled Empire: How Kabila’s Brother
Stashed Millions in Overseas Properties,’’ The
Sentry, p. 3 (Nov. 2021).
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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.
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.
19 See generally ‘‘Anti-Money Laundering
Guidelines for Real Estate Professionals,’’ https://
www.nar.realtor/articles/anti-money-launderingguidelines-for-real-estate-professionals.
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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
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
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.
23 31 U.S.C. 5318(g), 5312(a)(2)(U).
24 31 U.S.C. 5318(h)(1)(A)–(D).
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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
FinCEN’s regulations implementing
the BSA require banks, non-bank
residential mortgage lenders and
originators (‘‘RMLOs’’), and housingrelated 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
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
In 2003, FinCEN issued an ANPRM
regarding the AML/CFT program
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).
27 31 CFR parts 1020, 1029, 1030.
28 31 CFR 1010.205(b)(1)(v).
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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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.
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
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
31 68
FR 17569 (Apr. 10, 2003).
FinCEN’s website to review comments
submitted, at https://www.fincen.gov/commentsadvance-notice-proposed-rule-anti-moneylaundering-programs-persons-involved-real-estate.
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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32 See
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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 estaterelated 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
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
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
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.
39 85 FR 57129 (Sep. 15, 2020) (codified at 31 CFR
1020.210).
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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
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
40 See, e.g., ‘‘Advisory to Financial Institutions
and Real Estate Firms and Professionals,’’ Financial
Crimes Enforcement Network, FIN–2017–A003
(Aug. 22, 2017).
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-realestate-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-forecastsummit-international-transactions-in-us-residentialreal-estate-lawrence-yun-presentation-slides-07-262021.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-homesales-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-
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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.
Although a significant portion of
those residential real estate transactions
are financed by regulated RMLOs, GSEs,
and depository institutions, nonfinanced 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 nonfinanced 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
forecast-summit-international-transactions-in-usresidential-real-estate-lawrence-yun-presentationslides-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-homesales-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.
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-forecastsummit-international-transactions-in-us-residentialreal-estate-lawrence-yun-presentation-slides-07-262021.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.
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of $463 billion, likely proceed without
any AML reporting obligations.47
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 allcash 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
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/allcash-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-hereswhere-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.
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
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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
The Real Estate GTOs issued in 2016
provided FinCEN and law enforcement
with new data that connected nonfinanced 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
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).
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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 allcash 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
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
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.
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).
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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.
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
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
60 See
Note 3 supra.
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-estatenews/article213797269.html.
61 Moreover,
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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 nonfinanced transactions is relatively welldefined 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
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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of dollars that makes up one of the
United States’ most lucrative industries.
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 estaterelated 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 estaterelated 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
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
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).
66 ‘‘National Money Laundering Risk
Assessment,’’ p. 38 (2018).
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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
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
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.
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 nonfinanced 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.
VII. Real Estate Purchases by Natural
Persons
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 nonfinanced 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.
FinCEN recognizes the potential for
non-financed purchases by natural
persons to facilitate money laundering
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-departmentseeks-forfeiture-third-commercial-propertypurchased-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-attorneyannounces-59-million-settlement-civil-moneylaundering-and.
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-sreal-estate-sector-a-safe-haven-for-moneylaundering/.
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VIII. Scope of Potential Rules
70 ‘‘National Strategy for Combatting Terrorist and
Other Illicit Financing,’’ pp. 17–18 (2020).
71 Id.
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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 nonfinanced 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 nonfinanced 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 nonfinanced 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
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
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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.
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 nonfinanced 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
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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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
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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.
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
75 See 26 CFR 1.6045–4 (Information reporting on
real estate transactions with dates of closing on or
after January 1, 1991).
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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.
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
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).
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
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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.
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
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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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
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).
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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 nonresidential 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.
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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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
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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
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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’’?
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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 nonfinanced 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
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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
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 compliancerelated budget?
54. Would certain financial
institutions or nonfinancial trades or
82 See
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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
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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
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69601
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, nonsignificant regulatory action under
Executive Order 12866 and has not been
reviewed by the Office of Management
and Budget.
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Participation and Request for
Comments’’ portion of the
SUPPLEMENTARY INFORMATION section for
further instructions on submitting
comments.
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.
If
you have questions about this proposed
rulemaking, call or email Petty Officer
Christopher Roble, Sector Ohio Valley,
U.S. Coast Guard; telephone (502) 779–
5336, email SECOHV-WWM@uscg.mil.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
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]
I. Table of Abbreviations
BILLING CODE 4810–02–P
CFR Code of Federal Regulations
COTP Captain of the Port Sector Ohio
Valley
DHS Department of Homeland Security
E.O. Executive order
FR Federal Register
NPRM Notice of proposed rulemaking
Pub. L. Public Law
§ Section
U.S.C. United States Code
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 100
[Docket Number USCG–2021–0873]
II. Background, Purpose, and Legal
Basis
RIN 1625–AA08
Special Local Regulations; Sector Ohio
Valley Annual and Recurring Special
Local Regulations, Update
Coast Guard, DHS.
Notice of proposed rulemaking.
AGENCY:
ACTION:
The Coast Guard proposes
amending and updating its special local
regulations for recurring marine
parades, regattas, and other events that
take place in the Coast Guard Sector
Ohio Valley’s Area of Responsibility
(AOR). This proposed rule would
update the current list of recurring
special local regulations with revisions,
additions, and removals of events that
no longer take place in the Sector Ohio
Valley’s AOR. We invite your comments
on this proposed rulemaking.
DATES: Comments and related material
must be received by the Coast Guard on
or before January 7, 2022.
ADDRESSES: You may submit comments
identified by docket number USCG–
2021–0873 using the Federal Decision
Making Portal at https://
www.regulations.gov. See the ‘‘Public
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SUMMARY:
The Captain of the Port Sector Ohio
Valley (COTP) proposes to update the
current list of recurring special local
regulations found in Table 1 of Title 33
of the Code of Federal Regulations (CFR)
section 100.801 for events occurring
within the Sector Ohio Valley’s Area of
Responsibility (AOR) within the Coast
Guard’s Eighth District.
This proposed rule would update the
list of annually recurring special local
regulations under 33 CFR 100.801,
Table 1, for annual special local
regulations in the Sector Ohio Valley’s
AOR. The Coast Guard will address all
comments via the rulemaking process,
including additional revisions to this
regulatory section. Additionally, the
public would be informed of these
recurring events through local means
and planned by the local communities.
The current list of annual and recurring
special local regulations occurring in
Sector Ohio Valley’s AOR is published
in 33 CFR 100.801, Table 1 titled
‘‘Annual Marine Events in the Eighth
Coast Guard District’’. The most recent
list was published via the Notice of
Proposed Rulemaking (86 FR 10894) on
February 23, 2021.
The Coast Guard’s authority for
establishing a special local regulation is
contained in 46 U.S.C. 70041(a). The
Coast Guard proposes to amend and
update the special local regulations in
33 CFR 100.801, Table 1, to include the
most up to date list of recurring special
local regulations for events held on or
around the navigable waters within
Sector Ohio Valley’s AOR. These events
would include marine parades, boat
races, swim events, and other marine
related events. The current list under 33
CFR 100.801, Table 1, requires
amendment to provide new information
on existing special local regulations,
add new special local regulations
expected to recur annually or
biannually, and to remove special local
regulations that no longer occur. Issuing
individual regulations for each new
special local regulation, amendment, or
removal of an existing special local
regulation creates unnecessary
administrative costs and burdens. This
single proposed rulemaking would
considerably reduce administrative
overhead and provide the public with
notice through publication in the
Federal Register of recurring special
local regulations in the AOR.
III. Discussion of Proposed Rule
Part 100 of title 33 of the CFR
contains regulations describing regattas
and marine parades conducted on the
U.S. navigable waters in order to ensure
the safety of life in the regulated areas.
Section 100.801 of the title provides the
regulations applicable to events taking
place in the Eighth Coast Guard District
and also provides a table listing each
event and special local regulations. This
section requires amendment from time
to time to properly reflect the recurring
special local regulations. This proposed
rule would update section 100.801,
Table 1 titled ‘‘Annual Marine Events in
the Eighth Coast Guard District.’’
This proposed rule would add 5 new
recurring special local regulation to
Table 1 to § 100.801 for Sector Ohio
Valley, as follows:
Date
Event/sponsor
Ohio Valley location
10.3 Days in May ........................
U.S. Rowing Southeast Youth
Championship Regatta.
Three Rivers Regatta .................
PADL ..........................................
Chattajack ..................................
Oak Ridge, TN ...........
Clinch River, Miles 48.5–52 (Tennessee).
Knoxville, TN ..............
Cannelton, IN .............
Chattanooga, TN ........
Outdoor Chattanooga/Swim the
Suck.
Chattanooga, TN ........
Tennessee River, Miles 642–653 (Tennessee).
Ohio River, Miles 719.0–727.0 (Kentucky).
Tennessee River, Miles 462.7–465.5 (Tennessee).
Tennessee River, Miles 452.0–454.5 (Tennessee).
30.1 Day in July ..........................
31.1 Day in July ..........................
84.1 day in October .....................
85.1 day in October .....................
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]]>Agencies
[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]
=======================================================================
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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: https://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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
[[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\
---------------------------------------------------------------------------
\2\ 31 U.S.C. 5312(a)(2)(U).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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\
---------------------------------------------------------------------------
\4\ ``Money Laundering in the U.S. Real Estate Sector,''
Congressional Research Service (Nov. 9, 2021).
\5\ Id.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\13\ ``Anti-Money Laundering Voluntary Guidelines for Real
Estate Professionals,'' National Association of Realtors, p. 1 (Feb.
21, 2021).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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
[[Page 69592]]
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.
---------------------------------------------------------------------------
\19\ See generally ``Anti-Money Laundering Guidelines for Real
Estate Professionals,'' https://www.nar.realtor/articles/anti-money-laundering-guidelines-for-real-estate-professionals.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\27\ 31 CFR parts 1020, 1029, 1030.
\28\ 31 CFR 1010.205(b)(1)(v).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
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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).
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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.
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\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).
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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).
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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.
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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.
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\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.
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\75\ See 26 CFR 1.6045-4 (Information reporting on real estate
transactions with dates of closing on or after January 1, 1991).
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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
