Anti-Money Laundering Regulations for Residential Real Estate Transfers, 70258-70294 [2024-19198]

Download as PDF 70258 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations DEPARTMENT OF THE TREASURY Financial Crimes Enforcement Network 31 CFR Chapter X RIN 1506–AB54 Anti-Money Laundering Regulations for Residential Real Estate Transfers Financial Crimes Enforcement Network (FinCEN), Treasury. ACTION: Final rule. AGENCY: FinCEN is issuing a final rule to require certain persons involved in real estate closings and settlements to submit reports and keep records on certain non-financed transfers of residential real property to specified legal entities and trusts on a nationwide basis. Transfers made directly to an individual are not covered by this rule. This rule describes the circumstances in which a report must be filed, who must file a report, what information must be provided, and when a report is due. These reports are expected to assist the U.S. Department of the Treasury, law enforcement, and national security agencies in addressing illicit finance vulnerabilities in the U.S. residential real estate sector, and to curtail the ability of illicit actors to anonymously launder illicit proceeds through transfers of residential real property, which threatens U.S. economic and national security. DATES: Effective December 1, 2025. ADDRESSES: The FinCEN Regulatory Support Section at 1–800–767–2825 or electronically at frc@fincen.gov. SUPPLEMENTARY INFORMATION: SUMMARY: lotter on DSK11XQN23PROD with RULES2 I. Executive Summary Among the persons required by the Bank Secrecy Act (BSA) to maintain anti-money laundering and countering the financing of terrorism (AML/CFT) 1 programs are ‘‘persons involved in real estate closings and settlements.’’ 2 For many years, FinCEN has exempted such persons from comprehensive regulation under the BSA. However, information received in response to FinCEN’s geographic targeting orders relating to non-financed transfers of residential real estate (Residential Real Estate GTOs) has demonstrated the need for increased transparency and further regulation of this sector. Furthermore, the U.S. Department of the Treasury (Treasury) 1 Section 6101 of the AML Act, codified at 31 U.S.C. 5318(h), amended the BSA’s requirement that financial institutions implement AML programs to also combat terrorist financing. This rule refers to ‘‘AML/CFT program’’ in reference to the current obligation contained in the BSA. 2 31 U.S.C. 5312(a)(2)(U). VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 has long recognized the illicit finance risks posed by criminals and corrupt officials who abuse opaque legal entities and trusts to launder ill-gotten gains through transfers of residential real estate. This illicit use of the residential real estate market threatens U.S. economic and national security and can disadvantage individuals and small businesses that seek to compete fairly in the U.S. economy. Earlier this year, pursuant to the BSA’s authority to impose AML regulations on persons involved in real estate closings and settlements, FinCEN proposed a new reporting requirement. Under the proposed rule, certain persons involved in real estate closings and settlements would be required to report on certain transfers that Treasury deems high risk for illicit financial activity—namely, non-financed transfers of residential real property to legal entities and trusts. FinCEN is now issuing a final rule that adopts the proposed rule with some modifications. The final rule imposes a streamlined suspicious activity report (SAR) filing requirement under which reporting persons, as defined, are required to file a ‘‘Real Estate Report’’ on certain non-financed transfers of residential real property to legal entities and trusts. Transfers to individuals, as well as certain transfers commonly used in estate planning, do not have to be reported. The reporting person for any transfer is one of a small number of persons who play specified roles in the real estate closing and settlement, with the specific individual determined through a cascading approach, unless superseded by an agreement among persons in the reporting cascade. The reporting person is required to identify herself, the legal entity or trust to which the residential real property is transferred, the beneficial owner(s) of that transferee entity or transferee trust, the person(s) transferring the residential real property, and the property being transferred, along with certain transactional information about the transfer. The final rule adopts a reasonable reliance standard, allowing reporting persons to rely on information obtained from other persons, absent knowledge of facts that would reasonably call into question the reliability of that information. For purposes of reporting beneficial ownership information in particular, a reporting person may reasonably rely on information obtained from a transferee or the transferee’s representative if the accuracy of the information is certified in writing to the best of the information provider’s own knowledge. PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 FinCEN has sought to minimize burdens on reporting persons to the extent practicable without diminishing the utility of the Real Estate Report to law enforcement and believes the final rule appropriately balances the collection of information that is highly useful to Treasury, law enforcement, and national security agencies against the burdens associated with collecting that information, particularly on small businesses. II. Background A. Addressing High-Risk Transfers of Residential Real Estate 1. Authority To Require Reports From Persons Involved in Real Estate Closings and Settlements The BSA is intended to combat money laundering, the financing of terrorism, and other illicit financial activity.3 The purposes of the BSA include requiring financial institutions to keep records and file reports that ‘‘are highly useful in criminal, tax, or regulatory investigations or proceedings’’ or in the conduct of ‘‘intelligence or counterintelligence activities, including analysis, to protect against international terrorism.’’ 4 The Secretary of the Treasury (Secretary) has delegated the authority to implement, administer, and enforce compliance with the BSA and its implementing regulations to the Director of FinCEN.5 The BSA requires ‘‘financial institutions’’ to establish an AML/CFT program, which must include, 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.’’ 6 The BSA also authorizes the Secretary to require financial institutions to report any suspicious transaction relevant to a possible violation of law or regulation.7 Among the financial institutions subject to these 3 See 31 U.S.C. 5311. Section 6003(1) of the AntiMoney Laundering Act of 2020 defines the BSA as section 21 of the Federal Deposit Insurance Act (12 U.S.C. 1829b), Chapter 2 of Title I of Public Law 91–508 (12 U.S.C. 1951 et seq.), and 31 U.S.C. chapter 53, subchapter II. AML Act, Public Law 116–283, Division F, section 6003(1) (Jan. 1, 2021). Under this definition, the BSA is codified at 12 U.S.C. 1829b and 1951–1960, and 31 U.S.C. 5311– 5314 and 5316–5336, including notes thereto. Its implementing regulations are found at 31 CFR Chapter X. 4 31 U.S.C. 5311(1). 5 Treasury Order 180–01, Paragraph 3(a) (Jan. 14, 2020), available at https://home.treasury.gov/about/ general-information/orders-and-directives/treasuryorder-180-01. 6 31 U.S.C. 5318(h)(1)(A)–(D). 7 31 U.S.C. 5318(g). E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations requirements are ‘‘persons involved in real estate closings and settlements.’’ 8 In particular, section 5318(g) of the BSA authorizes the Secretary to require financial institutions to report, via SARs, any ‘‘suspicious transactions relevant to a possible violation of law or regulation.’’ 9 However, the BSA affords the Secretary flexibility in implementing that requirement, and indeed directs the Secretary to consider ‘‘the means by or form in which the Secretary shall receive such reporting,’’ including the relevant ‘‘burdens imposed by such means or form of reporting,’’ ‘‘the efficiency of the means or form,’’ and the ‘‘benefits derived by the means or form of reporting.’’ 10 A provision added to the BSA by section 6202 of the Anti-Money Laundering Act of 2020 (AML Act) further directs FinCEN to ‘‘establish streamlined . . . processes to, as appropriate, permit the filing of noncomplex categories of reports of suspicious activity.’’ In assessing whether streamlined filing is appropriate, FinCEN must determine, among other things, that such reports would ‘‘reduce burdens imposed on persons required to report[,]’’ while at the same time ‘‘not diminish[ing] the usefulness of the reporting to Federal law enforcement agencies, national security officials, and the intelligence community in combating financial crime, including the financing of terrorism[.]’’ 11 2. Reporting High-Risk Transfers of Residential Real Estate Most transfers of residential real estate are associated with a mortgage loan or other financing provided by financial institutions subject to AML/ CFT program requirements. As nonfinanced transfers do not involve such financial institutions, such transfers can be and have been exploited by illicit actors of all varieties, including those that pose domestic threats, such as persons engaged in fraud or organized crime, and foreign threats, such as international drug cartels, human traffickers, and corrupt political or 8 31 U.S.C. 5312(a)(2)(U). U.S.C. 5318(g)(1)(A). 10 31 U.S.C. 5318(g)(5)(B)(i)–(iii). 11 See AML Act, section 6202 (codified at 31 U.S.C. 5318(g)(D)(i)(1)). Section 6102(c) of the AML Act also amended 31 U.S.C. 5318(a)(2) to give the Secretary the authority 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.’’ FinCEN believes this authority also provides an additional basis for the reporting requirement adopted in this final rule. lotter on DSK11XQN23PROD with RULES2 9 31 VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 business figures. Non-financed transfers to legal entities and trusts heighten the risk that such transfers will be used for illicit purposes. Numerous public law enforcement actions illustrate this point.12 As such, FinCEN believes that 12 As the Financial Action Task Force (FATF) noted in July 2022, ‘‘[d]isparities with rules surrounding legal structures across countries means property can often be acquired abroad by shell companies or trusts based in secrecy jurisdictions, exacerbating the risk of money laundering.’’ International bodies, such as the FATF have found that ‘‘[s]uccessful AML/CFT supervision of the real estate sector must contend with the obfuscation of true ownership provided by legal entities or arrangements[.]’’ FATF, ‘‘Guidance for a Risk Based Approach: Real Estate Sector’’ (July 2022), p. 17, available at https://www.fatf-gafi.org/content/dam/ fatf-gafi/guidance/RBA-Real-EstateSector.pdf.coredownload.pdf; see, e.g., U.S. v. Delgado, 653 F.3d 729 (8th Cir. 2011) (drug trafficking, money laundering); U.S. v. Fernandez, 559 F.3d 303 (5th Cir. 2009) (drug trafficking, money laundering); Complaint for Forfeiture, U.S. v. All the Lot or Parcel of Land Located at 19 Duck Pond Lane Southampton, New York 11968, Case No. 1:23–cv–01545 (S.D.N.Y. Feb. 24, 2023) (sanctions evasion); Indictment and Forfeiture, U.S. v. Maikel Jose Moreno Perez, Case No. 1:23–cr– 20035–RNS (S.D. Fla. Jan. 26, 2023) (bribery, money laundering, conspiracy); Motion for Preliminary Order of Forfeiture and Preliminary Order of Forfeiture, U.S. v. Colon, Case No. 1:17–cr–47–SB (D. Del. Nov. 18, 2022) (drug trafficking, money laundering); U.S. v. Andrii Derkach, 1:2022–cr– 00432 (E.D.N.Y. Sept. 26, 2022) (sanctions evasion, money laundering, bank fraud); Doc. No. 10 at p. 1, U.S. vs. Ralph Steinmann and Luis Fernando Vuiz, 1:2022–cr–20306 (S.D. Fla. July 12, 2022) (bribery, money laundering); U.S. v. Jimenez, Case No. 1:18–cr–00879, 2022 U.S. Dist. LEXIS 77685, 2022 WL 1261738 (S.D.N.Y. Apr. 28, 2022) (false claim fraud, wire fraud, money laundering, identity theft); Complaint for Forfeiture, U.S. v. Real Property Located in Potomac, Maryland, Commonly Known as 9908 Bentcross Drive, Potomac, MD 20854, 8:2020–cv–02071 (D. Md. July 15, 2020) (public corruption, money laundering); Final Order of Forfeiture, U.S. v. Raul Torres, Case No. 1:19– cr–390 (N.D. Ohio Mar. 30, 2020) (operating an animal fighting venture, operating an unlicensed money services business, money laundering); U.S. v. Bradley, Case No. 3:15–cr–00037–2, 2019 U.S. Dist. LEXIS 141157, 2019 WL 3934684 (M.D. Tenn. Aug. 20, 2019) (drug trafficking, money laundering); Indictment, U.S. v. Patrick Ifediba, et al., Case No. 2:18–cr–00103–RDP–JEO, Doc. 1 (N.D. Ala. Mar. 29, 2018) (health care fraud); Redacted Indictment, U.S. v. Paul Manafort, Case 1:18–cr–00083–TSE (E.D. Va. Feb. 26, 2018) (money laundering, acting as an unregistered foreign agent); U.S. v. Miller, 295 F. Supp. 3d 690 (E.D. Va. 2018) (wire fraud); U.S. v. Coffman, 859 F. Supp. 2d 871 (E.D. Ky. 2012) (mail, wire, and securities fraud); U.S. v. 10.10 Acres Located on Squires Rd., 386 F. Supp. 2d 613 (M.D.N.C. 2005) (drug trafficking); Atty. Griev. Comm’n of Md. v. Blair, 188 A.3d 1009 (Md. Ct. App. 2018) (money laundering drug trafficking proceeds); State v. Harris, 861 A.2d 165 (NJ Super. Ct. App. Div. 2004) (money laundering, theft); U.S. Department of Justice, Press Release, ‘‘Associate of Sanctioned Oligarch Indicted for Sanctions Evasion and Money Laundering: Fugitive Vladimir Vorontchenko Aided in Concealing Luxury Real Estate Owned by Viktor Vekselberg’’ (Feb. 7, 2023), available at https://www.justice.gov/usao-sdny/pr/ associate-sanctioned-oligarch-indicted-sanctionsevasion-and-money-laundering; U.S. Department of Justice, Press Release, United States Reaches Settlement to Recover More Than $700 Million in Assets Allegedly Traceable to Corruption Involving Malaysian Sovereign Wealth Fund (Oct. 30, 2019), PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 70259 the reporting of non-financed transfers to legal entities and trusts will benefit national security by facilitating law enforcement investigations into, and strategic analysis of, the use of residential real estate transfers having these particular characteristics to facilitate money laundering.13 Indeed, since 2016, FinCEN has used a targeted reporting requirement—the Residential Real Estate GTOs—to collect information on a subset of transfers of residential real estate that FinCEN considers to present a high risk for money laundering.14 Specifically, the Residential Real Estate GTOs have required certain title insurance companies to file reports and maintain records concerning non-financed available at https://www.justice.gov/opa/pr/unitedstates-reaches-settlement-recover-more-700-millionassets-allegedly-traceable; U.S. Department of Justice, Press Release, ‘‘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’’ (May 12, 2017), available at https://www.justice.gov/ usao-sdny/pr/acting-manhattan-us-attorneyannounces-59-million-settlement-civil-moneylaundering-and. 13 As explained in the notice of proposed rulemaking (NPRM) issued on February 16, 2024, while other investigative methods and databases may be available to law enforcement seeking information concerning persons involved in nonfinanced transfers of residential real property, the information obtained through such investigative methods or the databases themselves are often incomplete, unreliable, and diffuse, resulting in misalignment between those methods or sources and the potential risks posed by the transfers. For example, the non-uniformity of the title transfer processes across states and the fact that the recording of title information is largely done at the local level complicates and hinders investigative efforts. To presently verify how many non-financed purchases of residential real property a known illicit actor has made, law enforcement may have to issue subpoenas and travel to multiple jurisdictions—assuming that they are known—to obtain the relevant information. Law enforcement is also likely to experience difficulty in finding beneficial ownership information for legal entities or trusts not registered in the United States which have engaged in non-financed transfers of residential real estate. Furthermore, existing commercial databases do not collect much of the information that is the focus of this rule, such as that involving funds transfers. In these respects, a search of Real Estate Reports would be a far more efficient and complete mechanism. See FinCEN, NPRM, ‘‘Anti-Money Laundering Regulations for Residential Real Estate Transfers,’’ 89 FR 12424, 12430 (Feb. 16, 2024). 14 See 31 U.S.C. 5326; 31 CFR 1010.370; Treasury Order 180–01 (Jan. 14, 2020), available at https:// home.treasury.gov/about/general-information/ orders-and-directives/treasury-order-180-01. In general, a GTO is an order administered by FinCEN which, for a finite period of time, imposes additional recordkeeping or reporting requirements on domestic financial institutions or other businesses in a given geographic area, based on a finding that the additional requirements are necessary to carry out the purposes of, or to prevent evasion of, the BSA. The statutory maximum duration of a GTO is 180 days, though it may be renewed. E:\FR\FM\29AUR2.SGM 29AUR2 70260 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 purchases of residential real estate above a specific price threshold by certain legal entities in select metropolitan areas of the United States. In combination with the numerous public law enforcement actions illustrating the heightened risks posed by non-financed transfers to legal entities and trusts, information obtained from the Residential Real Estate GTOs, as well as other studies conducted by Treasury and FinCEN, FinCEN has confirmed the need for a more permanent regulatory solution that would require consistent reporting of information about certain high-risk real estate transfers. a. Benefits of Reporting The Residential Real Estate GTOs have been effective in identifying the risks of non-financed purchases of residential real estate by providing relevant information about such transfers to law enforcement within specified geographic areas. Indeed, FinCEN regularly receives feedback from law enforcement partners that they use the information to generate new investigative leads, identify new and related subjects in ongoing cases, and support prosecution and asset forfeiture efforts. Law enforcement has also made requests to FinCEN to expand the Residential Real Estate GTOs to new geographic areas, which FinCEN has done multiple times, adding both additional metropolitan areas and methods of payment. This has provided law enforcement with additional insight into the risks in both the luxury and non-luxury residential real estate markets. The Residential Real Estate GTOs have also proven the benefit of having reports identifying high risk residential real estate transfers housed in the same database as other BSA reports, such as traditional SARs and currency transaction reports (CTRs). For example, housing reports filed under the Residential Real Estate GTOs in the same database as other BSA reports enables FinCEN to cross-reference identifying information across reports, and having done so, FinCEN has been able to determine that a substantial proportion of purchases reported under the Residential Real Estate GTOs have been conducted by persons also engaged in other activity that financial institutions have characterized as suspicious. Specifically, FinCEN has found that from 2017 to early 2024, approximately 42 percent of nonfinanced real estate transfers captured by the Residential Real Estate GTOs were conducted by individuals or legal entities on which a SAR has been filed. VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 In other words, individuals engaging in a type of transaction known to be used to further illicit financial activity—the non-financed purchase of residential real estate through a legal entity—are also engaging in other identified forms of suspicious activities. The ability to connect these activities across reports allows law enforcement to efficiently identify potential illicit actors for investigation and build out current investigations. b. Necessity of a Permanent Nationwide Reporting Requirement The Residential Real Estate GTOs, while effective within the covered geographic areas, do not address the illicit finance risks posed by certain real estate transfers on a nationwide basis— a significant shortcoming. For instance, a study of money laundering through real estate in several countries by Global Financial Integrity, a non-profit that studies illicit financial flows, money laundering, and corruption, found that, of Federal money laundering cases involving real estate between 2016 and 2021, nearly 61 percent involved at least one transfer in a county not covered by the Residential Real Estate GTOs. FinCEN believes that money laundering through real estate is indeed a nationwide problem that jurisdictionally limited reporting requirements are insufficient to address.15 Furthermore, the Residential Real Estate GTOs were also intended to be a temporary information collection measure. Thus, FinCEN believes that a more comprehensive and permanent regulatory approach is needed. B. The Notice of Proposed Rulemaking On February 16, 2024, FinCEN published a notice of proposed rulemaking (NPRM) proposing a reporting requirement to address the risks related to non-financed transfers of residential real estate to either a legal entity or trust on a nationwide basis.16 The proposal targeted the transfers that posed a high risk for illicit finance and was built on lessons learned from the Residential Real Estate GTOs and from public comments received in response to an Advance Notice of Proposed 15 Global Financial Integrity, ‘‘Acres of Money Laundering: Why U.S. Real Estate is a Kleptocrat’s Dream’’ (Aug. 2021), p. 26, available at https:// gfintegrity.org/report/acres-of-money-launderingwhy-u-s-real-estate-is-a-kleptocrats-dream/. According to its website, Global Financial Integrity is ‘‘a Washington, DC-based think tank focused on illicit financial flows, corruption, illicit trade and money laundering.’’ See Global Financial Integrity, ‘‘About,’’ available at https://gfintegrity.org/about/. 16 See supra note 13. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 Rulemaking.17 Importantly, the NPRM was narrowly focused and did not propose a reporting requirement for most transfers of residential real estate— for example, it excluded purchases that involve a mortgage or other financing from a covered financial institution, as well as any transfer, including all-cash transfers, to an individual. In the NPRM, FinCEN proposed that certain persons involved in residential real estate closings and settlements file a version of a SAR—referred to as a ‘‘Real Estate Report’’—focused exclusively on certain transfers of residential real property. The persons subject to this reporting requirement were deemed reporting persons for purposes of the proposed rule. Under the proposed rule, a reporting person would be determined through a ‘‘cascading’’ approach based on the function performed by the person in the real estate closing and settlement. The proposed cascade was designed to minimize burdens on persons involved in real estate closings and settlements, while leaving no reporting gaps and creating no incentives for evasion.18 To provide some flexibility in this reporting cascade, FinCEN’s proposal included the option to designate (by agreement) a reporting person from among those in the cascade. As proposed, information to be reported in the Real Estate Report would identify the reporting person, the legal entity or trust (including any legal arrangement similar in structure or function to a trust) to which the residential real property was transferred, the beneficial owners of that transferee entity or transferee trust, the person that transferred the residential real property, and the property being transferred, along with certain transactional information about the transfer. Regarding beneficial ownership information that a reporting person would be required to report, the rule proposed that a reporting person could collect such information directly from a 17 See FinCEN, Advance Notice of Proposed Rulemaking, ‘‘Anti-Money Laundering Regulations for Real Estate Transactions,’’ 86 FR 69589 (Dec. 8, 2021). 18 Through the proposed reporting cascade hierarchy, a real estate professional would be a reporting person required to file a report and keep records for a given transfer if the person performs a function described in the cascade and no other person performs a function described higher in the cascade. For example, if no person is involved in the transfer as described in the first tier of potential reporting persons, the reporting obligation would fall to the person involved in the transfer as described in the second tier of potential reporting persons, if any, and so on. The reporting cascade includes only persons engaged as a business in the provision of real estate closing and settlement services within the United States. E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 transferee or a representative of the transferee, so long as the person certified that the information was correct to the best of their knowledge. On the timing of the reports, the proposed rule stated that the reporting person was required to file the Real Estate Report no later than 30 days after the date of closing. C. Comments Received In response to the NPRM, FinCEN received 621 comments, 164 of which were unique. Submissions came from a broad array of individuals, businesses, and organizations, including trade associations, transparency groups, law enforcement representatives, and other interested groups and individuals. General support for the rule was expressed by law enforcement officials, transparency groups, certain industry associations, and individuals. For instance, attorneys general of 25 states and territories jointly submitted a comment stating that the proposed regulations would permit Federal, State, and local law enforcement to access information about suspicious real estate transfers more efficiently because that information would all be available from a single source, and that the information would aid them in identifying suspicious residential real estate transfers on a nationwide basis that might otherwise remain undetected. These attorneys general and one industry association applauded FinCEN’s choice to use a transactionspecific reporting mechanism rather than imposing an AML/CFT program requirement on persons involved in real estate closings and settlements. One non-profit commenter expressed support for FinCEN’s recognition of the wide-ranging impacts that money laundering through real estate can have on tenants, homebuyers, and the affordability and stability of regional housing markets and believed the rule will improve housing access. Two industry associations expressed strong support for the proposed rule, with one commenter expressing the view that it reflected a pragmatic approach. One industry association and an individual commenter stated that a permanent and nationwide rule would provide greater predictability and certainty to industry than Residential Real Estate GTOs. Other commenters expressed opposition to the proposed rule. Some expressed concern about FinCEN’s legal authority to impose a reporting requirement in the manner set forth in the proposed rule. Other commenters argued that the proposed reporting requirement would be ineffective, burdensome, or would require reporting VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 of information that is reported to the government through other avenues. The majority of private sector commenters— primarily small businesses, individuals employed in the real estate industry, and certain trade associations—asserted that the proposed reporting requirements are too broad and complex and would be burdensome to implement. They further assert that this would result in increased costs for businesses and, ultimately, consumers, potentially delaying closings and causing consumers to decline to seek their services. Many of these commenters expressed concerns that the proposed regulations, if finalized without significant change, would impose numerous and costly reporting and recordkeeping requirements on small businesses. Some commenters suggested the proposed rule would put large businesses at a competitive disadvantage while others suggested the same about small businesses. These commenters also suggested that the proposed regulation would create privacy and security concerns with respect to personally identifiable information. A number of these commenters suggested that FinCEN either not issue a final regulation or adopt a narrower approach, requiring reporting of less information on fewer transfers. Several commenters suggested that attorneys that fulfill any of the functional roles set out in the reporting cascade should not be required to report, primarily due to concerns about attorney-client privilege and confidentiality requirements. Furthermore, many commenters suggested a range of modifications to the proposed regulations to: enhance clarity; reduce the potential burdens to industry; include or exclude certain professions from reporting requirements; refine the impact to certain segments of the industry; and enhance the usefulness of the resulting reports. Several commenters also asked hypothetical questions that sought clarification on the application of the proposed rule to certain situations. FinCEN carefully reviewed and considered each comment submitted, and a more detailed discussion of comments appears in Section III. FinCEN believes that the regulatory requirements set out in this final rule reflect the appropriate balance between ensuring that reports filed under the rule have a high degree of usefulness to law enforcement and minimizing the compliance burden incurred by businesses, including small businesses. As detailed in Section III, FinCEN has made several amendments to the proposed rule that are responsive to PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 70261 commenters and that may also reduce certain anticipated burdens. III. Discussion of Final Rule A. Overview FinCEN is issuing a final rule that generally adopts the framework set out in the proposed rule but makes certain modifications and clarifications that are responsive to comments. The final rule imposes a reporting requirement on ‘‘reporting persons’’ that are involved in certain kinds of transfers of residential real property. In response to comments, the rule adopts a reasonable reliance standard, allowing reporting persons to, in general, reasonably rely on information obtained from other persons. FinCEN has also made other amendments in the final rule that are intended to clarify and simplify the reporting requirements, such as clarifying the definition of residential real property. Additionally, the rule excludes several additional transfers from needing to be reported, including one designed to exempt certain transfers commonly executed for estate and tax planning purposes. FinCEN also limited the requirement to retain certain records. We discuss these and other specific issues, comments, modifications, and clarifications in this section, beginning with issues that cut across the entire rule and continuing with a section-by-section analysis of changes and clarifications to the regulatory text, including sections for which FinCEN received no feedback from commenters. FinCEN notes that it will consider issuing frequently asked questions (FAQs) and other guidance, as appropriate, to further clarify the application of the rule to specific circumstances. FinCEN also intends to continue to engage with stakeholders, for example through public outreach events, to assist with ensuring that the rule’s requirements are understood by affected members of the public, including small businesses. B. Comments Addressing the Rule Broadly FinCEN received several comments that cut across various provisions of the rule or were otherwise broadly applicable. The subjects addressed by these comments include: FinCEN’s authority to issue the rule; alternatives to the reporting and recordkeeping requirements; attorneys as reporting persons; the extent to which a reporting person can rely on information received from other persons; penalties for noncompliance; and the collection of unique identifying numbers. FinCEN E:\FR\FM\29AUR2.SGM 29AUR2 70262 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations has carefully considered these comments and addresses them below. lotter on DSK11XQN23PROD with RULES2 1. Authority Proposed Rule. The NPRM set out the legal authority that authorized the agency’s issuance of the rule. Specifically, the NPRM cited the BSA provisions set forth at 31 U.S.C. 5312(a)(2), which defines a financial institution to include ‘‘persons involved in real estate closings and settlements,’’ and at 31 U.S.C. 5318(g), authorizing FinCEN to impose a requirement on financial institutions to report suspicious activity reports, and to establish streamlined processes regarding the filing of such reports. Comments Received. Several commenters questioned the legal authority underpinning the rule and the BSA reporting regime more generally, with one commenter stating that ‘‘the Constitutionality of this regime is not an entirely closed question.’’ These commenters argued that the rule potentially infringes on certain constitutional rights and that it is inconsistent with certain statutes and Executive Orders (EOs), citing primarily to Gramm-Leach-Bliley Act (GLBA) and E.O. 12866. With regard to GLBA, one commenter stated that ‘‘[t]he [r]ule proposed by FinCEN directly clashes with the legal guideposts and requirements of the GLBA.’’ Final Rule. FinCEN is issuing this final rule pursuant to its BSA authority to require ‘‘financial institutions’’ to report ‘‘suspicious transactions’’ under 31 U.S.C. 5318(g)(1); the rule falls squarely within the scope of this authority. As discussed in the NPRM and in Section II.A.1 of this final rule, ‘‘persons involved in real estate closings and settlements’’ are a type of ‘‘financial institution’’ under the BSA.19 As such, FinCEN has clear statutory authority to require ‘‘persons involved in real estate closings and settlements’’ to file reports on suspicious activity,20 and courts have long affirmed the constitutionality of, such reporting requirements.21 Furthermore, a more recent amendment to the BSA at 31 U.S.C. 5318(g)(5)(D) provides FinCEN with additional flexibility to tailor the form of the SAR reporting requirement. Consistent with that authority, FinCEN is instituting a streamlined SAR filing requirement to require specified ‘‘persons involved in real estate closings and settlements’’ to 19 31 U.S.C. 5312(a)(2)(U); see FinCEN, NPRM, ‘‘Anti-Money Laundering Regulations for Residential Real Estate Transfers,’’ 89 FR 12424, 12427 (Feb. 16, 2024). 20 See 31 U.S.C. 5318(g). 21 See California Bankers Ass’n v. Shultz, 416 U.S. 21 (1974); U.S. v. Miller, 425 U.S. 435 (1976). VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 report certain real estate transactions that FinCEN views as high-risk for illicit finance. With regard to the comment concerning the relationship between the final rule and GLBA, FinCEN notes that information in reports filed under the BSA, which will include any information in a Real Estate Report, is exempt from the requirements of GLBA.22 Finally, FinCEN notes that significant comments relating to applicable E.O. are addressed in the regulatory impact analysis in this final rule. 2. Suggested Alternatives to Proposed Rule Proposed Rule. The NPRM proposed that certain persons involved in the closing and settlement of real estate report and keep records about certain non-financed transfers of residential real estate to certain legal entities and trusts. Comments Received. Commenters suggested several alternatives to the proposed reporting and recordkeeping requirement. One commenter suggested expanding the Internal Revenue Service (IRS) Form 1099–S to include the collection of buyer-side information in addition to the seller-side information already collected. Some commenters suggested that, rather than requiring reporting by real estate professionals, FinCEN should require reporting from county clerk offices when they accept a deed for a reportable transfer or directly from transferees before a reportable transfer. Finally, other commenters urged FinCEN to fund alternative databases or purchase access to electronic records at each county clerk’s office and monitor filed deeds. Final Rule. The final rule retains the fundamental framework of the proposed rule. FinCEN believes that the alternatives suggested by commenters are either technically or legally unworkable and would likely not result in the reporting of information that is equally useful to law enforcement. First, the IRS Form 1099–S is filed annually, making it significantly less useful to law enforcement and, as discussed in the NPRM,23 is not readily available for FinCEN or broader law enforcement uses due to confidentiality protections around federal taxpayer information. Second, FinCEN believes that county clerks’ offices and individuals do not typically play a role in the kinds of transfers that would require reporting. Therefore, these individuals would not 22 15 U.S.C. 6802(e)(5). FinCEN NPRM, ‘‘Anti-Money Laundering Regulations for Residential Real Estate Transfers,’’ 89 FR 12424, 12447–12448 (Feb. 16, 2024). 23 See PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 likely be in a position to interact with both the transferor(s) and the transferee(s), and thus, may not have ready access to reportable information. Regarding the suggested alternative of collecting reportable information directly from transferees instead of through reporting persons, FinCEN believes that buyers and sellers would be less willing to share personal information with each other than with a real estate professional fulfilling a function described in this rule’s reporting cascade. Third, simply monitoring deeds at the county clerk level would likely not produce the information, including beneficial ownership and payment information, that FinCEN believes is important to law enforcement in combating illicit actors’ abuse of opaque legal structures in the residential real estate market. Further, funding alternative databases would similarly not result in this information being made available to law enforcement, as private service providers would be unable to gather the same variety of highly relevant information, and any information they did provide would not be consolidated in a database with other BSA reports. The consolidation of Real Estate Reports with other BSA reports—including, but not limited to, traditional SARs, CTRs, Reports of Cash Payments Over $10,000 Received in a Trade or Business (Forms 8300), and Reports of Foreign Bank and Financial Accounts—is important for law enforcement purposes, as doing so will allow law enforcement to efficiently cross-reference information across the various BSA reports. 3. Attorneys as Potential Reporting Persons Proposed Rule. Under the proposed rule, attorneys could potentially be subject to a reporting requirement if they perform any of the real estate closing and settlement functions described in the reporting cascade. The proposed rule did not differentiate between attorneys and non-attorneys when they perform the same functions involving transfers of residential real property. Comments Received. A number of commenters addressed the inclusion of attorneys in the reporting cascade. In general, legal associations opposed the inclusion of attorneys performing certain closing and settlement functions in the cascade as reporting persons, while others, in particular transparency organizations, supported the inclusion of attorneys as reporting persons. Commenters opposed to inclusion of attorneys generally argued that an attorney could not act as a reporting E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations person without either breaching the attorney’s professional ethical obligations to maintain client confidentiality or violating attorneyclient privilege. Some commentors also suggested that FinCEN lacks legal authority to regulate attorneys under the BSA. Final Rule. FinCEN declines to amend the reporting cascade to exclude attorneys from the requirement to report. First, FinCEN does not believe that attorneys would violate their professional ethical obligations by filing a Real Estate Report. Although commenters noted that the ABA Model Rules on Professional Conduct generally require attorneys to keep client information confidential regardless of whether it is subject to the attorneyclient privilege, Rule 1.6(b)(6) of the Model Rules states that ‘‘[a] lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary . . . to comply with other law or a court order.’’ The annotations to the Model Rules further elaborate that ‘‘[t]he required-by-law exception may be triggered by statutes, administrative agency regulations, or court rules.’’ FinCEN believes that the Real Estate Report falls squarely within the required-by-law exception described in Rule 1.6(b)(6). Second, FinCEN believes that the information required in the Real Estate Report (e.g., client identity and fee information) is of a type not generally protected by the attorney-client privilege, and accordingly FinCEN is not persuaded that attorneys should be categorically excluded from the reporting cascade on that basis.24 Moreover, even if there were an unusual circumstance in which some information required to be reported in the Real Estate Report might arguably be subject to the attorney-client privilege, an attorney in such an unusual situation need not assume a reporting obligation, as that attorney might allow other parties in the reporting cascade to file the Real Estate Report through a designation agreement or, in certain circumstances, might decline to perform the function that triggers the obligation. It is therefore unlikely that any attorney would necessarily be required to disclose privileged information. Nonetheless, FinCEN expects to issue guidance that will address the rare circumstance in which an attorney is concerned about the disclosure of potentially privileged information, 24 See, e.g., In re Grand Jury Subpoenas, 906 F.2d 1485, 1488 (10th Cir. 1990) (collecting cases). VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 which will provide further information on the mechanism for asserting the attorney-client privilege and appropriately filing the relevant Real Estate Report. Similarly, FinCEN is not persuaded by commentors who argued that FinCEN lacks the authority to regulate attorneys under the BSA, claiming that the BSA does not clearly evince an intention to regulate attorneys. The BSA expressly authorizes regulation of ‘‘persons involved in real estate closings and settlements,’’ and it is common for such persons to be attorneys. Congress thus made clear its intention to authorize regulation of functions commonly performed by attorneys, and it would be anomalous to regulate those functions only when performed by non-attorneys. FinCEN also notes that attorneys are not exempt from submitting reporting forms to FinCEN in other contexts in which they are not explicitly identified by statute, such as with FinCEN Form 8300, which must be submitted by any ‘‘[a]ny person . . . engaged in a trade or business.’’ All courts of appeals that have considered the question have concluded that Form 8300 reporting requirements do not per se violate the attorney-client privilege and that attorneys must file such a form absent certain narrow exceptions.25 4. Reasonable Reliance Standard Proposed Rule. Proposed 31 CFR 1031.320(e)(3) provided that the reporting person may collect beneficial ownership information for the transferee entity or transferee trust directly from a transferee or a representative of the transferee, so long as the person certifies in writing that the information is correct to the best of their knowledge. However, the proposed rule did not state whether and to what extent a reporting person could rely on information provided by other persons in the context of other required information (i.e., other than beneficial ownership information) required under the rule or to make any determination necessary to comply with the rule. Comments Received. Several commenters asked for clarification of this provision, suggesting that the burden to industry would be significant if reporting persons were required to verify the accuracy of each piece of reportable information provided by a transferee or another party, with one 25 See; U.S. v. Sindel, 53 F.3d 874, 876 (8th Cir. 1995); U.S. v. Blackman, 72 F.3d 1418, 1424–25 (9th Cir. 1995); U.S. v. Ritchie, 15 F.3d 592, 602 (6th Cir. 1994); U.S. v. Leventhal, 961 F.2d 936, 940 (11th Cir. 1992); U.S. v. Goldberger & Dubin, P.C., 935 F.2d 501, 505 (2d Cir. 1991); In re Grand Jury Subpoenas, 906 F.2d 1485, 1492 (10th Cir. 1990). PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 70263 commenter questioning whether true verification is possible. Several commenters also expressed liability concerns, including that reporting persons could be penalized if a third party provides information that turns out to be incorrect. To resolve these concerns, commenters suggested that reporting persons should be able to rely on information provided by the transferee or that the transferee should certify the accuracy of required information beyond beneficial ownership information. One industry group took the reliance standard a step further, suggesting that the reporting person be able to rely on the representations of the transferee for purposes of determining whether the transferee is an exempt entity or trust. One transparency group suggested that the final rule require that reporting persons perform a ‘‘clear error’’ or ‘‘best efforts’’ check to ensure they are not reporting obviously fraudulent information. Some commenters suggested that, where a transferee is unwilling to provide complete or accurate information, reporting persons should be allowed to file incomplete forms, with some arguing that ‘‘good faith attempts’’ to file reports that are ultimately incomplete should not be penalized. Another argued that the reporting person should be able to simply file the information provided without any responsibility for its accuracy or completeness. However, one transparency group argued that reporting persons should not be allowed to file incomplete forms and that the final rule should clarify that, where a reporting person cannot gather complete information from a transferee, then the reporting person should decline to take part in the real estate transfer. Other commenters similarly questioned whether a reporting person can continue to facilitate a transfer if the transferee refuses to cooperate in providing reportable information. Additionally, one industry group requested that the final rule impose a clear duty on other persons described in the reporting cascade to share information reportable under the proposed rule. Final Rule. In 31 CFR 1031.320(j), the final rule adopts a reasonable reliance standard that allows reporting persons to reasonably rely on information provided by other persons. As a result, the reporting person generally may rely on information provided by any other person for purposes of reporting information or to make a determination necessary to comply with the final rule, but only if the reporting person does not have knowledge of facts that would E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 70264 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations reasonably call into question the reliability of the information. This reasonable reliance standard is consistent with that used by certain financial institutions subject to customer due diligence requirements.26 This reasonable reliance standard is slightly more limited when a reporting person is reporting beneficial ownership information of transferee entities or transferee trusts. As expressed in the proposed rule, and as adopted in the final rule, when a reporting person is collecting the beneficial ownership information of transferee entities and transferee trusts. In those situations, the reasonable reliance standard applies only to information provided by the transferee or the transferee’s representative and only if the person providing the information certifies the accuracy of the information in writing to the best of their knowledge. FinCEN recognizes the necessity of permitting reliance on information supplied to the reporting person, considering the time and effort it would take for the reporting person to verify each piece of information independently. FinCEN believes that the reasonable reliance standard is significantly less burdensome than an alternative full verification standard, while still ensuring that obviously false or fraudulent information would not be reported. As an example, FinCEN expects that the reporting person would be able to reasonably rely on the accuracy of a person’s address provided orally or in writing, without reviewing governmentissued documentation such as a drivers’ license, provided the reporting person does not have reason to question the information provided (e.g., if the information provided were to contain a numerically unlikely ZIP code or the person providing it makes comments bringing into question the reliability of the address or has provided other unreliable information). As an additional example, in the context of ascertaining whether particular transfers are ‘‘non-financed transfers,’’ 27 a reporting person may rely on the information provided by the relevant lender extending credit secured by the underlying residential real property as to whether the lender has an obligation to maintain an AML program and an obligation to report suspicious transactions under 31 CFR Chapter X, provided the reporting person does not have reason to question the lender’s information (e.g., if the lender were to 26 31 CFR 1010.230(b)(2). below in Section III.C.2.b. 27 Discussed VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 represent that he (as a natural person) is subject to AML obligations). In response to the comment requesting that FinCEN permit the filing of an incomplete report, FinCEN declines to add language to the regulation to provide for that option. FinCEN believes that allowing for the submission of incomplete reports could make it easier for transferees to avoid reporting requirements while simultaneously also making it difficult for FinCEN to ensure compliance with the rule. It could also greatly reduce the reports’ utility to law enforcement. FinCEN believes the adoption of the reasonable reliance standard addresses many of the concerns expressed about access to reportable information. Finally, FinCEN does not adopt the suggestion that a legal duty be imposed on other persons in the reporting cascade to share reportable information with the reporting person. FinCEN believes that the reasonable reliance standard will make the sharing of information easier and therefore will decrease potential friction among the persons described in the reporting cascade. Further, FinCEN believes that reporting persons are unlikely to perform the function described in the reporting cascade until they have either obtained the required information or are reasonably certain that they will be able to obtain it soon after the date of closing. If information cannot be obtained from a person in the reporting cascade, the reporting person would reach out directly to a relevant party to the transfer (e.g., the transferee) to gather the missing information. FinCEN notes that there is no exception from reporting under the final rule should a transferee fail to cooperate in providing information about a reportable transfer. The final rule does not authorize the filing of incomplete reports, and a reporting person who fails to report the required information about a reportable transfer could be subject to penalties. However, FinCEN will consider issuing additional public guidance to assist the financial institutions subject to these regulations in complying with their reporting obligations. 5. Penalties Proposed Rule. The proposed rule did not include a specific reference to potential penalties for noncompliance, as those penalties are already set forth in the provisions of the BSA that discuss criminal and civil penalties for violating a BSA requirement. Comments Received. Several commenters sought clarification about penalties for noncompliance, with one PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 commenter noting that the proposed rule did not explicitly address potential penalties for failing to file a report or for filing an inaccurate report. Final Rule. Consistent with the NPRM, FinCEN believes that it is unnecessary to list potential penalties in the regulatory text because the applicable penalties are already set forth by statute. Negligent violations of the final rule could result in a civil penalty of, as of the publication of the final rule, not more than $1,394 for each violation, and an additional civil money penalty of up to $108,489 for a pattern of negligent activity.28 Willful violations of the final rule could result in a term of imprisonment of not more than five years or a criminal fine of not more than $250,000, or both.29 Such violations also could result in a civil penalty of, as of the publication of the final rule, not more than the greater of the amount involved in the transaction (not to exceed $278,937) or $69,733.30 This penalty structure generally applies to any violation of a BSA requirement.31 FinCEN intends to conduct outreach to potential reporting persons on the need to comply with the final rule’s requirements. 6. Unique Identifying Numbers Proposed Rule. Proposed 31 CFR 1031.320(e) set forth requirements for the reporting person to report a unique identifying number of the transferee entity or transferee trust, the beneficial owners of the transferee entity or trust, the individuals signing documents on behalf of the transferee entity or trust, and the trustee of a transferee trust. FinCEN proposed that the specific form of unique identifying number required would be a taxpayer identification number (TIN) issued by the IRS, such as a Social Security Number or Employer Identification Number. However, the proposed rule provided that, when no IRS TIN had been issued, the proposed rule required the reporting of a foreign tax identification number or other form of foreign identification number, such as a passport number or entity registration number issued by a foreign government. Comments Received. One commenter argued against the collection of TINs as a unique identifying number, citing to the reporting requirements of the Beneficial Ownership Information 28 31 U.S.C. 5321. U.S.C. 5322. 30 31 U.S.C. 5321; 31 CFR 1010.821. 31 See FinCEN, ‘‘Financial Crimes Enforcement Network (FinCEN) Statement on Enforcement of the Bank Secrecy Act’’ (Aug. 18, 2020), available at https://www.fincen.gov/sites/default/files/shared/ FinCENEnforcementStatement_FINAL508.pdf. 29 31 E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 Reporting Rule (BOI Reporting Rule).32 In the NPRM for the BOI Reporting Rule,33 which was issued pursuant to the Corporate Transparency Act (CTA),34 FinCEN initially proposed the voluntary reporting of TINs by a reporting company of its beneficial owners but eliminated this optional reporting in the final rule. The final BOI Reporting Rule does, however, require that reporting companies report their own TINs.35 Final Rule. In the final rule, FinCEN adopts the proposed requirement to collect the unique identifying numbers of entities and individuals, including their TINs, but clarifies that, for legal entities, a unique identifying number is required only if such number has been issued to that entity. The proposed rule contained a similar provision for transferee trusts, which the final rule adopts. In the trust context, no unique identifying number would need to be reported if a unique identifying number has not been issued to the trust. For instance, there may be a situation in which a transferee trust has not been issued an IRS TIN, nor has it been issued any of the foreign identifying numbers set out in the rule. With the clarifying edit to the unique identifying numbers required for legal entities, the rule makes clearer that a unique identifying number would similarly not be required to be reported in such a situation. FinCEN notes that the final rule does not extend this language to the TINs of individuals, as FinCEN expects that individuals will have been issued one of the unique identifying numbers required by the regulations. While FinCEN continues to acknowledge that IRS TINs are subject to heightened privacy concerns and that 32 The BOI Reporting Rule implements the CTA’s reporting provisions. In recognition of the fact that illicit actors frequently use corporate structures to obfuscate their identities and launder ill-gotten gains, the BOI Reporting Rule requires certain legal entities to file reports with FinCEN that identify their beneficial owners. See FinCEN, ‘‘Beneficial Ownership Information Reporting Requirements,’’ 87 FR 59498 (Sept. 30, 2022). Access by authorized recipients to beneficial ownership information collected under the CTA are governed by other FinCEN regulations. See FinCEN, ‘‘Beneficial Ownership Information Access and Safeguards,’’ 88 FR 88732 (Dec. 22, 2023). 33 See FinCEN, NPRM, ‘‘Beneficial Ownership Information Reporting Requirements,’’ 86 FR 69920 (Dec. 8, 2021). 34 The CTA is Title LXIV of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Public Law 116–283 (Jan. 1, 2021) (the NDAA). Division F of the NDAA is the AntiMoney Laundering Act of 2020, which includes the CTA. Section 6403 of the CTA, among other things, amends the Bank Secrecy Act (BSA) by adding a new section 5336, Beneficial Ownership Information Reporting Requirements, to subchapter II of chapter 53 of title 31, United States Code. 35 See 31 CFR 1010.380(b)(1)(i). VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 the collection of such information could entail cybersecurity and operational risks, several factors weighed heavily in its decision to retain this requirement. TINs are commonly required on other BSA reports, including, for example, Forms 8300, which FinCEN notes are commonly filed by the real estate industry. Furthermore, TINs are frequently necessary to identify the same actors, particularly those with similar names or those using aliases, across different BSA reports and investigations. FinCEN believes that nearly all reporting persons—primarily businesses performing functions typically conducted by settlement companies, including many that already file reports containing TINs with the government—will have preexisting data security systems and programs to protect information such as TINs, particularly since such information is often collected in the course of financed transfers of residential real estate. C. Section-by-Section Analysis 1. 31 CFR 1031.320(a) General FinCEN did not receive any comments to the general paragraph of the proposed rule found in proposed 31 CFR 1031.320(a), which provided a framework for the rule. That paragraph has been adopted in the final rule without substantial change. The technical changes that have been made include the renumbering of paragraph references, the addition of a reference to a new paragraph discussing the concept of reasonable reliance, and certain clarifying changes, such as the addition of language clarifying that reports required under this section and any other information that would reveal that a reportable transfer has been reported are not confidential. 2. 31 CFR 1031.320(b) Reportable Transfer The proposed rule defined a reportable transfer as a non-financed transfer of any ownership interest in residential real property to a transferee entity or transferee trust, with certain exceptions. These proposed exceptions, found in 31 CFR 1031.320(b), reflected FinCEN’s intent to capture only higher risk transfers. The proposed rule provided that transfers would be reportable irrespective of the value of the property or the dollar value of the transaction; there was no proposed dollar threshold for a reportable transfer. The proposed rule also provided that transfers would only be reportable if a reporting person is involved in the transfer and if the transferee is either a legal entity or trust. PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 70265 Transfers between individuals would not be reportable. a. Residential Real Property Proposed Rule. Proposed 31 CFR 1031.320(b) defined ‘‘residential real property’’ to include real property located in the United States containing a structure designed principally for occupancy by one to four families; vacant or unimproved land located in the United States zoned, or for which a permit has been issued, for the construction of a structure designed principally for occupancy by one to four families; and shares in a cooperative housing corporation. Comments Received. Several commenters argued that reporting persons would not have ready access to the zoning or permitting information necessary to determine whether vacant or unimproved land is reportable under the rule. Commenters noted that reporting persons do not routinely determine zoning information and that accurate zoning information may take several weeks to obtain. Examination of permits, they argued further, would take similar time and effort. Some commenters also noted that purchases of unimproved or vacant land are often for lower dollar amounts and therefore present a lower risk for money laundering. Two other commenters suggested that the determination of whether a property is ‘‘residential real property’’ as defined under the rule should turn on whether the real estate sales contract or purchase and sale agreement describes the property as being residential. Furthermore, two commenters suggested that the proposed definition of residential real property lacked clarity, with one focusing on the treatment of mixed-use property and the other requesting that the definition provide clearer criteria, taking into account the treatment of residential real estate under tax law, zoning processes, and mortgage agreements, with examples provided. Another commenter suggested that FinCEN provide a nonexhaustive list of possible transfers intended to be subject to reporting requirements and that the list specifically include any transfer of ownership and any creation of an equitable interest, whether in whole or in part, directly or indirectly, in the property. One commenter requested clarity as to whether a transfer of residential real property as defined under the rule includes assignment contracts. Final Rule. The definition of residential real property in paragraph 31 CFR 1031.320(b), as adopted in the final E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 70266 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations rule, contains several modifications and clarifications of the language in the proposed rule. This definition continues to include vacant or unimproved land, as FinCEN does not agree with the comment suggesting that transfers of such property inherently pose a lower risk for money laundering. The revised definition addresses the difficulty raised by commenters in determining whether vacant or unimproved land is zoned or permitted for residential use by focusing on whether the transferee intends to build on the property a structure designed principally for occupancy by one to four families. Furthermore, the new provision added to the rule concerning reasonable reliance permits the reporting person to reasonably rely on information provided by the transferee to determine such intent. To address comments that requested clarity on whether mixed-use property qualifies as residential real property, the definition of residential real property also clarifies that separate residential units within a building, such as individually owned condominium units, as well as entire buildings designed for occupancy by one to four families, are included. Taking into account the above changes, the definition of residential real property is now: (1) real property located in the United States containing a structure designed principally for occupancy by one to four families; (2) land located in the United States on which the transferee intends to build a structure designed principally for occupancy by one to four families; (3) a unit designed principally for occupancy by one to four families within a structure on land located in the United States; or (4) any shares in a cooperative housing corporation for which the underlying property is located in the United States. Given the ability for a reporting person to reasonably rely on information obtained from other persons, FinCEN declines to adopt the other suggestions made by some of the commenters to facilitate the determination of whether the property is residential in nature. FinCEN further notes that the definition is meant to include property such as single-family houses, townhouses, condominiums, and cooperatives, including condominiums and cooperatives in large buildings containing many such units, as well as entire apartment buildings designed for one to four families. Furthermore, transfers of such properties may be reportable even if the property is mixed use, such as a singlefamily residence that is located above a commercial enterprise. VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 FinCEN also notes that the rule is not designed to require reporting of the transfer of contractual obligations other than those demonstrated by a deed or, in the case of a cooperative housing corporation, through stock, shares, membership, certificate, or other contractual agreement evidencing ownership. Therefore, the transfer of an interest in an assignment contract would not be reportable. Assignment contracts typically involve a wholesaler contracting with homeowners to buy residential real property and then assigning their rights in the contract to a person interested in owning the property as an investment. The eventual purchase of the property by the assignee investor may be reportable under this rule because a transfer of an ownership interest demonstrated by a deed has occurred, but the initial signing of the contract between the assignor and the original homeowner would not be reportable. b. Non-Financed Transfers Proposed Rule. Proposed 31 CFR 1031.320(b)(1) defined the term ‘‘reportable transfer’’ to only include transfers that do not involve an extension of credit to all transferees that is both secured by the transferred residential real property and extended by a financial institution that has both an obligation to maintain an AML program and an obligation to report suspicious transactions under 31 CFR Chapter X. As explained in the NPRM, FinCEN considers such transfers to be ‘‘non-financed’’ for purposes of this rule. Comments Received. One industry organization noted that the proposal would result in reporting when an individual transfers property subject to qualified financing to a trust, because the qualified financing is in the name of the transferor rather than the transferee trust. Another commenter similarly requested clarity as to whether the reporting of non-financed transfers applies only with respect to qualified financing held by the transferee, as opposed to qualified financing held by the transferor. Two transparency organizations requested that FinCEN clarify whether partially financed transfers are reportable. These commenters cited as examples a situation in which some or all of the source of funds originate from entities or beneficial owners that have not undergone AML checks from a covered financial institution or where qualified credit is extended to some, but not all, beneficial owners of transferees. Finally, one commenter requested clarity as to how the reporting person PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 would determine if the transfer is nonfinanced. Final Rule. The substance of the definition of a ‘‘non-financed transfer’’ is adopted as proposed, but FinCEN has elected to move the definitions paragraph of the rule to 31 CFR 1031.320(n)(5). FinCEN declines to adopt the commenter’s suggestion to include a specific carveout in the definition to account for transfers where the qualified financing is extended to the grantor or settlor of a trust, rather than to the trust itself—an issue raised in the comments. This situation is addressed, however, in the new exception for certain transfers to trusts for no consideration, discussed in depth in Section III.C.2.c. In regards to requests for clarity about whether partially financed transfers meet the definition of a non-financed transfer, FinCEN notes that partially financed transfers involving one transferee (for example, in which the transferee entity or transferee trust puts down a 50 percent down payment but obtains a mortgage to finance the rest of the transfer) would not be reported. However, the definition of a nonfinanced transfer would result in reporting of transfers in which there are multiple transferee entities or transferee trusts receiving the property and financing is secured by some, but not all, of the transferees. As to the comment questioning how reporting persons would determine whether a transfer is non-financed, it has been FinCEN’s experience with the Residential Real Estate GTOs that persons required to report have readily determined whether a given financial institution extending financing has such AML program obligations by asking the financial institution directly. The reporting person can reasonably rely on the representations made by the financial institution. c. Excepted Transfers Proposed Rule. Proposed 31 CFR 1031.320(b)(2) provided exceptions for transfers that are: the result of a grant, transfer, or revocation of an easement; the result of the death of an owner; incident to divorce or dissolution of marriage; to a bankruptcy estate; to individuals; or for which there is no reporting person. Comments Received. Support for the proposed exceptions came from an industry group that applauded the decision to except transfers made to individuals. Other commenters did not oppose the proposed regulation and instead suggested modifications or clarifications that built on the proposed E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations exceptions. Numerous commenters also proposed additional exceptions. However, FinCEN received several comments suggesting that FinCEN clarify or otherwise amend certain other exceptions, including those proposed for death, divorce, and bankruptcy. Two legal associations proposed that FinCEN clarify the exception for transfers that are the result of a death to ensure that the exception applies even if a transfer is not executed pursuant to a will or where the decedent is not technically the owner of the property at death because the property is owned by a revocable trust set up by the decedent. One legal association suggested that FinCEN expand the proposed exceptions for divorce, death, or bankruptcy to include transfers to certain specific types of trusts. One State bar association suggested that the rule build on the exceptions for death and divorce by excepting any transfers made in connection with a courtsupervised legal settlement. A transparency organization recommended limiting the exceptions to transfers made to family members or heirs pursuant to divorce, probate proceedings, or a will, expressing concern that transfers resulting from death or divorce would remain at risk for money laundering. Multiple commenters requested additional exceptions. Several commenters focused on exceptions for transfers to trusts used for estate or tax planning purposes. A State bar association requested the exclusion of transfers for estate planning purposes that involve no monetary consideration. One commenter suggested excepting gifts between family members, whether being transferred into a trust or legal entity, and in particular suggested excluding transfers to revocable trusts in which the trustee confirms by affidavit that the trustee or the settlor is the same person as the primary beneficiary. Similarly, another State bar association suggested that FinCEN except any intrafamily transfers and transfers into certain trusts created for estate or tax planning purposes, including revocable trusts, irrevocable trusts, irrevocable life insurance trusts, grantor trusts, purpose trusts, qualified personal residence trusts, pooled trusts, special needs and supplemental trusts, creditor protection trusts, various charitable trusts, certain State business trusts, and certain State business associations. Some commenters suggested exceptions built around the relationship between the transferor and the transferee in the context of estate planning. Two such commenters requested that the final rule exclude any VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 transfer where the transferor is the settlor of a transferee trust, because beneficial ownership of the property would remain the same. A State bar association suggested excluding transfers that include the creation of a self-settled revocable or irrevocable trust, wherein the grantor(s)/settlors(s) of the trust have created it for the benefit of the grantor(s) or members of their family, arguing that such trusts for the purposes of estate planning are low risk for money laundering, and therefore of little interest to FinCEN, and that their exclusion would reduce the number of reports required from reporting persons. In a similar vein, a State land title association suggested the exclusion of living trusts with the same name as the property owner, citing the example of an individual purchasing property in a non-financed transfer and then subsequently transferring the property to a trust for estate planning purposes. A trust and estate-focused legal association similarly suggested the exclusion of transfers to trusts in which at least one of the beneficial owners is the same as the transferor or in which the transfer is for the benefit of the family of the transferor. One legal association asked that exceptions be made for transfers in which there is no change in beneficial ownership of the property and two other commenters similarly requested that FinCEN exclude any transfers where the transferor is the managing or sole member of a transferee entity or is the settlor of a transferee trust. The legal association also suggested an exception when the ownership interest in the property remains within a family. Two commenters suggested the exclusion of sequential transfers involving a trust. One described these sequential transfers as occurring when an individual purchases residential real property in their own name with a mortgage and subsequently transfers the property to a trust, or when an individual seeks to refinance property held in a trust by transferring title of the property from the trust to the individual, refinancing in the name of the individual, and then transferring title of the property back to the trust. Another commenter stated that properties held in revocable trusts for estate planning are often only removed from the trust for refinancing or taking on additional debt and therefore have oversight from those processing mortgage loans. Such transfers, argued the commenters, are low risk and would result in unnecessary and redundant reporting. Some commenters suggested excepting transfers where the transferee PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 70267 or transferor is a qualified intermediary for the purposes of 26 U.S.C. 1031 (1031 Exchange), also known as a like-kind exchange. A national trade association for 1031 Exchange practitioners suggested adding an exception that would mirror the exception found in the BOI Reporting Rule for reporting of individuals acting as nominee, intermediary, custodian, or agent on behalf of another individual.36 Three title insurance associations and two State bar associations urged FinCEN to include an exception for corrective conveyances, one commenter requested exclusion of transfers involving additional insured endorsements, another commenter suggested that FinCEN explicitly exclude foreclosures and evictions, and several commenters suggested that the final rule focus only on foreign transferees. FinCEN also received a range of comments related to whether a dollar threshold should be included, below which reporting would not be required. In general, commenters representing transparency organizations supported the lack of a threshold in the proposed rule, with one commenter arguing that any threshold would provide a clear path for evasion. Other commenters— mostly real estate associations, businesses, or professionals—advocated for the inclusion of a threshold to reduce the number of reports that would need to be filed and avoid the reporting of transfers perceived as low risk for money laundering. One commenter suggested implementing a $1 threshold, others suggested $1,000, one suggested $10,000, and another suggested adopting the same threshold as FinCEN’s Residential Real Estate GTOs. Final Rule. In the final rule, FinCEN is adopting the exceptions proposed in 31 CFR 1031.320(b)(2) and adding several additional exceptions. First, in response to comments asking FinCEN to clarify the scope of the exception for transfers resulting from death, FinCEN has adopted language, set forth at 31 CFR 1031.320(b)(2)(ii), to clarify that the exception includes all transfers resulting from death, whether pursuant to the terms of a will or a trust, by operation of law, or by contractual provision. In the context of transfers resulting from death, transfers resulting by operation of law include, without limitation, transfers resulting from intestate succession, surviving joint owners, and transfer-on-death deeds, and transfers resulting from contractual provisions include, without limitation, transfers resulting from beneficiary designations. With respect to inclusion 36 31 E:\FR\FM\29AUR2.SGM CFR 1010.380(d)(3)(ii). 29AUR2 lotter on DSK11XQN23PROD with RULES2 70268 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations of transfers required under the terms of a trust, by operation of law, or by contractual agreements, FinCEN believes such transfers are akin to transfers required by a will, as they result from the death of the grantor or settlor or individual who currently owns the residential real property. As described in the NPRM, the exception was meant to include transfers governed by preexisting legal documents, such as wills, or that generally involve the court system. FinCEN believes that the adopted language will clarify the intended scope of the exception, which is meant to exclude only low-risk transfers of residential real property involving transfers that are required by legal or judicial processes at the time of the decedent’s death. Second, the rule adds an exception for any transfer supervised by a court in the United States at 31 CFR 1031.320(b)(2)(v). This exception builds on a commenter’s suggestion to expand the list of exceptions to include transfers made in connection with a court-supervised legal settlement, but is focused on transfers required by a court instead of simply supervised by a court, which narrows the opportunity for such transfers to be abused by illicit actors. FinCEN believes that, like probate and divorce, transfers required as a result of judicial determination in the United States are generally publicly documented and subject to oversight and therefore are subject to a lower risk for money laundering. Third, while FinCEN did not receive comments on the scope of the exception for transfers incident to divorce or the dissolution of marriage, FinCEN believes it is appropriate to clarify in the regulation that the exception also applies to the dissolution of civil unions and has done so at 31 CFR 1031.320(b)(2)(iii). Civil unions are similar to marriages with regard to property issues in form and function and are terminated in a similar manner—generally with the involvement of courts. Fourth, in response to the comments requesting exceptions for estate planning techniques and for sequential transfers to trusts, an exception is added at 31 CFR 1031.320(b)(2)(vi) for transfers of residential real property to a trust where the transfer meets the following criteria: (1) the transfer is for no consideration; (2) the transferor of the property is an individual (either alone or with the individual’s spouse); and (3) the settlor or grantor of the trust is that same transferor individual, that individual’s spouse, or both of them. FinCEN expects that this addition will except many common transfers made for VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 estate planning purposes described by commenters, including transfers described in the exception where the grantor or settlor’s family are beneficiaries of the trust, as well as sequential transfers to trusts, such as where the qualified financing is extended to the grantor or settlor rather than to the trust itself and the grantor or settlor then is transferring the secured residential real property for no consideration to the trust. FinCEN intended to scope this exception in a manner that was responsive to comments but that would not create an overly broad exception that would be open to significant abuse. To be sure, illicit actors are known to use estate planning techniques to obscure the ownership of residential real estate, and all non-financed transfers of residential real estate not subject to this rule are subject to less oversight from financial institutions than financed transfers and are therefore inherently more vulnerable to money laundering. However, transfers in which an individual who currently owns residential real property is funding their own trust with that property are believed to be a lower risk for money laundering because the true owner of the property is not obscured when the property is transferred. Given this limitation on the exception and how common it is for an individual to place residential real property into a trust, whether revocable or irrevocable, for estate planning purposes, FinCEN believes it is appropriate to except such transfers at this time. Additionally, the expanded exception benefits from relying on information readily available to the reporting person, as the reporting person will know the identity of the transferor and can ascertain, such as through a trust certificate, whether the transferor is the grantor or settlor of the trust. FinCEN does not agree with some commenters that the exception should be broader by excepting transfers where beneficial ownership does not change or where the transfer is an intrafamily one. An exception for such transfers would be difficult for the reporting person to administer, as it would require a review of the dispositive terms of the trust instrument, and it would be difficult for the reporting person to assess the reliability of information provided to them about beneficial ownership or family relationships. FinCEN also does not agree that all such transfers are automatically low risk for money laundering, especially when consideration is involved. Overall, the adopted exception offers a low-risk, bright line that should be easy to PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 understand and implement, lowering the burden on both industry and the parties to the transfer, when compared with the proposed rule. FinCEN also does not believe that this same logic can be extended to justify excepting transfers of property by an individual to a legal entity owned or controlled by such individual, as some commenters suggested. In the exception described above concerning no consideration transfers to trusts, the exception applies when the transferor of residential real property is also the grantor or settlor of the trust—the identity of the grantor or settlor of the trust is a fact tied to the creation of the trust, is revealed on the face of the trust instrument, and generally cannot be changed. Although the trustee and beneficiaries of the trust may change over time, the identification of the settlor or grantor of the trust generally allows FinCEN to identify the source of the property being contributed to the trust, a factor that is critical to the identification and prevention of money laundering. That same identification and persistent connection with the transferor does not exist in the context of transfers of residential real property to a legal entity, where it is common for various owners of interests in the entity to each contribute assets to it. Finally, the final rule adopts an exception, at 31 CFR 1031.320(b)(2)(vii), for transfers made to qualified intermediaries for purposes of effecting 1031 Exchanges. Such exchanges are commonly conducted to defer the realization of gain or loss, and, thus, the payment of any related taxes, for Federal income tax purposes.37 This exception is limited to transfers made to the qualified intermediary; transfers from a qualified intermediary to the person conducting the exchange (the exchanger) remain potentially reportable if the exchanger is a legal entity or trust. When taking ownership of property in a 1031 Exchange, the qualified intermediary is acting on behalf of the exchanger for the limited purpose of effecting the exchange. In addition, the qualified intermediary may hold the property for only a limited 37 In a 1031 Exchange, real property held for productive use in a trade or business or held for investment is exchanged for other business or investment property that is the same type or kind; as a result, the person conducting the exchange is not required to realize taxable gain or loss as part of the exchange. To avoid the exchange being disqualified, a qualified intermediary may be used to ensure that the exchanger avoids taking premature control of the proceeds from the sale of the relinquished property or, in a reverse 1031 Exchange in which the replacement property is identified and purchased before the original property is relinquished, ownership of the replacement property. E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations period of time before it jeopardizes the transaction’s ability to qualify as a valid 1031 Exchange. Accordingly, FinCEN has determined that requiring the reporting of transfers made to a qualified intermediary would likely result in information that is of lower value to law enforcement. FinCEN considered whether to resolve commenter concerns around qualified intermediaries by relying, as one commenter suggested, on the rule’s definition of transferee entity, which adopts by reference the exception found in 31 CFR 1010.380(d)(3)(ii) for the reporting of individuals who are acting as a nominee, intermediary, custodian, or agent. Without noting whether such exception for nominees, intermediaries, custodians, or agents would appropriately apply in the context of qualified intermediaries, FinCEN believes that allowing the broader exception for 1031 Exchanges in this rule more clearly resolves commenter concerns. The final rule does not adopt the suggestions to exclude corrective conveyances and additional insured endorsements, as FinCEN believes such exceptions are not necessary. Corrective conveyances are used to correct title flaws, such as misspelled names, and are not used to create a new ownership interest in a property. As such, corrective conveyances do not involve a transfer of residential real property and are therefore not reportable. Similarly, additional insured endorsements are used to extend coverage of title insurance to an additional party identified by the policyholder and do not meet the rule’s definition of a reportable transfer of residential real property. The final rule also does not adopt the suggestion to exclude foreclosure sales, although FinCEN notes that foreclosure court proceedings wherein a lender obtains a judgment to foreclose on property would be excluded under the exception for transfers required by a court in the United States. Outside of such court-supervised foreclosure proceedings, FinCEN does not agree that potential reporting persons involved in sales of foreclosed property should be treated differently from other transfers, as such sales, where the property is sold to a third party, do not necessarily present a lower risk for money laundering. FinCEN also declines to implement the suggestion that the final rule collect information only on foreign transferee entities and trusts. Law enforcement investigations and FinCEN’s experience with the Residential Real Estate GTOs have repeatedly confirmed that non- VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 financed transfers of residential real estate to both foreign and domestic legal entities and trusts are high risk for money laundering. Furthermore, the rule does not adopt suggestions to include a dollar threshold for reporting. Low value non-financed transfers to legal entities and trusts, including gratuitous ones for no consideration, can present illicit finance risks and are therefore of interest to law enforcement. Although the Residential Real Estate GTOs have had an evolving dollar threshold over the course of the program, ranging from over $1 million to the current threshold of $300,000, FinCEN’s experience with administering the program and discussions with law enforcement shows that money laundering through real estate occurs at all price points. FinCEN believes that incorporation of a dollar threshold could move illicit activity into the lower priced market, which would be counter to the aims of the rule.38 Rather than specifically exclude all such transfers from being reported, the final rule includes additional exceptions, discussed here and in Section III.C.2.c, that FinCEN believes will focus the reporting requirement on higher-risk low-value transfers. d. Transferee Entities Proposed Rule. Proposed 31 CFR 1031.320(j)(10) provided that a ‘‘transferee entity’’ is any person other than a transferee trust or an individual and set out the exceptions from this definition for certain entities, including certain highly regulated entities and government authorities. The definition of transferee entity was meant to include, for example, a corporation, partnership, estate, association, or limited liability company. Among the exceptions FinCEN proposed was an exception for any legal entity whose ownership interests are controlled or wholly owned, directly or indirectly, by an exempt entity. Comments Received. Some commenters supported the proposed rule’s inclusion of transferee entities as defined in the proposed rule, with one transparency organization highlighting that pooled investment vehicles (PIVs) and non-profits are largely exempt from beneficial ownership information reporting requirements under the CTA, which increases their risks for money laundering. Final Rule. In 31 CFR 1031.320(n)(10), the final rule adopts the proposed 38 The current Residential Real Estate GTO threshold is $300,000 for all covered jurisdictions, except for in the City and County of Baltimore, where the threshold is $50,000. PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 70269 definition of ‘‘transferee entity’’ with technical edits to two specific exceptions from that definition. First, in 31 CFR 1031.320(n)(10)(O), FinCEN removed the unnecessary inclusion of the acronym ‘‘(SEC)’’ because the Securities and Exchange Commission is referred to only once in 31 CFR 1031.320. Second, FinCEN removed the term ‘‘ownership interests’’ from 31 CFR 1031.320(n)(10)(P), so that the regulation now excludes from the definition of a transferee entity a ‘‘legal entity controlled or wholly owned, directly or indirectly, by [an excepted legal entity].’’ FinCEN made this amendment to avoid potential confusion because the term ‘‘ownership interests’’ is specifically defined in the regulations at 31 CFR 1031.320(n)(6) and employed only in relation to residential real property. e. Transferee Trusts Proposed Rule. Proposed 31 CFR 1031.320(j)(11) defined ‘‘transferee trust’’ as any legal arrangement created when a person (generally known as a grantor or settlor) places assets under the control of a trustee for the benefit of one or more persons (each generally known as a beneficiary) or for a specified purpose, as well as any legal arrangement similar in structure or function to the above, whether formed under the laws of the United States or a foreign jurisdiction. The NPRM proposed several exceptions for certain types of trusts that FinCEN views as highly regulated—for instance, trusts that are securities reporting issuers and trusts that have a trustee that is a securities reporting issuer. Accordingly, such trusts were not covered by the proposed rule. Similarly, the proposed rule excluded statutory trusts from the definition of a transferee trust but, instead, proposed to capture statutory trusts within the definition of a transferee entity. Comments Received. Several commenters supported the general inclusion of trusts within the scope of the rule and provided examples of money laundering through real estate transfers to trusts. One transparency organization highlighted that trusts are not required to directly report beneficial ownership information under the CTA and are therefore a higher risk for money laundering. However, other commenters were not supportive of the inclusion of trusts, arguing that trusts are: complicated arrangements for which the paperwork would not be easily understood by reporting persons; used for probate avoidance; and inherently low risk. E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 70270 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations Several commenters suggested excluding living trusts. Three commenters suggested excluding transfers to irrevocable living trusts, arguing either that such trusts are low risk for money laundering or that such reporting is redundant with information received by the IRS. Some focused on revocable trusts, particularly those used for estate planning, arguing that they are subject to a lower risk of money laundering and that requiring reporting on such trusts would be burdensome given how commonly they are used. Other commenters suggested the exclusion of specialized types of trusts. Two suggested excluding transfers to a qualified personal residence trust and another suggested excluding transfers to an intentionally defective grantor trust, charitable remainder trust, any qualified terminal interest property trust benefitting the contributing homeowner, testamentary trust, third-party common law discretionary trust, a discretionary support trust, or a trust for the support of an incapacitated beneficiary, including supplemental or special needs trusts, arguing that these transfers generally do not involve property purchased in cash within the last year and are low risk for money laundering. Final Rule. In the final rule, FinCEN retains the requirement to report transfers to transferee trusts and, in 31 CFR 1031.320(n)(11), adopts the definition of ‘‘transferee trust’’ as proposed with one technical edit to make certain language consistent across similar provisions in the rule. As discussed in Section II.A.2, FinCEN continues to believe that non-financed residential real estate transfers to certain trusts present a high risk for money laundering. FinCEN also believes that the potential difficulties described by commenters, such as the need to review complex trust documents to determine whether a trust is reportable, will be minimized by the addition of new exceptions and by the reasonable reliance standard adopted in the final rule which is discussed in Section III.B.4. FinCEN considered comments suggesting that it adopt additional exceptions from the definition of a transferee trust for specific types of trusts. In particular, comments suggested exceptions for all living trusts, all revocable trusts, or all irrevocable trusts, as well as more specialized types of trusts such as qualified personal residence trusts or defective grantor trusts. FinCEN believes that the suggested exceptions would be overly broad and, as such, would exclude from reporting certain transfers that pose a high risk for illicit VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 finance. However, depending on the particular facts and circumstances of a trust arrangement, some of the aforementioned trusts may be covered under the more tailored exception for ‘‘no consideration transfers’’ to trusts described in Section III.C.2.c. We also note that certain trusts, such as testamentary trusts, are not captured by the reporting requirement, as such trusts are created by wills and therefore fall within the exception for transfers occurring as a result of death. 3. 31 CFR 1031.320(c) Determination of Reporting Person Proposed 31 CFR 1031.320(c) set forth a cascading reporting hierarchy to determine which person providing real estate closing and settlement services in the United States must file a report for a given reportable transfer. As an alternative, the persons described in the reporting cascade could enter into an agreement to designate a reporting person. a. Reporting Cascade Proposed Rule. Through the proposed reporting cascade, a real estate professional would be a reporting person required to file a report and keep records for a given transfer if the person performs a function described in the reporting cascade and no other person performs a function described higher in the reporting cascade. For example, if no person is involved in the transfer as described in the first tier of potential reporting persons, the reporting obligation would fall to the person involved in the transfer as described in the second tier of potential reporting persons, if any, and so on. The reporting cascade includes only persons engaged as a business in the provision of real estate closing and settlement services within the United States. The proposed reporting cascade was as follows: (1) the person listed as the closing or settlement agent on the closing or settlement statement for the transfer; (2) the person that prepares the closing or settlement statement for the transfer; (3) the person that files with the recordation office the deed or other instrument that transfers ownership of the residential real property; (4) the person that underwrites an owner’s title insurance policy for the transferee with respect to the transferred residential real property, such as a title insurance company; (5) the person that disburses in any form, including from an escrow account, trust account, or lawyers’ trust account, the greatest amount of funds in connection with the residential real property transfer; (6) the person that provides an evaluation of the status of PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 the title; and finally (7) the person that prepares the deed or, if no deed is involved, any other legal instrument that transfers ownership of the residential real property. Comments Received. Some commenters, including real estate agent associations and transparency organizations, supported the use of a reporting cascade, believing it to be functional and useful in preventing arbitrage, while one commenter specifically opposed it, arguing that the cascading approach would be burdensome. One industry group asked that FinCEN exclude banks and other financial institutions subject to AML/ CFT program requirements as reporting persons, arguing that such financial institutions are already subject to a higher standard of BSA compliance. Some commenters variously opposed the inclusion of settlement and closing agents, title agents, or escrow agents as reporting persons because they felt it threatened their status as neutral third parties with limited responsibilities when facilitating a transfer of residential real property. Other commenters expressed concern that certain professionals in the reporting cascade would be ill-equipped to report. Associations representing real estate agents agreed with the absence in the cascade of functions typically associated with real estate agents, while two escrow industry commenters proposed including real estate agents as reporting persons. One commenter suggested adding appraisers as reporting persons, arguing that required inclusion of appraisers would help to identify potential market distortion by illicit actors and that appraisers are otherwise well-equipped to be reporting persons. That commenter also suggested that FinCEN require appraisals be included in every non-financed transfer. One industry association urged FinCEN to exempt small businesses from reporting altogether. One commenter asked for a clear exclusion for homeowners associations, arguing that their burden would be high. A transparency organization and an industry commenter suggested that FinCEN explicitly prohibit transferees, transferors, and their owners from being reporting persons. Some commenters argued that certain functions described in the proposed reporting cascade should be moved further up in the cascade to ensure parties with what they viewed as the best access to information are the firstline reporters. One commenter suggested that 31 CFR 1031.320(c)(1)(iii) be modified to include the person who prepares a stock certificate or a E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations proprietary lease to better cover potential reporting persons closing transfers of cooperative units, and another requested clarity as to who files deeds with the recording office. Two commenters noted that the reporting cascade may result in more than one reporting person in split settlements, in which the buyer and seller use separate settlement agents. One of those commenters also suggested that certain scenarios could result in the identification of multiple reporting persons, such as when transfers are closed by independent escrow companies but also involve title insurance or when an attorney performs the document preparation, document signing, and disbursement of funds in a transfer that also involves title insurance. Finally, one commenter noted that, in some locations, it is possible for title insurance to be issued several months after closing. Final Rule. FinCEN adopts the reporting cascade largely as proposed. The reporting cascade is designed to efficiently capture both sale and nonsale transfers, and FinCEN notes that the real estate industry already uses a similar reporting cascade to comply with requirements associated with IRS Form 1099–S.39 As set forth at 31 CFR 101.320(c)(3), FinCEN adopts the suggestion made by one commenter to exclude from the definition of a reporting person financial institutions with an obligation to maintain an AML program. Where a financial institution would have otherwise been a reporting person, the reporting obligation falls to the next available person described in the reporting cascade. The intent of this rulemaking is to address money laundering vulnerabilities in the U.S. real estate market, recognizing that most persons involved in real estate closings and settlements are not subject to AML program requirements. FinCEN considered imposing comprehensive AML obligations on such unregulated persons, but ultimately decided, as reflected in the final rule, to impose the narrower obligation of a streamlined SAR filing requirement. Financial institutions that already have an obligation to maintain AML programs, however, generally already have a SAR filing requirement that is more expansive than the streamlined reporting requirement adopted by this final rule. Therefore, FinCEN believes that it would not be appropriate at this time to add a streamlined reporting 39 See 29 CFR 1.6045–4 (Information reporting on real estate transactions with dates of closing on or after January 1, 1991). VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 requirement to the existing obligations of a financial institution with an obligation to maintain an AML program. FinCEN also believes that the removal of financial institutions from the cascade of reporting persons will generally result in real estate reports simply being filed by others in the reporting cascade, not in those reports remaining unfiled. FinCEN is not persuaded by commenters suggesting that other types of professionals should be added to or excluded from the cascade. Excluding categories of real estate professionals that execute functions listed in the reporting cascade based on their professional title or business size would result in a significant reporting loophole that illicit actors would exploit. FinCEN believes it is also unnecessary for the effectiveness of the reporting cascade to include additional functions, such as the provision of appraisal services or services that real estate agents typically provide to buyers and sellers. FinCEN believes that the reporting cascade, as adopted, will effectively capture high risk non-financed transfers of residential real estate and any additional functions would unnecessarily increase the complexity of the rule. Furthermore, real estate agents and appraisers usually perform their primary functions in advance of the actual closing or settlement and therefore generally do not perform a central role in the actual closing or settlement process, unlike real estate professionals performing the functions described in the reporting cascade. FinCEN believes that focusing the reporting cascade on functions more central to the actual closing or settlement is necessary to ensure the reporting person has adequate access to reportable information. Regarding homeowners associations, FinCEN believes that is not necessary to explicitly exempt them the definition of a reporting person because they do not traditionally play the roles enumerated in the reporting cascade. FinCEN is also not persuaded by commenters’ suggestion that the reporting obligation would affect or decrease the neutral position of settlement agents and escrow agents. These real estate professionals are ‘‘neutral’’ in that they have similar obligations to both the transferee and transferor and are therefore seen as an independent party acting only to facilitate the transfer, as opposed to a party acting primarily to advance the interests of just one of the parties to the transfer. The reporting obligation does not upset the balance between service to the transferee and transferor. It merely requires the professional to report PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 70271 additional information about the transfer. FinCEN confirms that transferees, transferors, and their beneficial owners cannot be reporting persons unless they are engaged within the United States as a business in the provision of a real estate closing and settlement service listed in the reporting cascade, but declines to explicitly prohibit transferees, transferors, and their beneficial owners from being reporting persons when they do play these roles, as it would create an exploitable loophole in the reporting cascade, if such persons were the only real estate professionals involved in the transfer. The final rule adopts clarifications proposed by commenters with respect to cooperatives. For cooperatives, the stock certificate is akin to a deed prepared for other types of residential real estate, and therefore FinCEN believes that it is appropriate to include these types of functions in the reporting cascade. However, FinCEN declines to modify the language for the person that files with the recordation office the deed or other instrument that transfers ownership of the residential real property, as requested by one commenter. FinCEN believes the proposed language clearly captures a person engaged as a business in the provision of real estate closing and settlement services that files the deed with the recordation officer. It would not include the individual clerk at the office who accepts the deed or other instrument. In regard to concerns raised by a commenter about split settlements, the definition of ‘‘closing or settlement statement’’ found in 31 CFR 1031.320(n)(2) is modified in the final rule to make clarify that the closing or settlement statement is limited to the statement prepared for the transferee only. FinCEN does not agree that the other situations described by the commenter would result in multiple reporting persons being identified, given the inherent nature of the reporting cascade wherein the reporting responsibility flows down the cascade depending on the presence of a person performing each listed function. The final rule does not adopt any changes to account specifically for title insurance purchased a significant period of time after a transfer of property. In those situations, FinCEN expects that the underwriting of title insurance would not be part of the closing or settlement process, and therefore another person in the reporting cascade would file the report. However, in the rare situation where there is no other person in the reporting E:\FR\FM\29AUR2.SGM 29AUR2 70272 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 cascade participating in the closing or settlement of a reportable transfer, the underwriter of title insurance may ultimately be required to file the report when the insurance is eventually purchased. b. Designation Agreements Proposed Rule. Proposed 31 CFR 1031.320(c)(3) set forth the option for persons in the reporting cascade to enter into an agreement deciding which person should be the reporting person with respect to the reportable transfer. For example, if a real estate professional involved in the transfer provides certain settlement services in the settlement process, as described in the first tier of the reporting cascade, that person may enter into a written designation agreement with a title insurance company underwriting the transfer as described in the second tier of the reporting cascade, through which the two parties agree that the title insurance company would be the designated reporting person with respect to that transfer. The person who would otherwise be the reporting person must be a party to the agreement; however, it is not necessary that all persons involved in the transfer who are described in the reporting cascade be parties to the agreement. The agreement must be in writing and contain specified information, with a separate agreement required for each reportable transfer. Comments Received. Two business associations requested that the rule allow for what they described as ‘‘blanket’’ designation agreements. Such agreements would allow two or more persons described in the reporting cascade to designate a potential reporting person for a set period of time or a set number of transfers. For example, a commenter put forward the example of a title insurance company and a settlement company entering into an agreement wherein, for any transfer in which they are both involved, the title insurance company would be the designated reporting person. One of these commenters stated that blanket designation agreements would bring a type of certainty that is required for them to benefit from the costs savings provided by designation agreements. A third business association argued that designation agreements will not be effective, resulting in settlement companies being the primary reporting person. A fourth business association asked whether a third-party vendor could be a designated reporting person. Final Rule. In the final rule, FinCEN adopts the allowance for designation agreements in 31 CFR 1031.320(c)(4) as proposed. Although FinCEN sees the VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 potential benefits of blanket designation agreements, such agreements would undermine FinCEN’s ability to enforce the rule, particularly when a Real Estate Report is not filed as required, and accordingly the final rule does not permit a blanket designation agreement in lieu of a separate designation agreement for each relevant transfer. A single transfer could be subject to multiple, potentially overlapping, blanket designation agreements between different parties. In such a situation, it would be difficult for FinCEN to determine which person had ultimate responsibility for filing the report, and even the persons described in the reporting cascade may not know who had filing responsibility. By comparison, a separate designation agreement for each transfer, describing the specific details of the transfer, makes that determination straightforward. The designation agreement is designed to provide an optional alternative to the reporting cascade that can be effectively and efficiently implemented by reporting persons if they choose. However, nothing in the final rule prohibits persons in the reporting cascade from having an understanding, in writing or otherwise, as to how they generally intend to comply with the rule, provided that they continue to effect designation agreements for applicable transfers. The final rule also does not allow for third-party vendors who are not described in the reporting cascade to be designated as a reporting person, as such vendors are not financial institutions that can be regulated by FinCEN; a reporting person could outsource the preparation of the form to a third-party vendor, but the ultimate responsibility for the completion and filing of the report would lie with the reporting person. 4. 31 CFR 1031.320(d) Information Concerning the Reporting Person Proposed Rule. Proposed 31 CFR 1031.320(d) set forth a requirement that reporting persons must report their full legal name and the category into which they fall in the reporting cascade, as well as the street address of their principal place of business in the United States. Comments Received. FinCEN did not receive any comments on reportable information concerning the reporting person. Final Rule. FinCEN is adopting 31 CFR 1031.320(d) as proposed. PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 5. 31 CFR 1031.320(e) Information Concerning the Transferee a. General Information Concerning Transferee Entities Proposed Rule. Proposed 31 CFR 1031.320(e)(1) set forth a requirement for the reporting of the name, address, and unique identifying number of a transferee entity, as well as similar identifying information for the beneficial owners of the transferee entity and the persons signing documents on behalf of the transferee entity. Comments Received. One organization requested that the final rule collect legal entity identifiers (LEIs) for transferee entities. As described by the commenter, the LEI was developed by the International Organization for Standards and is ‘‘the only global standard for legal entity identification.’’ Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(e)(1) as proposed. It does not incorporate the suggestion to require reporting of LEIs. For purpose of this reporting requirement, FinCEN believes that a TIN is preferable, as it is broadly utilized by law enforcement and may be easily connected to other BSA documents. b. General Information Concerning Transferee Trusts Proposed Rule. Proposed 31 CFR 1031.320(e)(2) set forth a requirement to report certain information about transferee trusts, including the name of the trust, the date the trust instrument was executed, the address of the place of administration, a unique identifying number, and whether the trust is revocable. Proposed 31 CFR 1031.320(e)(2) also required the reporting of information about each trustee that is an entity, including full legal name, trade name, current address, the name and address of the trust officer, and a unique identifying number. Furthermore, proposed 31 CFR 1031.320(e)(2) required the reporting of identifying information about the trust’s beneficial owners and the individuals signing documents on behalf of the trust. Comments Received. Two industry organizations and two other commenters associated with the title insurance industry argued that information reportable for trusts should align with that on trust certificates issued under State law. As described by one industry organization, ‘‘[u]nder the Uniform Trust Act promulgated by the Uniform Law Commission and enacted in 35 states, a trustee is authorized to issue a certification of trust containing much of the information sought under E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations this proposed rule.’’ Another commenter requested that the beneficial ownership information collected under this rule align more closely with that collected under the BOI Reporting Rule. One other commenter, a non-profit organization, requested that the final rule collect legal entity identifiers (LEIs) for transferee trusts, for the reason discussed in Section III.C.5.a above with respect to legal entities. Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(e)(2) largely as proposed. FinCEN is persuaded by the recommendation to align information collected about trust transferees more closely with what is available on trust certificates. While they vary by state, trust certificates generally contain much of a trust’s basic identifying information, such as the name of the trust, the date the trust was entered into, the name and address of the trustee, and whether the trust is revocable. The final rule eliminates the proposal to report information identifying the trust officer or the address that is the trust’s place of administration, as this information is not commonly found on trust certificates and FinCEN believes other information collected will be sufficient to support law enforcement investigations. However, reporting persons are still required to report some information that may not be available on trust certificates, such as the identifying information for the trustee, as this is basic information necessary to conclusively identify the trust and to effectively conduct investigations into illicit activity. FinCEN believes this information will be readily collected by reporting persons; for example, because trustees generally manage the assets of the trust, the trustee will likely be directly involved in the transfer of residential real property to the trust. The final rule does not adopt the suggestion to completely align the collection of beneficial ownership information with that collected under the BOI Reporting Rule. While the two rules do align in the collection of the beneficial owner’s name, date of birth, and address, they differ in two key respects: first, regarding the unique identifying number, the real estate rule relies largely on TINs instead of passport numbers; and second, the real estate rule collects citizenship information, while the BOI Reporting Rule does not. As discussed in Section III.B.6, TINs are a key piece of identifying information for purposes of the database that would hold Real Estate Reports, and other BSA reports typically require TINs for this reason. Furthermore, FinCEN believes that the collection of citizenship information is VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 necessary in this context to better analyze the volume of illicit funds entering the United States via entities or trusts beneficially owned by non-U.S. persons and is a key element for ensuring that the implementation of this rule will enhance and protect U.S. national security. FinCEN notes that such citizenship information, along with TINs, are reported on traditional SARs. Finally, the rule does not incorporate the suggestion to require reporting of LEIs, for the reasons discussed in Section III.C.2.d with respect to information collected for transferee entities. c. Beneficial Ownership Information of Transferee Entities and Trusts Proposed Rule. Proposed 31 CFR 1031.320(e) set forth requirements to report certain beneficial ownership information with respect to transferee entities and transferee trusts. Proposed 31 CFR 1031.320(j)(1)(i) largely defined beneficial owners of transferee entities through a reference to regulations in the BOI Reporting Rule, specifically 31 CFR 1010.380(d). Similarly, proposed 31 CFR 1031.320(j)(1)(ii) established a definition for the beneficial owners of transferee trusts by leveraging concepts from the BOI Reporting Rule. For both transferee entities and transferee trusts, the proposed regulation set forth that the determination of beneficial ownership would be as of the date of closing. The proposed rule did not require reporting persons to determine whether an individual was a beneficial owner, allowing them instead to use a certification form described in 31 CFR 1031.320(e)(3) to collect beneficial ownership information directly from a transferee trust or a person representing a trust in the reportable transfer, as discussed further in Section III.B.4. Comments Received. Three commenters expressed support for the collection of beneficial ownership information on the Real Estate Report, with one transparency organization specifically supporting the proposed rule’s adoption of definitions from the BOI Reporting Rule. This commenter noted that the proposal would minimize confusion, promote consistency, and maximize the ability to cross-reference data. Multiple commenters, however, argued that the collection of beneficial ownership information under the proposed rule is unnecessary due to the collection of similar information under the BOI Reporting Rule. Some of these commenters also argued that, if beneficial ownership information is collected, it should be limited to the reporting of a FinCEN Identifier, which is an identification number that PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 70273 reporting entities and their beneficial owners may use to report beneficial ownership information under the BOI Reporting Rule. An industry group representing trust and estate lawyers argued that the definition of a beneficial owner of a transferee trust should be limited to trustees, rather than also including grantors/settlors and beneficiaries. One commenter requested that the final rule retain the exception from beneficial ownership information reporting found in 31 CFR 1010.380(d)(3)(ii) for nominees, intermediaries, custodians, and agents, while two other commenters requested that the rule should except reporting where a beneficial owner is a minor. Final Rule. The final rule retains the requirement to provide beneficial ownership information in the report, as proposed, with one technical edit to correct a cross reference. FinCEN agrees that the Real Estate Report will contain some information that is also reported under the BOI Reporting Rule. However, because these two distinct reports would be filed on different facets of a single legal entity’s activities, FinCEN believes it is appropriate for some of the same information to be reported on both forms. As FinCEN explained in the NPRM, the beneficial ownership information report (BOIR) and the report required by this rule serve different purposes. The information reported on a BOIR informs FinCEN about the reporting companies that have been formed or registered in the United States, while Real Estate Reports will inform FinCEN about the legal entities, some of which may be ‘‘reporting companies’’ within the meaning of the BOI Reporting Rule, that have participated in reportable real estate transfers that Treasury believes to be at high risk for money laundering. Real Estate Reports, by including beneficial ownership information and real estate transfer information in a single report, will enable law enforcement to investigate potential criminal activity in a timely and efficient manner, and will allow Treasury and law enforcement to connect money laundering through real estate with other types of illicit activities and to conduct broad money laundering trend analyses. BOIRs are kept secure but are intended to be made available not only to government agencies but to financial institutions for certain compliance purposes. Real Estate Reports will be subject to all of the protections and limitations on access and use that already apply to SARs. E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 70274 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations The need for two different types of report, of course, does not mean that FinCEN is not concerned about eliminating unnecessary duplication of effort. FinCEN appreciates the suggestion that reporting persons be allowed to submit FinCEN Identifiers in lieu of collecting and submitting beneficial ownership information for legal entities that are considered reporting companies under the BOI Reporting Rule. However, FinCEN has identified a number of legal and operational limitations that would prevent FinCEN from accepting FinCEN identifiers outside of the CTA context.40 For instance, information provided to FinCEN under the CTA, including the information provided in order to obtain FinCEN identifiers, is housed in an information technology system kept separate from other Bank Secrecy Act reports. The CTA imposes strict limits on access to that system, and those statutory limits are reflected in implementing regulations and the relevant Privacy Act System of Records Notice.41 There is no reason to think that persons entitled to access to CTA information will routinely also be entitled to access to SARs and other BSA reports, or vice versa. Thus, at this time, allowing FinCEN identifiers to be reported in lieu of the underlying information would limit the usefulness of Real Estate Reports to law enforcement. As discussed in Section II.A.2 in the context of cross-referencing data from Residential Real Estate GTOs with SARs, the ability to link nonfinanced transfers of residential real property with other BSA reports is of significant value to law enforcement. Thus, FinCEN has not adopted this suggestion in the final rule. With regard to the comments suggesting a more limited definition of a beneficial owner, FinCEN does not adopt the suggestion that beneficial owners of trusts be limited to trustees. The final rule instead adopts the approach in the proposed rule, which set forth several positions in a transferee trust that FinCEN considers to be occupied by the beneficial owners of the trust, including: the trustee; an individual other than a trustee with the authority to dispose of transferee trust assets; a beneficiary that is the sole permissible recipient of income and principal from the transferee trust or that has the right to demand a distribution of, or withdraw, 40 See FinCEN, ‘‘Beneficial Ownership Information Access and Safeguards,’’ 88 FR 88732 (Dec. 22, 2023). 41 FinCEN, ‘‘Notice of a New System of Records,’’ 88 FR 62889 (Sept. 13, 2023). VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 substantially all of the assets from the transferee trust; a grantor or settlor who has the right to revoke the transferee trust or otherwise withdraw the assets of the transferee trust; and the beneficial owner(s) of any legal entity that holds at least one of these positions. The persons holding these positions have clear ownership or control over trust assets and therefore should be reported as beneficial owners of the trust. For legal entities, 31 CFR 1031.320(n)(1)(i) continues to reference 31 CFR 1010.380(d) and therefore the final rule incorporates exceptions from the definition of beneficial owner of a reporting company; these exceptions include nominees, intermediaries, custodians, and agents, as well as minor children (when certain other information is reported). For transferee trusts, the definition of beneficial owner in 31 CFR 1031.320(n)(1)(ii) does not contain exceptions mirroring those found in the definition of a beneficial owner of a transferee entity. FinCEN considered adding an exception for minor children as suggested by commenters but believes at this time that such an exception is not appropriate for trusts. Trusts, unlike legal entities, are largely designed to transfer assets to family members such as minor children, and therefore the reporting of minor children will accurately reflect the nature of the trust and, in aggregate, will allow FinCEN to more accurately determine the risks related to trusts. FinCEN notes, however, that the definition of beneficial owner is unlikely to result in significant reporting of minor children, as minor children would fall into only one category of beneficial owner—as the beneficiary of the transferee trust, and only when the minor child is the beneficiary who is the sole permissible recipient of income and principal from the transferee trust. 6. 31 CFR 1031.320(f) Information Concerning the Transferor Proposed Rule. Proposed 31 CFR 1031.320(f) required the reporting person to report information relevant to identifying the transferor, such as the transferor’s name, address, and identifying number. If the transferor is a trust, similar information would be reported identifying the trustee. Comments Received. One think tank supported the collection of information on transferors, while three industry organizations opposed it, arguing that such information is unnecessary for law enforcement and is redundant with other information available to law enforcement through public land PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 records, BOI reports filed under the CTA, or IRS Form 1099–S. Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(f) as proposed. Information identifying the transferor is necessary to identify certain money laundering typologies, such as where the transferor and transferee are related parties mispricing the real estate in order to transfer value from one to the other. There is therefore a significant benefit to having the transferor’s information on the same report as the transferee’s information. The transferor’s information is basic information about the transferor and does not include information that may be more difficult to gather, such as beneficial ownership information. There is a significant value in adding transferor information in the same report as transferee information and in the same database as information from other BSA reports. FinCEN has addressed the suggestion that similar information is available through reports filed under the BOI Reporting Rule or IRS Form 1099–S in Section III.B.2. 7. 31 CFR 1031.320(g) Information Concerning the Residential Real Property Proposed Rule. Proposed 1031.320(g) required the reporting person to report the street address, if any, and the legal description (such as the section, lot, and block) of each residential real property that is the subject of a reportable transfer. Comments Received. FinCEN did not receive any comments related to the reporting of information concerning residential real property. Final Rule. FinCEN adopts 31 CFR 1031.320(g) with technical edits that are meant to lay out the requirements more clearly, and a modification to the text to require the reporting of the date of closing. The NPRM requested comments as to whether the proposed information reported regarding the description of the transferred residential real property was sufficient. Although FinCEN received no comments regarding the reporting of date of closing, FinCEN has subsequently determined that such information is necessary for it to confirm whether reporting persons are complying with the final rule. The term ‘‘date of closing’’ was defined in the NPRM (and is adopted in the final rule) to mean the date on which the transferee entity or transferee trust receives an ownership interest in the residential real property. As proposed in the NPRM and adopted in the final rule, reporting persons have to ascertain the date of closing to make key determinations, such as the filing E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 deadline, discussed in Section III.C.11, and whether an individual is a beneficial owner, discussed in Section III.C.5.c. Because the date of closing is information that a reporting person must obtain to comply with the final rule and, relatedly, is information FinCEN also must receive to enforce compliance with the rule, the reporting of such information is a logical outgrowth of the NPRM. The parties to the transfer will know the date of closing and be able to report that date easily on the Real Estate Report. 8. 31 CFR 1031.320(h) Information Concerning Payments Proposed Rule. Proposed 31 CFR 1031.320(h) set forth a requirement that reporting persons report detailed information about the consideration, if any, paid in relation to any reportable transfer. This would include total consideration paid for the property, the amount of each separate payment made by or on behalf of the transferee entity or transferee trust, the method of such payment, the name of and account number with the financial institution originating the payment, and the name of the payor. Comments Received. Several commenters argued that reporting persons would not have ready access to the proposed information to be collected about payments. An industry group, for example, stated that state-level ‘‘good funds’’ laws limit settlement agents to accepting fully and irrevocably settled and collected funds, meaning typically wire payments and cashier’s checks, which would not contain information such as the originator’s full account number. A business clarified that, for wire payments, a settlement company would only see: the date on which the wire transfer was received; the amount of the wire transfer; the name on the originator’s account; the routing number for the sending bank; the name of the bank used by the beneficiary; the beneficiary’s account number; the beneficiary’s name and address; and wire information providing a reference number relevant to escrow. Some commenters also argued that the originating financial institution would be unlikely to provide the relevant information; that the person holding the originating account, such as an escrow company or attorney, would similarly be unlikely to provide the relevant information; or that transferees may refuse to provide information, believing the reporting of account numbers would put them at risk. To remedy these issues, commenters argued that payment information should instead be limited to either the total VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 consideration or to the information readily available on wire instructions or a check. Some commenters suggested eliminating the reporting of payment information entirely, questioning the usefulness of reporting such information given that covered financial institutions are likely involved in the processing of such payments and that the reporting person may be separately required to report payment information on a Form 8300, and also raising concerns about the potential increased risk of fraud if detailed account information is required to be reported. Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(h) largely as proposed, with edits to clarify the reporting of the total consideration paid. FinCEN acknowledges that the information required may be beyond what is normally available to the reporting person, but nevertheless believes that the information can be readily collected from the transferee. FinCEN expects that the adoption of the reasonable reliance standard in this rule will help relieve concerns articulated by commenters about the burden of verifying payment information or their ability to collect such information. FinCEN also notes that filers of IRS Form 1099–S must report the account numbers of transferors and therefore believes these to be accessible to reporting persons, many of whom file such forms. FinCEN appreciates commenters’ concerns about potential risks associated with collecting and retaining detailed payment information in relation to reportable transfers and believes that the removal of the requirement to retain Real Estate Reports, in which personal information would be aggregated, for five years, as discussed in Section III.C.12, will help mitigate this risk. 9. 31 CFR 1031.320(i) Information Concerning Hard Money, Private, and Similar Loans Proposed Rule. Proposed 31 CFR 1031.320(i) set forth the requirement that reporting persons report whether the transfer involved an extension of credit from any institution or individual that does not have AML program obligations. Comments Received. FinCEN did not receive any comments about the reporting of information concerning hard money, private, and similar loans. Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(i) as proposed. FinCEN believes this information will be valuable to understanding the risks presented by private lenders. FinCEN notes that, as discussed in Section PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 70275 III.C.2.b covering the definition of a non-financed transfer, reporting persons may rely on information from the lender as to whether the lender has an AML program obligation. 10. 31 CFR 1031.320(j) Reasonable Reliance The final rule adopts a reasonable reliance standard, set forth in 31 CFR 1031.320(j), that generally allows reporting persons, whether when reporting information required by the final rule or when necessary to make a determination to comply with the rule, to reasonably rely on information provided by other persons. This change from the proposed rule is explained in detail in Section III.B.4. 11. 31 CFR 1031.320(k) Filing Procedures Proposed Rule. Proposed 31 CFR 1031.320(k) set forth a requirement that reporting persons file a Real Estate Report with FinCEN no later than 30 calendar days after the date of a given closing. Comments Received. One transparency organization supported the 30-day filing period, arguing that 30 days is both reasonable and necessary to ensure that current and useful information is available to law enforcement soon after a reportable transfer takes place. Two other commenters, however, argued that a 30day window would be too short a timeframe in which to gather the required information and that it would be burdensome to monitor differing filing dates for each reportable transfer. As an alternative, these commenters proposed an annual filing deadline, akin to IRS Form 1099–S, with another suggesting that a quarterly filing deadline would also be an improvement. Final Rule. In the final rule, FinCEN adopts, in 31 CFR 1031.320(k)(3), a reporting deadline of the final day of the following month after which a closing took place, or 30 days after the date of the closing, whichever is later. FinCEN believes that this approach will reduce date tracking burdens for industry and may further reduce the logistical burden of compliance by providing a longer period of time in which to gather the reportable information, while still providing timely information to law enforcement. FinCEN recognizes that Real Estate Reports are unique when compared with other BSA reports and therefore necessitate a unique reporting deadline. Real Estate Reports require more information than forms such as a CTR or Form 8300—both required to be filed within 15 days of a transaction— E:\FR\FM\29AUR2.SGM 29AUR2 70276 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 and the information may need to be gathered from a variety of sources, and not just from the single individual conducting the transaction. Relatedly, traditional SARs, which must be filed within 30 days after suspicious activity is detected, also frequently rely on information known to the filer and, critically, are filed by financial institutions required to have AML programs. FinCEN believes the final filing date will benefit both reporting persons and law enforcement by ensuring reporting persons have sufficient time to gather information, resulting in more complete and accurate reports. FinCEN believes that a filing period longer than adopted here would adversely impact the utility of the reports for law enforcement and that the extended filing period adopted in this final rule strikes the appropriate balance between accommodating commenters’ concerns and ensuring timely reporting of transfers, particularly given other modifications and clarifications in this rule. In particular, FinCEN believes that the adoption of the reasonable reliance standard will significantly reduce the time needed to file the form compared to verifying the accuracy of each piece of information. FinCEN therefore declines to adopt the longer quarterly or annual suggested filing periods. The final rule deletes as unnecessary the reference in proposed 31 CFR 1031.320(k) to the collection and maintenance of supporting documentation. In contrast with a traditional SAR requirement, the requirement to file a Real Estate Report does not require the reporting person to maintain records documenting the reasons for filing, and therefore there is no need to consider such documentation to have been deemed filed with the Real Estate Report, or to reference such documentation when discussing what a reporting person should file. 12. 31 CFR 1031.320(l) Retention of Records Proposed Rule. Proposed 31 CFR 1031.320(l) set forth a requirement that reporting persons maintain a copy of any Real Estate Report filed and a copy of any beneficial ownership certification form provided to them for five years. It also proposed that all parties to any designation agreement maintain a copy of the agreement for five years. Comments Received. Several commenters stated that retaining records for five years represents an ongoing data storage cost and increases concerns about data security. Two commenters expressed concern that VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 collecting and retaining the information that reporting persons would need to FinCEN to report would run counter to the principles that underly certain State laws that the comments stated were designed to protect data privacy. One commenter argued that there were Fourth Amendment implications for the records retention requirement, which they viewed as requiring businesses to maintain records and produce them to law enforcement on demand. However, a transparency organization supported the proposed five-year recordkeeping requirement, noting also that FinCEN would need access to the designation agreement to determine who had responsibility for filing the report in a particular transfer. Final Rule. The final rule retains the requirement that certain records be kept for five years but limits the requirement to a copy of any beneficial ownership certification form that was provided to the reporting person, as well as a copy of any designation agreement. As amended, the rule does not require reporting persons to retain a copy of a Real Estate Report that was submitted to FinCEN. FinCEN believes that eliminating the requirement to retain a Real Estate Report may reduce concerns related to data security and to costs associated with the retention of records. FinCEN also notes, more generally, that the BSA reporting framework has long been held to be consistent with the Fourth Amendment of the U.S. Constitution.42 While FinCEN considered eliminating the record retention requirement in its entirety, it believes that it is necessary to the enforceability of the rule that reporting persons retain copies of documents that will not be filed with FinCEN—namely, a copy of any beneficial ownership information certification form and any designation agreement to which a reporting person is a party. Furthermore, FinCEN has retained the requirement in the proposed rule that all parties to a designation agreement—not just the reporting person—must retain a copy of such designation agreement, also to ensure enforceability of the rule. As previously stated, records that are required to be retained must be maintained for a period of five years. 13. 31 CFR 1031.320(m) Exemptions Proposed Rule. Proposed 31 CFR 1031.320(m)(1) exempted reporting persons, and any director, officer, employee, or agent of such persons, and Federal, State, local or Tribal government authorities, from the 42 U.S. PO 00000 v. Miller, 425 U.S. 435 (1976). Frm 00020 Fmt 4701 Sfmt 4700 confidentiality provision in 31 U.S.C. 5318(g)(2) that prohibits the disclosure to any person involved in a suspicious transaction that the transaction has been reported or any information that would otherwise reveal that the transaction has been reported. Proposed 31 CFR 1031.320(m)(2) confirmed that the exemption from the requirement to establish an AML program, in accordance with 31 CFR 1010.205(b)(1)(v), would continue to apply to those businesses that may be reporting persons under the final rule. It also stated that no such exemption applies for a financial institution that is otherwise required to establish an antimoney laundering program, as provided in 31 CFR 1010.205(c). Comments Received. FinCEN received one comment by 25 Attorneys General that supported the exemption of Federal, State, local, or Tribal government authorities from the confidentiality provision. Additionally, one industry association supported the proposed rule’s exemption for reporting persons from establishing an AML program. Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(m) largely as proposed, with one minor deletion for consistency. As in the NPRM, FinCEN recognizes that the confidentiality provision in 31 U.S.C. 5318(g)(2) applying to financial institutions that file SARs is not feasible with the Real Estate Report, as reporting persons needs to collect information directly from the subjects of the Report, thus revealing its existence. Moreover, all parties to a non-financed residential real estate transfer subject to this rule would already be aware that a report would be filed, given such filing is nondiscretionary, rendering confidentiality unnecessary. The final rule maintains the exemption from the requirement for reporting persons to establish an AML program. However, given the change discussed earlier explicitly excluding financial institutions with AML program obligations from the definition of a reporting person, the sentence referring to such financial institutions has been deleted. 14. 31 CFR 1031.320(n) Definitions Proposed Rule. The proposed rule set forth several definitions in 31 CFR 1031.320(j) for key concepts, such as ‘‘transferee entity,’’ ‘‘transferee trust,’’ and the beneficial owners of these aforementioned entities. Comments Received. FinCEN received comments related to the definition of ‘‘Beneficial owner,’’ discussed above in Section III.C.5.c; ‘‘Residential real property,’’ discussed above in Section E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 III.C.2.a; ‘‘Transferee entity,’’ discussed above in Section III.C.2.d; and ‘‘Transferee trust,’’ discussed above in Section III.C.2.e. FinCEN did not receive comments on other proposed definitions. Final Rule. For clarity, in the final rule, FinCEN moves the paragraph containing definitions to the end of the regulations, so that they appear at 31 CFR 1031.320(n). In addition to modifications and clarifications discussed in the sections referenced above, the rule adopts the following modifications: • The definition of ‘‘closing or settlement statement’’ is limited to the statement prepared for the transferee, as discussed in Section III.C.3.a; • The rule adds a definition for ‘‘Nonfinanced transfer’’ for clarity, as discussed in Section III.C.2.b; • The rule is meant to be applied nationwide, and therefore the definition of ‘‘Recordation office’’ is modified to make clear that the recordation office may be located in a territory or possession of the United States, and is not limited to State, local, or Tribal offices for the recording of reportable transfers as a matter of public record. As a result, a person may be a reporting person if they file a deed or other instrument that transfers ownership of the residential real property with a recordation office located in any state, local jurisdiction, territory of possession of the United States, or Tribe; • For clarity, the term ‘‘Residential real property’’ is removed from the list of definitions found in 31 CFR 1031.320(n) and is instead defined in 31 CFR 1031.320(b). The remaining definitions are adopted as proposed. IV. Effective Date Proposed Rule. The NPRM proposed that the final rule would be effective one year after the final rule is published in the Federal Register. Comments Received. Several industry commenters agreed that a one-year delayed effective date is necessary to implement the requirements, with some indicating that one year, at a minimum, would be feasible. One commenter suggested that the final rule be implemented in phases to allow industry time to adapt to the regulation. Final Rule. The final rule provides for an effective date of December 1, 2025, at which point reporting persons will be required to comply with all of the rule’s requirements, chief among them the requirement to file Real Estate Reports with FinCEN. FinCEN believes that this effective date, which delays the effective date by slightly more than the one-year VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 that industry commenters generally supported at a minimum, will provide additional opportunity for potential reporting persons to understand the requirements of the rule and put appropriate compliance measures into place. Furthermore, this effective date will provide FinCEN with the additional time necessary to issue the Real Estate Report, including the completion of any process required by the Paperwork Reduction Act (PRA). However, FinCEN declines to adopt a phased approach to implementation of the rule, such as by initially limiting the reporting obligation to persons performing a limited number of functions described in the reporting cascade or phasing-in the rule geographically. FinCEN believes a phased approach would likely create unneeded complexity for industry, as industry would need to adapt processes and procedures multiple times over the implementation period. A phased implementation would also undermine the effectiveness of the rule for an extended period of time. The rule is intended to provide comprehensive reporting for a subset of high-risk residential real estate transfers; phased implementation may enable avoidance of reporting requirements by illicit actors, replicating some of the issues FinCEN has encountered under the Residential Real Estate GTOs. V. Severability If any of the provisions of this rule, or the application thereof to any person or circumstance, is held to be invalid, such invalidity shall not affect other provisions or application of such provisions to other persons or circumstances that can be given effect without the invalid provision or application. Indeed, the provisions of this rule can function sensibly if any specific provision or application is invalidated, enjoined or stayed. For example, if a court were to hold as invalid the application of the rule with respect to any category of potential reporting persons, FinCEN would preserve the reporting cascade approach for all other persons that perform the functions set out in the cascade. In such an instance, the provisions of the rule should remain in effect, as those provisions could function sensibly with respect to other potential reporting persons. Likewise, if a court were to hold invalid the application of the rule to any category of residential real property, as defined, the other categories should still remain covered. Because these categories operate independently from each other, the remainder of the rule’s provisions PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 70277 could continue to function sensibly: a reportable transfer would continue to be a non-financed transfer of any ownership interest in the remaining categories of residential real property when transferred to a transferee entity or transferee trust. Similarly, with respect to transferee entities and transferee trusts, if a court were to enjoin FinCEN from enforcing the rule’s reporting requirements as applied to, for example, transferee trusts, the reporting of transfers to transferee entities should continue because the two types of transferees are separate and distinct from one another. Thus, even if the transferee trust provisions were severed from the rule, the remaining portions of the rule could still function sensibly. In sum, in the event that any of the provisions of this rule, or the application thereof to any person or circumstance, is held to be invalid, FinCEN has crafted this rule with the intention to preserve its provisions to the fullest extent possible and any adverse holding should not affect other provisions. VI. Regulatory Analysis This regulatory impact analysis (RIA) evaluates the anticipated effects of the final rule in terms of its expected costs and benefits to affected parties, among other economic considerations, as required by EOs 12866, 13563, and 14094. This RIA also affirms FinCEN’s original assessments of the potential economic impact on small entities pursuant to the Regulatory Flexibility Act (RFA) and presents the expected reporting and recordkeeping burdens under the Paperwork Reduction Act of 1995 (PRA). Furthermore, it sets out the analysis required under the Unfunded Mandates Reform Act of 1995 (UMRA). As discussed in greater detail below, the rule is expected to promote national security objectives and enhance compliance with international standards by improving law enforcement’s ability to identify the natural persons associated with transfers of residential real property conducted in the U.S. residential real estate sector, and thereby diminish the ability of corrupt and other illicit actors to launder their proceeds through real estate purchases in the United States. More specifically, the collection of the transfer-specific SARs—Real Estate Reports—in a repository that is readily accessible to law enforcement and that contains other BSA reports is expected to increase the efficiency with which resources can be utilized to identify such natural persons, or beneficial owners, when they have conducted nonfinanced purchases of residential real E:\FR\FM\29AUR2.SGM 29AUR2 70278 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations property using legal entities or trusts, and to cross-reference those beneficial owners and their legal entity or trust against other reported financial activities in the system. This RIA first describes the economic analysis FinCEN undertook to inform its expectations of the rule’s impact and burden. That is followed by certain pieces of additional and, in some cases, more specifically tailored analysis as required by EOs 12866, 13563, and 14094, the RFA, the UMRA, and the PRA, respectively. Responses to public comments related to the RIA—regarding specific findings, assumptions, or expectations, or with respect to the analysis in its entirety—can be found in Sections VI.A.1.b and VI.C and have been previewed and cross-referenced throughout the RIA. lotter on DSK11XQN23PROD with RULES2 A. Assessment of Impact This final rule has been determined to be a ‘‘significant regulatory action’’ under Section 3(f) of E.O. 12866 as amended by 14094. The following assessment indicates that the rule may also be considered significant under Section 3(f)(1), as the rule is expected to have an annual effect on the economy of $200 million or more.43 Consistent with certain identified best practices in regulatory analysis, the economic analysis conducted in this section begins with a review of FinCEN’s broad economic considerations,44 identifying the relevant market failures (or fundamental economic problems) that demonstrate the need or otherwise animate the impetus for the policy intervention.45 Next, the analysis turns to details of the current regulatory requirements and the background of market practices against which the rule will introduce changes (including incremental costs) and establishes FinCEN’s estimates of the number of entities and residential real property transfers it anticipates to be affected in a given year.46 The analysis then briefly reviews the final rule with a focus on the specifically relevant elements of the definitions and requirements that most directly inform how FinCEN contemplates compliance would be operationalized.47 Next, the analysis proceeds to outline the estimated costs to the respective affected parties that 43 E.O. 12866, 58 FR 51735 (Oct. 4, 1993), section 3(f)(1); E.O. 14094, 88 FR 21879 (Apr. 11, 2023), section 1(b). 44 See Section VI.A.1. 45 Broadly, the anticipated economic value of a rule can be measured by the extent to which it might reasonably be expected to resolve or mitigate the economic problems identified by such review. 46 See Section VI.A.2. 47 See Section VI.A.3. VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 would be associated with such operationalization.48 Finally, the analysis concludes with a brief discussion of the regulatory alternatives FinCEN considered in the NPRM, including a discussion of the public comments received in response.49 Throughout the analysis, FinCEN has attempted to incorporate public comments received in response to the NPRM where most relevant. Certain broad commentary themes that are pertinent to the RIA as a whole are addressed specifically in Sections VI.A.1.b and VI.C below, while the remainder are integrated into the general discussion throughout the rest of the analysis. 1. Economic Considerations a. Broad Economic Considerations As FinCEN articulated in the RIA of the NPRM, two problematic phenomena animate this rulemaking.50 The first is the use of the United States’ residential real estate market to facilitate money laundering and illicit activity. The second, and related, phenomenon is the difficulty of determining who beneficially owns legal entities or trusts that may engage in non-financed transfers of residential real estate, either because this data is not available to law enforcement or access is not sufficiently centralized to be meaningfully usable for purposes of market level riskmonitoring or swift investigation and prosecution. The second phenomenon contributes to the first, making money laundering and illicit activity through residential real property more difficult to detect and prosecute, and thus can reduce the appropriate disciplinary and deterrent effects of law enforcement. FinCEN therefore expects that the reporting of non-financed residential real estate transfers required by this rule would generate benefits by mitigating those two phenomena. In other words, FinCEN expects that benefits would flow from the rule’s ability to make law enforcement investigations of illicit activity and money laundering through residential real estate less costly and more effective, and it would thereby generate value by reducing the social costs associated with related illicit activity to the extent that it is more effectively disciplined or deterred. b. Consideration of Comments Received In completing the analysis to accompany the final rule, FinCEN took 48 See Section VI.A.4. Section VI.A.5. 50 See FinCEN, NPRM, ‘‘Anti-Money Laundering Regulations for Residential Real Estate Transfers,’’ 89 FR 12424 (Feb. 16, 2024). 49 See PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 all submitted public comments to the NPRM into consideration. While the NPRM received over six hundred comment letters, fewer than 25 percent of those comments presented nonduplicate content and a smaller fraction still provided comment specifically with respect to the NPRM RIA. The proportion of comment letters with nonduplicate content represents highly geographically concentrated and geographically unique feedback, which may therefore limit the generalizability of those responses regarding baseline and burden-related elements to other regions of the country and other local real estate markets that do not face the same general housing market trends or state-specific legal constraints. Where FinCEN has declined to revise its original analysis in response to certain comments, an attempt has been made to provide greater clarification of the reasons underlying FinCEN’s original methodological choices and expectations. i. Comments Pertaining to Burden Estimates Numerous comment letters spoke to the anticipated burden of the rule, though there was substantial variation in parties’ expectations about which participant in a reportable transfer would ultimately bear the financial costs. Some commenters expressed concern that, if required to serve as the reporting person, they would not be able to absorb the related costs. The majority of these commenters, however, did not offer any explanation for why they would therefore not opt to designate to another cascade member, though presumably the assumption may have been that no other cascade member might be willing to agree. This assumption may or may not be consistent with countervailing incentives other cascade members face in facilitating reportable transfers. Other commenters suggested that certain reporting persons might be forced to absorb a large proportion of the rule’s costs due simply to their considerable market share in their particular industry. Additionally, a substantial fraction of those who commented on the burden of the rule signaled their expectation that to some degree the financial costs would ultimately be passed along to the transferee, the transferee’s tenants, or to all housing market clients served by that potential reporting person. For purposes of the economic analysis, FinCEN notes that there may be a meaningful distinction between the concept of being burdened, or affected, by the rule and bearing the cost of the E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations rule. A party may be the primary affected business in terms of needing to undertake the most new burden or incremental, novel activity to comply with the rule, but to the extent that that work is compensated, that party, for purposes of the RIA is not considered to also bear the cost of the rule. The comments FinCEN received in response to the NPRM suggest that there may be considerable variation across states in the distinction between where businesses may be primary affected businesses only and where businesses may be both those primarily affected and those that bear the majority of the rule’s costs. Separately, FinCEN notes that while the vast majority of comment letters spoke to at least one element of burden as a concern, very few provided competing estimates or alternative methods to quantify the expected burden of the proposed rule in its entirety. Many commenters, in fact, took FinCEN estimates as given when making their own arguments, suggesting that at least on some level, they found the estimates reasonably credible. In cases where commenters most strongly disagreed with the magnitude of FinCEN estimates (suggesting that FinCEN vastly underestimated the burden of the rule), it is unclear whether the same differences would persist in light of the clarifications and modifications to the proposed rule that have been made in the process of finalization. Given the divergence between what some commenters originally interpreted the rule to require of them and what the final rule would entail, a number of those concerns— including concerns related to the expected verification of information that are addressed by the reasonable reliance standard adopted in the final rule—may now be less pressing. The primary revision that FinCEN has made to the RIA in response to commenters is with respect to wage estimates for the industry categories represented in the reporting cascade. In addition to updating wages to incorporate the BLS’s most recent annual figures, FinCEN also elected to incorporate the 90th percentile wage values instead of the national average index values used in the NPRM RIA. This more conservative approach is meant to address certain commenter concerns that FinCEN’s expected costs might underestimate the market wage rates reporting persons would need to pay, particularly because more reporting might occur in geographic areas where skilled labor commands higher compensation. Adopting this more conservative, higher wage rate approach VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 does not reflect any change in FinCEN’s expectations about the underlying burden of compliance with the rule. ii. Comments Suggesting Additional Analysis A few comment letters suggested that FinCEN’s analysis may have benefited from additional research activities, robustness tables, or analyses of distributional effects. While in principle FinCEN does not object to more, and more empirically robust, quantitative analysis of any of its policies, it is nevertheless unpersuaded that the analyses requested would have changed the conclusions those additional analytical activities would have informed. In none of the enumerated requests for additional analysis did the commenter convincingly substantiate how the findings of their requested items might have actionably changed the contours of the final policy without impairing its expected efficacy. 2. Baseline and Affected Parties To assess the anticipated regulatory impact of the rule, FinCEN took several factors about the current state of the residential real estate market into consideration. This is consistent with established best practices and certain requirements 51 that the expected economic effects of a rule be measured against the status quo as a primary counterfactual. Among other factors, FinCEN’s economic analysis of regulatory impact considered the rule in the context of existing regulatory requirements, relevant distinctive features of groups likely to be affected by the rule, and pertinent elements of current residential real estate market characteristics and common practices. Each of these elements, including additional details and clarifications responsive to comments received, is discussed in its respective subsection below. a. Regulatory Baseline While there are no specific Federal rules that would directly and fully duplicate, overlap, or conflict with the rule, there are nevertheless components of the rule that mirror, or are otherwise consistent with, reporting and procedural requirements of existing FinCEN rules and orders, as well as those of other agencies. To the extent that a person would have previous compliance experience with these elements of the regulatory baseline, FinCEN expects that some costs 51 Office of Management and Budget, Circular A– 4 (Nov. 9, 2023), available at https:// www.whitehouse.gov/wp-content/uploads/2023/11/ CircularA-4.pdf. PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 70279 associated with the rule would be lower because the incremental changes in behavior from current practices would be smaller. FinCEN reviews the most proximate components from these existing rules and orders in greater detail below. i. Residential Real Estate GTOs Under the Residential Real Estate GTOs, covered title insurance companies are required to report: ‘‘(i) The dollar amount of the transaction; (ii) the type of transaction; (iii) information identifying a party to the transaction, such as name, address, date of birth, and tax identification number; (iv) the role of a party in the transaction (i.e., originator or beneficiary); and (v) the name, address, and contact information for the domestic financial institution or nonfinancial trade or business.’’ As discussed above, FinCEN recognizes that the Residential Real Estate GTOs collect beneficial ownership information for certain nonfinanced purchases of residential real property by legal entities that meet or exceed certain dollar thresholds in select geographic areas. However, the Residential Real Estate GTOs are narrow in that they are temporary, locationspecific, and limited in the transactions they cover. The rule is wider in scope of coverage and will collect additional useful and actionable information previously not available through the Residential Real Estate GTOs. As such, the nationwide reporting framework for certain residential real estate transfers will replace the current Residential Real Estate GTOs. Some evidence suggests that, despite the restriction of reporting persons under the existing Residential Real Estate GTOs to title insurance companies only, certain additional categories of real estate professionals may already be familiar—and have experience—with gathering the currently required information. For example, FinCEN observes that in some markets presently covered by the Residential Real Estate GTOs, realtors and escrow agents often assist title insurance companies with their reporting obligations despite not being subject to any formal reporting requirements themselves. Some may even have multiple years’ worth of guidance and informational support by the regional or national trade association of which they are a member in how best to facilitate and enable compliance with existing FinCEN requirements. For instance, in 2021, the National Association of Realtors advised that while ‘‘[r]eal estate professionals do E:\FR\FM\29AUR2.SGM 29AUR2 70280 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 not have any affirmative duties under the Residential Real Estate GTOs,’’ such entities should nevertheless expect that ‘‘a title insurance company may request information from real estate professionals to help maintain its compliance with the Residential Real Estate GTOs. Real estate professionals are encouraged to cooperate and provide information in their possession.’’ 52 Thus, the historical Residential Real Estate GTOs’ attempt to limit the definition of reporting persons to title insurance companies does not seem to have completely forestalled the imposition of time, cost, and training burdens on other real estate transferrelated businesses. As such, the cascading reporting approach might not mark a complete departure from current practices and the related burdens of Residential Real Estate GTO requirements, as they may already in some ways be functionally applicable to multiple prospective reporting persons in the rule’s reporting cascade. ii. BOI Reporting Rule Furthermore, following the enactment of the CTA, beneficial ownership information of certain legal entities is required to be submitted to FinCEN. However, as set out in the NPRM preamble and also discussed above,53 the information needed to ascertain money laundering risk in the residential real estate sector differs in key aspects from what is collected under the CTA, and, accordingly, the information collected under this rule differs from that collected under the CTA. For example, FinCEN believes that a critical part of the rule is that it will alert law enforcement to the fact that a residential real estate transfer fitting within a known money laundering typology has taken place. While beneficial ownership information collected under the CTA may be available, that information concerns the ownership composition of a given entity at a given point in time. As such reporting does not dynamically extend to include information on the market transactions of the beneficially owned legal entity, it would not alert law enforcement officials focused on reducing money laundering that any real estate transfer has been conducted, which includes those particularly vulnerable to money laundering such as non-financed transfers of residential property. 52 See National Association of Realtors, ‘‘AntiMoney Laundering Voluntary Guidelines for Real Estate Professionals’’ (Feb. 16, 2021), p. 3, available at https://www.narfocus.com/billdatabase/ clientfiles/172/4/1695.pdf. 53 See Section III.C.5.c. VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 Furthermore, the scope of entities that are the focus of the real estate rule is broader than the CTA, as certain types of entities, including most trusts, are not required to report under the CTA. Because non-excepted trusts under the residential real estate rule generally do not have an obligation to report beneficial ownership under the CTA, their incremental burden of compliance with the Real Estate Report requirements may be moderately higher insofar as the activities of collecting, presenting, or certifying beneficial ownership information are less likely to have already been performed for other purposes. iii. Customer Due Diligence (CDD) Rule The CDD Rule’s 54 beneficial ownership requirement addressed a regulatory gap that enabled persons looking to hide ill-gotten proceeds to potentially access the financial system anonymously. Among other things, it required covered financial institutions to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exceptions and exemptions; beneficial ownership and identification therefore became a component of AML requirements. Financial institutions subject to the CDD Rule are required to collect some beneficial ownership information from legal entities that establish new accounts. However, this rule covers non-financed transfers of residential real estate that do not involve financial institutions covered by the CDD Rule. The rule would also collect additional information relevant to the real estate transfers that is currently not collected under the CDD Rule. iv. Other (Form 1099–S) In the course of current residential real estate transfers, some parties that might be deemed ‘‘transferors’’ under the rule already prepare and report portions of the requisite information to other regulators. For example, the IRS collects taxpayer information through Form 1099–S on seller-side proceeds from reportable real estate transfers for a broader scope of reportable real estate transfers than this rule.55 This information, however, is generally unavailable for one of the primary purposes of this rule, as there are significant statutory limitations on the ability of the IRS to share such information with Federal law enforcement or other Federal agencies. In addition to these statutory limitations on IRS disclosure of taxpayer information, details about the buyer’s beneficial ownership (the focus of this rule) largely fall outside the scope of transaction information reported on the Form 1099–S. However, IRS Form 1099–S is nonetheless relevant to the rule’s regulatory baseline, given the process by which the Form 1099–S may be prepared and submitted to the IRS. Similar to the Real Estate Report, the person responsible for filing the IRS Form 1099–S can either be determined through a cascade of the various parties who may be involved in the closing or settlement process, or, alternatively, certain categories of the involved parties may enter into a written agreement at or before closing to designate who must file Form 1099–S for the transaction. The agreement must identify the designated person responsible for filing the form, but it is not necessary that all parties to the transaction, or that more than one party even, enter into the agreement. The agreement must: (1) identify by name and address the person designated as responsible for filing; (2) include the names and addresses of each person entering into the agreement; (3) be signed and dated by all persons entering into the agreement; (4) include the names and addresses of the transferor and transferee; and (5) include the address and any other information necessary to identify the property. The rule’s designation agreement requires, and is limited to, the same five components that may be included in a designation agreement accompanying Form 1099–S. Therefore, the exercise of designation, as well as the collection of information and signatures that it involves, may already occur in connection with certain transfers of residential real property and in these cases be leveraged at minimal additional expense. 54 FinCEN, ‘‘Customer Due Diligence Requirements for Financial Institutions,’’ 81 FR 29398 (May 11, 2016). 55 Reportable real estate for purposes of IRS Form 1099–S includes, for example, commercial and industrial buildings (without a residential component) and non-contingent interests in standing timber, which are not covered under the rule. PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations b. Baseline of Affected Parties i. Transferees Legal Entities According to a recent study 56 that analyzed Ztrax data 57 covering 2,777 U.S. counties and over 39 million residential housing market transactions from 2015 to 2019, the proportion of average county-month non-financed residential real estate transactions involving purchases by legal entities was approximately 11 percent during the five-year period analyzed. When the sample is divided into counties that, by 2019, were under Residential Real Estate GTOs versus those that were never under Residential Real Estate GTOs, the proportions of average county-month non-financed sales to total purchases are approximately 13.6 percent and 11.2 percent, respectively. Legal entities that own U.S. residential real estate vary by size and complexity of beneficial ownership structure, and by some measures, have increased market participation over time.58 FinCEN analysis of the Department of Housing and Urban Development and Census Bureau’s Rental Housing Finance Survey (RHFS) data for 2018 found that micro investors or small business landlords who owned 1–2 units owned 66 percent of all single family and multifamily structures with 2–4 units. Conversely, investors in the residential rental market who owned at least 1,000 properties owned only 2 percent of single-family homes and multi-family structures. FinCEN did not receive any comments, studies, or data that meaningfully conflict with these estimates or the manner in which they informed the NPRM RIA’s initial estimates of the number of reportable transfers per year. Trusts lotter on DSK11XQN23PROD with RULES2 The final rule requires the reporting of certain non-finance transfers of residential real property to transferee trusts.59 Residential real property purchases by transferee trusts have not 56 See Matthew Collin, Florian Hollenbach, and David Szakonyi, ‘‘The impact of beneficial ownership transparency on illicit purchases of U.S. property,’’ Brookings Global Working Paper #170, (Mar. 2022), p. 14, available at https:// www.brookings.edu/wp-content/uploads/2022/03/ Illicit-purchases-of-US-property.pdf. 57 Zillow, Transaction and Assessment Database (ZTRAX), available at https://www.zillow.com/ research/ztrax/. 58 See Redfin, ‘‘Investors Bought 26% of the Country’s Most Affordable Homes in the Fourth Quarter—the Highest Share on Record,’’ (Feb. 14, 2024), available at https://www.redfin.com/news/ investor-home-purchases-q4-2023/. 59 See Section III.C.2.e. VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 generally been reported under the Residential Real Estate GTOs and the entities themselves are typically 60 not subject to beneficial ownership reporting requirements under the CTA. Therefore, FinCEN expects that trusts would be more homogenously newly affected by the rule than legal entities, discussed above, as a cohort of affected parties. Establishing a baseline population of potentially affected transferee trusts based on the existing population of legal trusts is challenging for several reasons. These reasons include the general lack of comprehensive and aggregated data on the number,61 value, usage, and holdings of trusts formed in the United States, which in turn is a result of heterogeneous registration and reporting requirements, including instances where neither requirement currently exists. Because domestic trusts are created and administered under State law, and states have broad authority in how they choose to regulate trusts, there is variation in both the proportion of potential transferee trusts that are currently required to register as trusts in their respective states as well as the amount of information a given trust is required to report to its state about the nature of its assets or its structural complexity. Thus, limited comparable information may be available at a nationwide level besides what is reported for Federal tax purposes, and what is available is unlikely to represent the full population of potentially affected parties that would meet the definition of transferee trust if undertaking the non-financed transfer of residential real property. International heterogeneity in registration and reporting requirements for foreign trusts creates similar difficulties in assessing the population of potentially affected parties that are not originally registered in the United States. Further complicating this assessment is the exogeneity and unpredictability of changes to foreign tax and other financial policies, which studies in other, related contexts have shown, generally affect foreign demand for real estate.62 60 FinCEN notes that while most trusts are not reporting companies under the BOI Reporting Rule, a reporting company would be required to report a beneficial owner that owned or controlled the reporting company through a trust. 61 FinCEN notes that while the U.S. Census Bureau does produce annual statistics on the population of certain trusts (NAICS 525—Funds, Trusts, and Other Financial Vehicles), such trusts are unlikely to be affected by the rule and thus their population size is not informative for this analysis. 62 See, e.g., Cristian Badrinza and Tarun Ramadorai, ‘‘Home away from home? Foreign demand and London House prices,’’ Journal of PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 70281 While it is difficult to know exactly how many existing trusts there are, and within that population how many own residential real property (as a potential indicator of what proportion of new trusts might eventually be used to own residential real property), there is nevertheless a consistency in the limited existing empirical evidence that would support a conjecture that proportionally few of the expected reportable transfers would be likely to involve a transferee trust. A recent study of U.S. single-property residential purchases that occurred between 2015 and 2019 identified a trust as the buyer in 3.3 percent of observed transactions.63 FinCEN also conducted additional analysis of publicly available data that might help to quantify the proportion of trust ownership in residential real estate and more clearly account for non-sale transfers for no consideration. Based on the RHFS, identifiable trusts accounted for approximately 2.5 percent of rental housing ownership and approximately 8.2 percent of non-natural person ownership of rental housing.64 To the extent that trusts’ current residential real property holdings are linear in the number of housing units and current holdings is a reliable proxy for future purchasing activity, FinCEN does not expect the proportion of reportable transfers involving a transferee trust to exceed 5 percent of potentially affected transfers. No further refinements to this upper-bound-like estimate, based on the number of existing trusts that may be affected, would be feasible without a number of additional assumptions about market behavior that FinCEN declines to impose in the absence of better/more data. While the majority of public comments pertaining to trusts suggested that the number of affected trusts would be substantially higher than the original RIA had anticipated, FinCEN is not revising or updating its baseline Financial Economics 130 (3) (2018), pp. 532–555, available at https://www.sciencedirect.com/science/ article/abs/pii/S0304405X18301867?via%3Dihub; see also Caitlan S. Gorback and Benjamin J. Keys, ‘‘Global Capital and Local Assets: House Prices, Quantities, and Elasticities,’’ Technical Report, National Bureau of Economic Research (2020), available at https://www.nber.org/papers/w27370. 63 See Matthew Collin, Florian Hollenbach, and David Szakonyi, ‘‘The impact of beneficial ownership transparency on illicit purchases of U.S. property,’’ Brookings Global Working Paper #170, (Mar. 2022), p. 14, available at https:// www.brookings.edu/wp-content/uploads/2022/03/ Illicit-purchases-of-US-property.pdf. 64 See U.S. Census Bureau, Rental Housing Finance Survey (2021), available at https:// www.census.gov/data-tools/demo/rhfs/#/?s_ year=2018&s_type=1&s_tableName=TABLE2. E:\FR\FM\29AUR2.SGM 29AUR2 70282 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations estimates at this stage because the final rule has adopted certain broad exceptions that materially limit the reporting of transfers to trusts. lotter on DSK11XQN23PROD with RULES2 Excepted Transferees Exceptions to the general definitions of transferee entities and transferee trusts apply to certain highly regulated entities and trusts that are subject to AML/CFT program requirements or to other significant regulatory reporting requirements. For example, PIVs that are investment companies and registered with the SEC under section 8 of the Investment Company Act of 1940 are excepted, while unregistered PIVs engaging in reportable transfers are not. Unregistered PIVs are instead required to provide the reporting person with specified information, particularly including the required information regarding their beneficial owners. FinCEN analysis of costs below continues to assume that any such unregistered PIV stood up for a reportable transfer would generally have, or have low-cost access to, the information necessary for filing Real Estate Reports. FinCEN expects that a PIV that is not registered with the SEC— which can have at maximum four investors whose ownership percent is or exceeds 25 percent (the threshold for the ownership prong of the beneficial ownership test for entities)—would likely either (1) be an extension of that large investor, or (2) have a general partner who actively solicited known large investors. In either case, the unregistered PIV is likely to have most of the beneficial ownership information that would be required to complete the Real Estate Report and access to the beneficial owner(s) to request the additional components of required information not already at hand. FinCEN did not receive any comments indicating that these expectations are unreasonable and thus continues to operate under these assumptions with respect to baseline costs. Operating companies subject to the Securities Exchange Act of 1934’s current and periodic reporting requirements, including certain special purpose acquisition companies (SPACs) and issuers of penny-stock, are also excepted transferees under this rule. FinCEN notes that the percent ownership threshold for beneficial ownership for SEC regulatory purposes is considerably lower than as defined in the CTA and related Exchange Act beneficial ownership-related disclosure obligations usually apply to more control persons at such a registered VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 operating company.65 Additionally, disclosures about the acquisition of real estate, including material non-financed purchases of residential property, are already required in certain periodic reports filed with the SEC.66 Therefore, an incremental informational benefit from not excepting SEC-registered operating companies as transferees for the purposes of this rule’s reporting requirements may either not exist or, at best, be very low while the costs to operating companies of reporting and compliance with an additional Federal regulatory agency are expected to be comparatively high. Some commenters expressed concern that it might be difficult or burdensome for reporting persons to determine if a transfer might be exempt from reporting on the basis of the transfer being made to an excepted transferee. However, the final rule adopts a reasonable reliance standard, and therefore the reporting person may reasonably rely on information provided by others as described in Section III.B.2.4, including with respect to whether the transferee is exempt. Furthermore, should a reporting person nevertheless want to verify the excepted status of a transferee, FinCEN notes that the status of transferees as excepted pursuant to being registered with the SEC should be easily verifiable by a name search in the agency’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, which can be queried using open access, publicly available search tools. ii. Reporting Entities Because the reporting cascade is ordered by function performed, or service provided, rather than by defined occupations or categories of service providers,67 attribution of work to the capacity in which a person is primarily employed is necessarily imprecise. To account for the need to map from services provided to entities providing such services as a prerequisite to estimating the number of potentially affected parties, FinCEN acknowledges, but abstracts from, the common observation that title agents and settlement agents are ‘‘often the same entity that performs two separate functions in a real estate transaction,’’ 65 See U.S. Securities and Exchange Commission, ‘‘Officers, Directors, and 10% Shareholders,’’ available at https://www.sec.gov/education/ smallbusiness/goingpublic/officersanddirectors. 66 See, e.g., U.S. Securities and Exchange Commission, Instructions to Item 2.01 on Form 8– K; see also 17 CFR 210.3–14. 67 See supra Section III.C.3.a for a description of the reporting cascade; see also proposed 31 CFR 1031.320(c)(1). PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 and that ‘‘the terms title agent and settlement agent are often used interchangeably.’’ 68 For purposes of the remaining RIA, FinCEN groups potential reporting persons by features of their primary occupation and treats them as functionally distinct members of the cascade, acknowledging that this is done more for analytical clarity than as a rigid expectation about the capacity in which an individual is employed to service a given transfer. In total, FinCEN estimates there may be up to approximately 172,753 reporting persons and 642,508 employees of those persons that could be affected by the rule. Of this total, the distribution of potential reporting persons as identified by primary occupation 69 is: settlement agents (3.6 percent of potential reporting persons, 9.8 percent of the potentially affected labor force), title insurance companies (0.5 percent, 6.6 percent), real estate escrow agencies (10.9 percent, 10.5 percent), attorneys 70 (9.3 percent, 16.7 percent), and other real estate professionals 71 (75.5 percent, 56.4 percent). For purposes of cost estimates throughout the remaining analysis, FinCEN computed the 68 See Nam D. Pham, ‘‘The Economic Contributions of the Land Title Industry to the U.S. Economy,’’ ndp Consulting (Nov. 2012), p. 6, available at https://papers.ssrn.com/sol3/ papers.cfm?abstract_id=2921931. This study was included as an appendix to a 2012 American Land Title Association comment letter submitted to the Consumer Financial Protection Bureau (CFPB) on the Real Estate Settlement Procedures Act (RESPA). 69 FinCEN notes that the capacity in which a reporting person facilitates a residential real property transfer may not always be in the capacity of their primary occupation. However, as analysis here relies on the U.S. Census Bureau’s annual Statistics of U.S. Business Survey, which is organized by NAICS code, the following nominal primary occupations (NAICS codes) are used for grouping and counting purposes: Title Abstract and Settlement Offices (541191), Direct Title Insurance Carriers (524127), Other Activities Related to Real Estate (531390), Offices of Lawyers (541110), and Offices of Real Estate Agents and Brokers (531210). As noted in note 73, these NAICS codes are not the basis for hourly wage rate information used in this paragraph. 70 The estimate of affected attorneys is calculated as ten percent of the total SUSB population of Offices of Lawyers. This estimate is based on the average from FinCEN analysis of U.S. legal bar association membership, performed primarily at the State level, identifying the proportion of (state) bar members that are members of the organization’s (state’s) real estate bar association. FinCEN considers this proxy more likely to overestimate than underestimate the number of potentially affected attorneys because, while not all members of a real estate bar association actively facilitate real estate transfers each year, it was considered less likely that an attorney would, in a given year, facilitate real estate transfers in a way that would make them a candidate reporting person for purposes of the proposed rule when such an attorney had not previously indicated an interest in real estate specific practice (by electing to join a real estate bar). 71 NAICS Code 531210 (Offices of Real Estate Agents and Brokers). E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations following fully loaded 72 average 73 hourly wages 74 by the respective primary occupation categories: settlement agents, $79.35; title insurers, $106.49; real estate escrow agencies, $81.74; attorneys, $153.48; and other real estate professionals, $81.74. For reference, these wages estimates 70283 represent the following updates from the NPRM RIA: TABLE 1—WAGE ESTIMATE REVISIONS FROM NPRM TO FINAL RULE RIA Fully loaded hourly wage (NPRM) Primary business categories Title Abstract and Settlement Offices ...................................................................................................................... Direct Title Insurance Carriers ................................................................................................................................. Other Activities Related to Real Estate ................................................................................................................... Offices of Lawyers ................................................................................................................................................... Offices of Real Estate Agents and Brokers ............................................................................................................ c. Market Baseline lotter on DSK11XQN23PROD with RULES2 i. Reportable Transfers The scope of residential real estate transfers that would be affected by the rule is jointly defined by the (1) the nature of the property transferred, (2) the financed nature of the transfer, and (3) the legal organization of the party to whom the property is transferred. For purposes of identification, the defining attribute for the nature of the property is that it is principally designed, or intended to become, the residence of one to four families, including cooperatives and vacant or unimproved land. Additionally, the property must be located in the United States as defined in the BSA implementing regulations. Reportable transfers exclude all those in which the transferees receive an extension of credit from a financial institution subject to AML/CFT program and SAR Reporting requirements that is secured by the residential real property being transferred. Reportable transfers also exclude transfers associated with an easement, death, divorce, or bankruptcy or that are otherwise supervised by a court in the United States, as well as certain no consideration transfers to trusts, certain transfers related to 1031 Exchanges, and any transfer for which there is no reporting person. On the basis of available data, studies, and qualitative evidence, subject to certain qualifying caveats about limitations in data availability, and in the absence of large, unforeseeable shocks to the U.S. residential housing 72 Fully loaded wages are scaled by a benefits factor. The ratio between benefits and wages for private industry workers is (hourly benefits (11.86))/(hourly wages (28.37)) = 0.42, as of December 2023. The benefit factor is 1 plus the benefit/wages ratio, or 1.42. See U.S. Bureau of Labor Statistics, ‘‘Employer Costs for Employee Compensation Historical Listing,’’ available at https://www.bls.gov/web/ecec/ececqrtn.pdf. The private industry workers series data for December 2023 is available at https://www.bls.gov/web/ecec/ ececqrtn.pdf. VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 market, FinCEN’s NPRM analysis estimated that the number of reportable transfers would be between approximately 800,000 and 850,000 annually. FinCEN received a number of comment letters suggesting that this estimate is too low. However, because most arguments of this nature were made on the basis of an understanding that the rule would include several kinds of transfers that have since been explicitly excepted in the final rule, FinCEN is not increasing its estimates. $70.33 84.15 70.46 88.89 70.46 Fully loaded hourly wage (final) $79.35 106.49 81.74 153.48 81.74 iii. Current Market Practices ii. Current Market Characteristics FinCEN took certain potentially informative aspects of the current market for residential real property into consideration when forming its expectations about the anticipated economic impact of the rule. Among other things, FinCEN considered trends in the observable rate of turnover in the stock of existing homes. Additionally, FinCEN reviewed recent studies and data from the academic literature estimating housing supply elasticities on previously developed versus newly developed land. FinCEN also considered recent survey results of the residential real estate holdings of high-net-worth individuals and the proportion of survey respondents who self-reported the intent to purchase additional residential real estate in the coming year. Further, FinCEN reviewed studies of trends in the financing and certain distributional characteristics of shared equity housing, which includes co-operatives that will be affected by the rule. Settlement and Closing FinCEN assessed the role of various persons in the real estate settlement and closing process to determine a quantifiable estimate of each profession or industry’s overall participation in that process. Accordingly, FinCEN conducted research based on publicly available sources to assess the general participation rate of the different types of reporting persons in the rule’s reporting cascade. As part of its analysis, FinCEN noted a recent blog post citing data from the American Land Title Association (ALTA) that 80 percent of homeowners purchase title insurance when buying a home.75 To better understand the distribution of the other types of persons providing residential real property transfer services to the transfers that are affected by the rule, FinCEN utilized county deed database records to approximate a randomly selected and representative sample of residential real estate transfers across the United States. FinCEN made efforts to collect deed data that reflected a representative, nation-wide sample, both in terms of the number and geographic dispersion of deeds, but acknowledges selection was nevertheless constrained in part by the feasibility to search by deed type, among other factors. FinCEN invited public feedback on the extent to which the same analysis would yield substantively different results if performed over a larger sample (with either more geographic locations, more 73 Because available wage estimates are not available for each SUSB category at the 6-digit NAICS level, FinCEN has estimated average wages over the collection of occupational subcategories likely to be affected for each corresponding category at the next most granular NAICS-level available. 74 Wage estimates presented here, and used throughout the subsequent analysis, reflect two forms of updating from the NPRM: (1) wage data has been updated to reflect the BLS publication of the May 2023 National Occupational Employment and Wage Estimates in April 2024, (2) responsive to public comments that the previous wage estimates (based on national mean wages) might contribute to an underestimate of time cost burdens, FinCEN is electing to conservatively adopt 90thpercentile values of occupational wages in place of mean hourly wage. 75 See American Land Title Association, Home Closing 101, ‘‘Why 20% of Homeowners May Not Sleep Tonight,’’ (June 3, 2020),available at https:// www.homeclosing101.org/why-20-percent-ofhomeowners-may-not-sleep-tonight/. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 E:\FR\FM\29AUR2.SGM 29AUR2 70284 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations observations per location, or both), but did not receive any responsive data or the results of analysis based on such data. The final analysis included 100 deeds, of which 97 involved at least one of the following potential reporting persons: (i) Title Abstract and Settlement Offices, (ii) Direct Title Insurance Carriers, or (iii) Offices of Lawyers. A candidate reporting person was deemed to be involved with the creation of the deed if either (i) a company or firm performing one of these functions was included on the deed or (ii) an individual performing or employed by a company or firm performing one of these functions was included on the deed. FinCEN assessed the distribution of alternative entities identified on the remaining deeds, categorizing by reporting person type. Based on this qualitative analysis, FinCEN tentatively anticipates that approximately three percent of reportable transfers might have a reporting person or reporting cascade that begins with someone other than a settlement agent, title insurer, or attorney. lotter on DSK11XQN23PROD with RULES2 Records Search Currently, law enforcement searches a variety of State and commercial databases (that may or may not include beneficial ownership information), individual county record offices, and/or use subpoena authority to trace the suspected use of criminal proceeds in the non-financed transfer of residential real estate. Even after a significant investment of resources, the identities of the beneficial owners may not be readily ascertainable. This fragmented and limited approach can slow down and decrease the overall efficacy of investigations into money laundering through real estate. This was one reason that FinCEN introduced the Residential Real Estate GTOs, which law enforcement has reported have significantly expanded their ability to investigate this money laundering typology. At the same time, the Residential Real Estate GTOs have certain restrictions that limited its usefulness nationwide. This rule builds on and is intended to replace the Residential Real Estate GTO framework and creates reporting and recordkeeping requirements for specific residential real estate transfers nationwide. 3. Description of Final Rule Requirements a. Reportable Transfers The final rule requires certain persons involved in real estate closings and VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 settlements to submit reports and keep records on identified non-financed transfers of residential real property to specified legal entities and trusts on a nationwide basis. The rule does not require transfers to be reported if the transfer is financed, meaning that the transfer involves an extension of credit to all transferees that is secured by the transferred residential real property and is extended by a financial institution that has both an obligation to maintain an AML program and an obligation to report suspicious transactions under this chapter. It also does not require reporting of: (i) a grant, transfer, or revocation of an easement; (ii) a transfer resulting from the death of an owner of residential real property; (iii) a transfer incident to divorce or dissolution of a marriage or civil union; (iv) a transfer to a bankruptcy estate; (v) a transfer supervised by a court in the United States; (vi) a transfer for no consideration made by an individual, either alone or with the individual’s spouse, to a trust of which that individual, that individual’s spouse, or both of them, are the settlor(s) or grantor(s); (vii) a transfer to a qualified intermediary for purposes of a 1031 Exchange; or (viii) a transfer that does not involve a reporting person. A report would also not need to be filed if the transferee is an exempt legal entity or trust, which are generally highlyregulated. b. Reporting Persons The final rule requires a reporting person, as determined by either the reporting cascade or as pursuant to a designation agreement, to complete and electronically file a Real Estate Report. The reporting person may generally obtain, and reasonably rely upon, information needed to complete the Real Estate Report from any other person. This reasonable reliance standard is more limited for purposes of obtaining the transferee’s beneficial ownership information. In those situations, the reasonable reliance standard applies only to information provided by the transferee or the transferee’s representative and only if the person providing the information certifies the accuracy of the information in writing to the best of their knowledge. The reporting person must file the report by the final day of the following month after which a closing took place, or 30 days after the date of the closing, whichever is later. c. Required Information The final rule requires the reporting person to report to FinCEN certain information about a reportable transfer PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 of residential real property. This includes information on the reporting person, the transferee and its beneficial owners, the transferor, the property being transferred, and certain payment information. The collected information will be maintained by FinCEN in an existing database accessible to authorized users. Some commenters’ remarks suggest that certain expectations of the rule’s potential effects may flow from a misunderstanding about who may access Real Estate Report data once filed and how it may be used. FinCEN is therefore reiterating that both access and use of Real Estate Report data will be subject to the same restrictions as other BSA reports, including traditional SARs. 4. Expected Economic Effects This section describes the main, quantifiable economic effects FinCEN anticipates the various affected parties identified above may experience. Because the primary expected value of the rule is in the extent to which it is able to address or ameliorate the economic problems discussed under the RIA’s broad economic considerations, which (while substantial) is generally inestimable, no attempt is made to quantify the net benefit of the rule. Instead, the remainder of this section focuses primarily on the estimates of reasonably anticipated, calculable costs to affected parties. While FinCEN continues to principally anticipate aggregate cost estimates between approximately $267.3 million and $476.2 million in the first compliance year and current dollar value of the aggregate costs in subsequent years between approximately $245.0 million and $453.9 million annually, it has provided revised estimates throughout the remaining analysis, responsive to public comments, that reflect more conservative expectations about the cost of labor. Under these assumptions, the anticipated costs of the rule would be between approximately $428.4 and $690.4 million (midpoint $559.4 million) in the first compliance year and between approximately $401.2 and $663.2 million (midpoint $532.2 million) (current dollar value) in subsequent years. These quantified costs are a pro forma accounting cost estimate only and are not expected to represent either the full economic costs of the rule nor the net cost of the rule as measured against the components of expected benefits that may become quantifiable. As previously stated, the ability to successfully detect, prosecute, and deter crimes—or other illicit activities that rely on money laundering to be E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations profitable—is not readily translatable to dollar figures.76 However, it might be inferred that a tacit expectation underlying this rulemaking is that the rule will generate intangible benefits worth over $500 million per year.77 a. Costs to Entities in the Reporting Cascade i. Training To estimate expected training costs, FinCEN adopted a parsimonious model similar, in certain respects, to the methodology used by FinCEN when publishing the RIA for the 2016 CDD Rule (CDD Rule RIA). Taking into consideration, however, that, unlike covered financial institutions under the CDD Rule, only one group of affected reporting persons has direct pre-existing experience with other FinCEN reporting and compliance requirements, the estimates of anticipated training time here are revised upward from the CDD Rule RIA to 75 minutes for initial training and 30 minutes for annual refresher training. FinCEN’s method of estimation assumes that an employee who has received initial training once will then subsequently take the annual refresher training each following year. This assumption contemplates that more than half of the original training would not be firm-specific and remains useful to the employee regardless of whether they remain with their initial employer or change jobs within the same industry. As in the CDD Rule RIA 70285 high estimate model, FinCEN estimates that two-thirds of untrained employees receive the initial (lengthier) training each year. However, because the initial training is assumed to provide transferrable human capital in this setting, turnover is not relevant to the assignment to initial training in periods following Year 1. Thus, in the revised model, FinCEN calculated annual training costs as the combination of the expected costs of providing two-thirds of the previously untrained workforce per industry with initial (lengthier) training and all previously trained employees with the refresher (shorter) training. Time costs are proxied by an industry-specific fully loaded wage rate at the 90th percentile per industry. TABLE 2—TRAINING COSTS Estimated per person training costs Initial training Fully loaded hourly wage Primary business categories lotter on DSK11XQN23PROD with RULES2 Title Abstract and Settlement Offices .................................. Direct Title Insurance Carriers ............................................. Other Activities Related to Real Estate ............................... Offices of Lawyers ............................................................... Offices of Real Estate Agents and Brokers ......................... Time (hours) $79.35 106.49 81.74 153.84 81.74 1.25 1.25 1.25 1.25 1.25 Refresher (year 2+) Time (hours) Total $99.18 133.11 102.17 192.30 102.17 Total (unadjusted) 0.5 0.5 0.5 0.5 0.5 $39.67 53.24 40.87 76.92 40.87 To model industry-specific hiring inflows in periods following Year 1, FinCEN converted the Bureau of Labor Statistics (BLS) projected 10-year cumulative employment growth rates for 2022–2032 for the NAICS code mostly closely associated with a given industry available. Additionally, inflation data from the Federal Reserve Bank of St. Louis was utilized to estimate annual wage growth given the opportunity cost of training is assumed to be equivalent to the wage of employees. Utilizing these inputs, and summing costs across all industries expected to be affected, FinCEN estimates that the aggregate initial year training costs would be approximately $51.0 million dollars and the undiscounted aggregate training costs in each of the subsequent years would range between approximately $23.2 and $31.5 million. FinCEN notes that fewer than five percent of unique comments received made specific reference to the training costs that the rule would necessitate and fewer still provided comments pertaining to the RIA estimates of training costs. While one commenter suggested that the uniformity of the rule would reduce the burden of preparing training materials relative to the current variety of Residential Real Estate GTO thresholds and applications, the majority of training cost-related comments simply noted that training costs would impose a burden and might separately lead to higher labor costs if new personnel require compensation for additional reporting compliance related subject-matter expertise. There were, however, some commenters who expressed a belief that the amount of time needed for—and frequency of— training needed to adequately prepare staff for compliance would be higher. While FinCEN is declining to responsively adjust its estimates of training-related time costs for reasons, among others, that are further discussed below, FinCEN is responsive to certain other commenters who expressed a perceived value to having a greater range of potential burden estimates to compare: had FinCEN adopted the suggested alternative training time costs, the aggregate annual training burden would have been either $81.5 million in year 1 78 or $101.9 million 79 in year 1, or between $63.5 and $130.8 million in a given year.80 In its NPRM analysis, FinCEN recognized that the rule would impose certain costs on businesses positioned to provide services to non-financed transfers of residential real property even in the absence of direct participation in a specific reportable transfer, including the costs of preparing informational material and training personnel about the proposed rule generally as well as certain firm-specific policies and procedures related to reporting, complying, and documenting compliance. Because this training burden was applied uniformly across all potentially affected occupational categories represented in the reporting cascade, which is already a conservative assumption given that some cascade tiers are, in practice, more likely to become the reporting person than others, FinCEN considered time burden 76 See FinCEN, NPRM, ‘‘Anti-Money Laundering Regulations for Residential Real Estate Transfers,’’ 89 FR 12424, 12446–12447 (Feb. 16, 2024). 77 Based on the observation that the midpoint values of first year ($559.4 million), subsequent year ($532.2 million), and the midpoint of the midpoint values between first and subsequent years ($545.8 million) are all approximately $500 million. See also infra Section VI.B for a discussion of annualized cost. 78 Based on a comment that the initial training should be 120 minutes (2 hours). 79 Based on a comment that the initial training should be double what FinCEN estimated (150 minutes, or 2.5 hours). 80 Based on a comment that training would take 60 minutes (1 hour) per transfer, where FinCEN applies the lowest wage rate to the lower bound estimate of total annual reportable transfers to obtain the lower bound and applies the highest wage rate to the upper bound estimate of total annual reportable transfers to obtain the upper bound. VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 E:\FR\FM\29AUR2.SGM 29AUR2 70286 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations values (75 minutes for initial, 30 minutes for refresher) that would average across the expected variation in training by occupational category a reasonable approach. Furthermore, these training costs, as estimated in the NPRM, pertain only to those contemplated activities identified (developing general understanding of the rule and firm-specific compliance policies and procedures) and were not intended to reflect additional reportingtechnology and form-specific training costs. Costs of training that are specific to the Real Estate Report will be separately estimated as a function of the RIA in the NPRM for the Real Estate Report; therefore, it would not have been appropriate to have included those training costs in the current final rule estimates as that would result in accounting for the same expense twice. ii. Reporting The total costs associated with reporting a given reportable transfer will likely vary with the specific facts and circumstances of the transfer. For of potential time costs associated with determining the reporting person is expected to be between 15 to 90 minutes. Recently, FinCEN received updated information from parties currently reporting under the Residential Real Estate GTOs indicating that the previously estimated time cost of 20 minutes for that reporting requirement was less than half the average time expended per report in practice. Based on this feedback, the filing time burden FinCEN anticipates for the rule accordingly incorporates a 45-minute estimate for the collection and reporting of the subset of Real Estate Report required information that is similar to information in reports filed under the Residential Real Estate GTOs, although FinCEN recognizes that certain transfers may require significantly more time. Mindful of these outliers, FinCEN estimates an average 2 hour per reportable transfer time cost to collect and review transferee and transferspecific reportable information and related documents, and an average 30 minute additional time cost to reporting. instance, the cost of the time needed to prepare and file a report could differ depending on which party in the cascade is the reporting person, because parties receive different compensating wages. The costs associated with the time to determine who is the reporting person will also vary by the number of potential parties who may assume the role and thus might be parties to a designation agreement. Additionally, the time required to prepare a report will likely vary with the complexity of the beneficial ownership of the transferee and, for example, the level of the transferee entity’s preexisting familiarity with the concepts of beneficial ownership information as defined for FinCEN purposes. FinCEN continues to estimate an average per-party cost to determine the reporting person of 30 (15) minutes for the party that assumes the role if a designation agreement is (not) required and 15 minutes each for all nonreporting parties (assuming each tier in the cascade corresponds to one reporting person). Therefore, the range TABLE 3—REPORTING COSTS Estimated per transaction reporting costs Non-reporting party Reporting party Designation Fully loaded hourly wage Primary business categories lotter on DSK11XQN23PROD with RULES2 Title Abstract and Settlement Offices ........... Direct Title Insurance Carriers ...................... Other Activities Related to Real Estate ........ Offices of Lawyers ........................................ Offices of Real Estate Agents and Brokers .. $79.35 106.49 81.74 153.84 81.74 Based on the range of expected reportable transfers and the wages associated with different persons in the potential reporting cascade, FinCEN anticipates that the rule’s reporting costs may be between approximately $174.6 million and $466.5 million. In its original NPRM analysis, FinCEN stated an expectation that reporting persons would generally be able to rely on technology previously purchased and already deployed in the ordinary course of business (namely, computers and access to the internet) to comply with the proposed reporting requirements, and therefore no line item of incremental expected IT costs was ascribed to reporting. Certain commenters expressed that this expectation would be unrealistic because their current business practices rely on software for tracking and internal controls processes, for example, that would need to be updated in light of the rule’s reporting requirements. However, FinCEN did not receive any VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 Time (hours) 0.25 0.25 0.25 0.25 0.25 Designation-related Time (hours) Total $19.84 26.62 20.43 38.46 20.43 comments that would enable it to quantify the expected burden associated with these software upgrades that commenters described. In the absence of readily generalizable cost estimates, it is therefore not feasible to update reporting costs responsively, though FinCEN acknowledges that, as a consequence, its aggregate burden estimates can, at best, function as a lower-bound expectation of the total costs of the rule. iii. Recordkeeping FinCEN continues to expect that the rule would impose recordkeeping requirements on reporting persons as well as, in certain cases, members of a given reportable transfer’s cascade that are not the reporting person. The primary variation in expected recordkeeping costs would flow from the conditions under which the reporting person has assumed their role. Additional variation in costs may result from differences in the dollar value PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 Total 0.25 0.25 0.25 0.25 0.25 $19.84 26.62 20.43 38.46 20.43 Designation-independent Time (hours) 2.75 2.75 2.75 2.75 2.75 Total $218.21 292.85 224.78 423.07 224.78 assigned to the reporting person’s time costs as a function of their primary occupation. If the reporting person assumes that role as a function of their position in the reporting cascade, this would imply that no meaningfully distinct person involved in the transfer provided the preceding service(s). In this case, the reporting person’s recordkeeping requirements would be limited to the retention of compliance documents (i.e., a copy of the transferee’s certification of beneficial ownership information) for a period of five years in a manner that preserves ready availability for inspection as authorized by law. Recordkeeping costs would therefore include those associated with creating and/or collecting the necessary documents, storing the records in an accessible format, and securely disposing of the records after the required retention period has elapsed. FinCEN anticipates that over the full recordkeeping lifecycle, each reportable E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations transfer would, on average, require one hour of the reporting person’s time, as well as a record processing and maintenance cost of ten cents. Because FinCEN expects that records will primarily be produced and recorded electronically and estimates its own processing and maintenance costs at ten cents per record, it has applied the same expected cost per reportable transfer to 70287 reporting persons. In aggregate, this would result in recordkeeping costs between approximately $63.6 million and $130.8 million associated with one year’s reportable transfers. TABLE 4—ESTIMATED RECORDKEEPING COSTS Estimated per transaction recordkeeping costs Non-reporting party Reporting party Designation-related Fully loaded hourly wage Primary business categories Title Abstract and Settlement Offices ........... Direct Title Insurance Carriers ...................... Other Activities Related to Real Estate ........ Offices of Lawyers ........................................ Offices of Real Estate Agents and Brokers .. Time (minutes) $79.35 106.49 81.74 153.84 81.74 Designation-related Time (minutes) Total * 5 5 5 5 5 $6.71 8.97 6.91 12.92 6.91 Designation-independent Total * 5 5 5 5 5 $6.71 8.97 6.91 12.92 6.91 Time (hours) Total * (unadjusted) 1 1 1 1 1 $79.45 106.59 81.84 153.94 81.84 lotter on DSK11XQN23PROD with RULES2 * Total Recordkeeping cost estimates include both labor (wages) and technology costs ($0.10). If the reporting person has instead assumed that role as the result of a designation agreement, the rule would impose additional recordkeeping requirements on both the reporting person and at least one other member of the reporting cascade. This is because the existence of a designation agreement implies the existence of one or more distinct alternative parties to the reportable transfer that provided a preceding service or services as described in the cascade. While the final rule only stipulates that ‘‘all parties to a designation agreement’’ would also be anticipated to incur recordkeeping costs, FinCEN expects the minimum number of additional parties required to retain a readily accessible copy of the designation agreement for a five-year period would, in practice, depend on the number of alternative reporting parties servicing the transfer in a capacity that precedes the designated reporting person in the cascade, as it would otherwise be difficult to demonstrate the prerequisite sequence of conditions were met to establish the ‘‘but for’’ of the requirement. Conservatively assuming that each service in the cascade is provided by a separate party, this would impose an incremental recordkeeping cost on at least two parties per transfer and at most five. Because FinCEN estimates of reporting costs already assign the costs of preparing a designation agreement to the reporting person (when a transfer includes a designation agreement), the incremental recordkeeping costs it estimates here pertain solely to the electronic dissemination, signing, and storage of the agreement. This is assigned an average time cost of five minutes per signing party to read and sign the designation agreement, as well as a ten-cent record processing and maintenance cost per transfer. Thus, designation agreement-specific VerDate Sep<11>2014 21:44 Aug 28, 2024 Jkt 262001 recordkeeping costs are expected to include a time cost of 10–50 minutes (assuming one party signing per tier of the cascade) and $0.20-$0.50 per reportable transfer that involves a designation. This corresponds to expected annual aggregate costs ranging from approximately $10.9 million to $36.1 million. FinCEN notes that it assumes that rational parties to a reportable transfer would not enter into a designation agreement if the expected cost of doing so, including compliance with the recordkeeping requirements, were not elsewhere compensated in the form of efficiency gains or other offsetting cost savings associated with other components of compliance with the rule, such as training or reporting costs. As such, the estimates provided here should only be taken to reflect a pro forma accounting cost. iv. Other Costs Several commenters expressed concern that in addition to the technological costs associated with new or upgraded software, they would face certain non-monetary costs in the form of increased technology and cybersecurity related risk. Because FinCEN is not requiring reporting persons to retain copies of filed Real Estate Reports, it is not clear how the incremental data that would be retained (i.e., a copy of the beneficial ownership information certification and, if one exists, a copy of the designation agreement) could be meaningfully distinguished from other records a reporting person might retain in connection with the same reportable transfer for purposes of estimating a standalone burden of increased risk. b. Government Costs To implement the rule, FinCEN expects to incur certain operating costs that would include approximately $8.5 PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 million in the first year and approximately $7 million each year thereafter. These estimates include anticipated novel expenses related to technological implementation,81 stakeholder outreach and informational support, compliance monitoring, and potential enforcement activities, as well as certain incremental increases to preexisting administrative and logistical expenses. While such operating costs are not typically considered part of the general economic cost of a rule, FinCEN acknowledges that this treatment implicitly assumes that resources commensurate with the novel operating costs exist. If this assumption does not hold, then operating costs associated with a rule may impose certain economic costs on the public in the form of opportunity costs from the agency’s forgone alternative activities and those activities’ attendant benefits. Putting that into the context of this rule, and benchmarking against FinCEN’s actual appropriated budget for fiscal year 2023 ($190.2 million),82 the corresponding opportunity cost would resemble forgoing approximately 4.5 percent of current activities annually. 5. Economic Consideration of Policy Alternatives In the NPRM, FinCEN analyzed the expected impact of three policy alternatives to the proposed rule and invited public comment regarding the 81 Technological implementation for a new reporting form contemplates expenses related to development, operations, and maintenance of system infrastructure, including design, deployment, and support, such as a help desk. It includes an anticipated processing cost of $0.10 per submitted Real Estate Report. 82 FinCEN, ‘‘Congressional Budget Justification and Annual Performance Plan and Report FY 2024’’ (2023), available at https://home.treasury.gov/ system/files/266/15.-FinCEN-FY-2024-CJ.pdf. E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 70288 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations viability and preferability of these alternatives. First, instead of the designation option included in the proposed rule, FinCEN could have required the reporting person to be determined strictly by the reporting cascade, leaving it to the parties to a covered transfer to determine which service provider would meet the highest tier of the cascade and consequently be required to report without any option to select whichever party in the reporting cascade is best-positioned to file the report. FinCEN expects that rational parties would prefer to assign the reporting obligation to the party who can complete the report most costeffectively. An alternative reporting structure that does not allow the parties to designate a reporting person responsible for the report would therefore be less cost-effective than the approach proposed in the NPRM, unless the reporting cascade would always assign the reporting requirement to the party with the lowest associated compliance costs. Because FinCEN expects that parties to the covered transfer may be better situated to determine which party can complete the required report in the most costeffective manner, FinCEN declined to propose a standalone reporting cascade. FinCEN did not receive any comments indicating that it was mistaken in its assumptions, nor did it receive any comments indicating a preference for the designation option to be removed. As a second alternative, FinCEN could have proposed to impose the full traditional SAR filing obligations and AML/CFT program requirements on the various real estate professionals included in the proposed reporting cascade instead of the narrower requirement that only one participant party would be required to file a Real Estate Report. While imposing full AML/CFT program requirements on all real estate professionals would have almost certainly served to mitigate the illicit finance risks in the residential real estate sector, FinCEN considered that the costs accompanying this alternative would be commensurately more significant and would likely disproportionately burden small businesses. Such weighting of costs towards smaller entities was expected to increase transaction costs associated with residential real property transfers both directly via program-related operational costs and indirectly via the potential anticompetitive effects of program costs and was therefore considered a less viable alternative than the streamlined reporting obligation proposed. FinCEN did not receive any VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 comments indicating that it was mistaken in its expectations about the economic impact of this alternative or its lesser desirability. Finally, as a third alternative, FinCEN could have required the reporting person to certify the transferee’s beneficial ownership information instead of allowing them to rely upon the transferee entity or trust to certify to the reporting person that the beneficial ownership information they have provided is accurate to the best of their knowledge. FinCEN anticipated that this alternative would likely be accompanied by a number of increased costs, including a potential need for longer, more detailed compliance training; lengthier time necessary to collect and review documents supporting the reported transferee beneficial ownership information required; and increased recordkeeping costs. FinCEN also considered that there might also be costs associated with transfers that would not occur if, for example, a reporting person was unwilling or unable to certify the transferee’s information. Furthermore, FinCEN was concerned about the potential anticompetitive effects that might arise if certain reporting persons are better positioned to absorb the risks associated with certifying transferee beneficial ownership information, as it was foreseeable that smaller businesses could be at a disadvantage. FinCEN did not receive any comments indicating that it was mistaken in its expectations about the economic impact of this alternative or comments from potentially affected transferees that they would prefer the reporting person to provide certification instead. B. EOs 12866, 13563, and 14094 E.O. 12866 and its amendments direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, and public health and safety effects; distributive impacts; and equity).83 E.O. 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. E.O. 13563 also recognizes that some benefits are difficult to quantify and provides that, where appropriate and permitted by law, agencies may consider and discuss 83 E.O. 14094 sets the threshold that triggers regulatory impact analytical requirements at $200 million in expected annual burden. PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 qualitatively values that are difficult or impossible to quantify.84 Because annual residential real estate transaction volume can vary significantly from year to year and is sensitive to a host of macroeconomic factors (some of which cannot easily be modeled with reasonable accuracy), estimates that rely on average values of current data projected over extended periods of time into the future may be of limited informational value. Nevertheless, FinCEN has prepared certain annualized cost estimates as recommended in OMB circular A–4.85 Using the midpoint of the estimated range of expected costs in year one of compliance 86 and in subsequent years,87 FinCEN estimates that the net present value of costs associated with a five-year time horizon is $2.21 billion ($2.46 billion) using a 7 precent (3 percent) discount rate, respectively. This equates to annualized costs of $538.4 million ($538.0 million) using the same discount rates. This rule has been designated a ‘‘significant regulatory action;’’ accordingly, it has been reviewed by the Office of Management and Budget (OMB). C. Regulatory Flexibility Act When an agency issues a rulemaking proposal, the RFA 88 requires the agency either to provide an initial regulatory flexibility analysis (IRFA) with a proposed rule or to certify that the proposed rule would not have a significant economic impact on a substantial number of small entities. In its NPRM, FinCEN asserted that, although the rule might apply to a substantial number of small entities,89 it 84 E.O. 13563, 76 FR 3821 (Jan. 21, 2011), § 1(c) (‘‘Where appropriate and permitted by law, each agency may consider (and discuss qualitatively) values that are difficult or impossible to quantify, including equity . . . and distributive impacts.’’) 85 See Office of Management and Budget, ‘‘Circular A–4—Subject: Regulatory Analysis,’’ (Sept. 17, 2003), available at https:// obamawhitehouse.archives.gov/omb/circulars_ a004_a-4/. 86 The midpoint value of estimated first year costs is $559.4 million; see supra note 76. 87 The midpoint value of estimated subsequent year costs is $532.2 million; see supra note 76. 88 5 U.S.C. 601 et seq. 89 See FinCEN, NPRM, ‘‘Anti-Money Laundering Regulations for Residential Real Estate Transfers,’’ 89 FR 12424, 12458 (Feb. 16, 2024) (finding that ‘‘an upper bound of potentially affected small entities includes approximately 160,800 firms (by the following primary business classifications: approximately 6,300 Title and Settlement Agents, 800 Direct Title Insurance Carriers, 18,000 persons performing Other Activities Related to Real Estate, 15,700 Offices of Lawyers, and 120,000 Offices of Real Estate Agents and Brokers),’’ though ‘‘the point estimates differ non-trivially by how ‘small’ is operationally defined, and do not do so E:\FR\FM\29AUR2.SGM 29AUR2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 was not expected to have a significant economic impact on a substantial number of them.90 The preliminary basis for this expectation, at that stage, included FinCEN’s attempts to minimize the burden on reporting persons by streamlining the reporting requirements and providing for an option to designate the reporting obligation. Accordingly, FinCEN certified that the proposed rule would not have a significant economic impact on a substantial number of small entities.91 Having considered the various possible outcomes for small entities under the reporting requirements at the proposal stage 92 and having taken the public comments received in response to the NPRM into consideration, FinCEN continues to believe that the rule will not have a significant economic impact on a substantial number of small entities,93 and therefore that certification remains appropriate and a Final Regulatory Flexibility Analysis (FRFA) is not required. Changes made from the NPRM to the final rule reinforce this conclusion. The final rule contains additional exceptions for low-risk transfers and otherwise clarifies the scope of transactions to which the rule will apply, and also adopts a reasonable reliance standard with respect to information provided to reporting persons. As a result, FinCEN expects that the final rule will result in a more narrowly scoped burden in general than the proposed rule that was certified at the NPRM stage.94 FinCEN unidirectionally across methodologies and data sources’’). 90 Id. at 12452. 91 See U.S. Small Business Administration, ‘‘How to Comply with the Regulatory Flexibility Act,’’ p.44, n.144 (Aug. 2017), available at https:// advocacy.sba.gov/wp-content/uploads/2019/07/ How-to-Comply-with-the-RFA-WEB.pdf (stating that ‘‘The Office of Advocacy believes that, given the emphasis in the law on public notice, the certification should also appear in the final rule even though there may have already been a certification in the proposed rule. Doing so will help demonstrate the continued validity of the certification after receipt of public comments’’). 92 When certifying at the NPRM stage, FinCEN discussed the basis on which its expectations were formed by considering the spectrum of potential burdens and costs a small business might incur as a result of the rule. This included considering the outcomes on businesses that would either incur no change in burden, a partial increase in burden, or the full increase in burden contemplated by the rule. In this analysis, FinCEN estimated that the incremental burden of complying with the rule would equate to an approximately 0%, 0.2%, or 0.5% increase in the average annual payroll expense of one employee, respectively, and was therefore unlikely to be significant. 93 See supra note 91. 94 While FinCEN has raised its estimate of the maximum anticipated cost per transaction (from $363.17 to $628.39 for reporting persons and from an aggregate of $103.43 to $116.84 for the VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 expects that small entities affected by the final rule would experience a proportionate share of this reduction in burden when compared to the proposed rule, resulting in a more limited burden for small entities under the final rule when compared to the proposed rule, noting again that the proposed rule was itself certified as not having a significant economic impact on a substantial number of small entities. Nevertheless, while further steps to accommodate or discuss small entity concerns may not be a strict requirement, FinCEN is mindful of the small-business-oriented views and concerns voiced during the public comment period and has not precluded taking additional steps, as feasible, to facilitate implementation of the final rule in a manner that minimizes the perceived or realized competitive disadvantages a small business or other affected small entity may face. This includes, but may not be limited to, targeted outreach and production of training materials such as FAQs or a Small Entity Compliance Guide, in addition to the more broadly available support services as previously discussed in Section III.A and Section VI.A.iv.b. Certification Having considered the various possible outcomes for small entities under the reporting requirements at the proposal stage and having taken the public comments received in response to the NPRM into consideration for the final rule, FinCEN continues to certify that the rule will not have a significant economic impact on a substantial number of small entities. D. Unfunded Mandates Reform Act Section 202 of the UMRA 95 requires that an agency prepare a statement before promulgating a rule that may result in expenditure by state, local, and Tribal governments, or the private sector, in the aggregate, of $184 million or more in any one year.96 Section 202 of the UMRA also requires an agency to identify and consider a reasonable maximally inclusive number of non-reporting persons per transfer), the number of transactions to which the burden would apply (and could thereby become a transfer a small business would be required to report should it not enter into a designation agreement) is reduced. 95 See 2 U.S.C. 1532(a). 96 The U.S. Bureau of Economic Analysis reported the annual value of the gross domestic product (GDP) deflator in 1995 (the year in which UMRA was enacted) as 66.939; and in 2023 as 123.273. See U.S. Bureau of Economic Analysis, ‘‘Table 1.1.9. Implicit Price Deflators for Gross Domestic Product’’ (accessed June 5, 2024). Thus, the inflation adjusted estimate for $100 million is 123.273 divided by 66.939 and then multiplied by 100, or $184.157 million. PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 70289 number of regulatory alternatives before promulgating a rule. FinCEN believes that the preceding assessment of impact 97 satisfies the UMRA’s analytical requirements. E. Paperwork Reduction Act The new information collection requirements contained in this rule (31 CFR 1031.320) have been approved by OMB in accordance with the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., under control number 1506–0080. The PRA imposes certain requirements on Federal agencies in connection with their conducting or sponsoring any collection of information as defined by the PRA. Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid OMB control number. The rule includes three information collection requirements: Real Estate Reports, which will be submitted to FinCEN, and, depending on the circumstances of the transfer, a designation agreement and/or a certification form for beneficial ownership information, neither of which will be submitted to FinCEN but which must be retained for five years. Reporting and Recordkeeping Requirements: The provisions in this rule pertaining to the collection of information can be found in paragraph (a) of 31 CFR 1031.320. The information required to be reported by the rule will be used by the U.S. Government to monitor and investigate money laundering in the U.S. residential real estate sector. The information required to be maintained will be used by Federal agencies to verify compliance by reporting persons with the provisions of the rule. The collection of information is mandatory. OMB Control Number: 1506–0080 Frequency: As required Description of Affected Public: Residential Real Estate Settlement Agents, Title Insurance Carriers, Escrow Service Providers, Other Real Estate Professionals Estimated Number of Responses: 850,000 98 Estimated Total Annual Reporting and Recordkeeping Burden: 4,604,167 burden hours 99 97 See generally Section VI.A. estimate represents the upper bound estimate of reportable transfers per year as described in greater detail above in Section VI.A.2. 99 This estimate includes the upper bound estimates of the time burden of compliance, as described in greater detail above, with the reporting and recordkeeping requirements. See Section VI.A.4.ii and Section VI.A.4.iii. 98 This E:\FR\FM\29AUR2.SGM 29AUR2 70290 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations Estimated Total Annual Reporting and Recordkeeping Cost: $630,976,662.47 100 F. Congressional Review Act OMB’s Office of Information and Regulatory Affairs has designated this rule as meeting the criteria under 5 U.S.C. 804(2) for purposes of Subtitle E of the Small Business Regulatory Enforcement and Fairness Act of 1996 (also known as the Congressional Review Act or CRA).101 Under the CRA, such rules generally may take effect no earlier than 60 days after the rule is published in the Federal Register.102 List of Subjects in 31 CFR Part 1031 Administrative practice and procedure, Aliens, Authority delegations (Government agencies), Bankruptcy, Banks and banking, Brokers, Buildings and facilities, Business and industry, Condominiums, Cooperatives, Courts, Currency, Citizenship and naturalization, Crime, Electronic filing, Estates, Fair housing, Federal home loan banks, Federal savings associations, Federal-States relations, Foreign investments in U.S., Foreign persons, Foundations, Holding companies, Home improvement, Homesteads, Housing, Indian—law, Indians, Indians—tribal government, Insurance companies, Investment advisers, Investment companies, Investigations, Lawyers, Legal services, Law enforcement, Low and moderate income housing, Money laundering, Mortgage insurances, Mortgages, Penalties, Privacy, Real property acquisition, Record retention, Reporting and recordkeeping requirements, Small businesses, Securities, Taxes, Terrorism, Trusts and trustees, U.S. territories. Authority and Issuance For the reasons set forth in the preamble, chapter X of title 31 of the Code of Federal Regulations is amended by adding part 1031 to read as follows: ■ PART 1031—RULES FOR PERSONS INVOLVED IN REAL ESTATE CLOSINGS AND SETTLEMENTS lotter on DSK11XQN23PROD with RULES2 Sec. 100 This estimate includes the upper bound estimates of the wage and technology costs of compliance, as described in greater detail above, with the reporting and recordkeeping requirements. See Section VI.A.4.ii and Section VI.A.4.iii. 101 5 U.S.C. 804(2) et seq. 102 5 U.S.C. 801(a)(3). VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 Subparts A and B [Reserved] Subpart C—Reports Required to be Made by Persons Involved in Real Estate Closings and Settlements 1031.320 Reports of residential real property transfers. 1031.321 [Reserved] Authority: 12 U.S.C. 1829b, 1951–1959; 31 U.S.C. 5311–5314, 5316–5336; title III, sec. 314 Pub. L. 107–56, 115 Stat. 307; sec. 701 Pub. L. 114–74, 129 Stat. 599; sec. 6403, Pub. L. 116–283, 134 Stat. 3388. Subparts A and B [Reserved] Subpart C—Reports Required to be Made by Persons Involved in Real Estate Closings and Settlements § 1031.320 Reports of residential real property transfers. (a) General. A reportable transfer as defined in paragraph (b) of this section shall be reported to FinCEN by the reporting person identified in paragraph (c) of this section. The report shall include the information described in paragraphs (d) through (i) of this section. The reporting person may reasonably rely on information collected from others under the conditions described in paragraph (j). The report required by this section shall be filed in the form and manner, and at the time, specified in paragraph (k) of this section. Records shall be retained as specified in paragraph (l) of this section. Reports required under this section and any other information that would reveal that a reportable transfer has been reported are not confidential as specified in paragraph (m) of this section. Terms not defined in this section are defined in 31 CFR 1010.100. (b) Reportable transfer. (1) Except as set forth in paragraph (b)(2) of this section, a reportable transfer is a nonfinanced transfer to a transferee entity or transferee trust of an ownership interest in residential real property. For the purposes of this section, residential real property means: (i) Real property located in the United States containing a structure designed principally for occupancy by one to four families; (ii) Land located in the United States on which the transferee intends to build a structure designed principally for occupancy by one to four families; (iii) A unit designed principally for occupancy by one to four families within a structure on land located in the United States; or (iv) Shares in a cooperative housing corporation for which the underlying property is located in the United States. (2) A reportable transfer does not include a: PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 (i) Grant, transfer, or revocation of an easement; (ii) Transfer resulting from the death of an individual, whether pursuant to the terms of a decedent’s will or the terms of a trust, the operation of law, or by contractual provision; (iii) Transfer incident to divorce or dissolution of a marriage or civil union; (iv) Transfer to a bankruptcy estate; (v) Transfer supervised by a court in the United States; (vi) Transfer for no consideration made by an individual, either alone or with the individual’s spouse, to a trust of which that individual, that individual’s spouse, or both of them, are the settlor(s) or grantor(s); (vii) Transfer to a qualified intermediary for purposes of 26 CFR 1.1031(k)–1; or (viii) Transfer for which there is no reporting person. (c) Determination of reporting person. (1) Except as set forth in paragraphs (c)(2), (3) and (4) of this section, the reporting person for a reportable transfer is the person engaged within the United States as a business in the provision of real estate closing and settlement services that is: (i) The person listed as the closing or settlement agent on the closing or settlement statement for the transfer; (ii) If no person described in paragraph (c)(1)(i) of this section is involved in the transfer, then the person that prepares the closing or settlement statement for the transfer; (iii) If no person described in paragraph (c)(1)(i) or (ii) of this section is involved in the transfer, then the person that files with the recordation office the deed or other instrument that transfers ownership of the residential real property; (iv) If no person described in paragraphs (c)(1)(i) through (iii) of this section is involved in the transfer, then the person that underwrites an owner’s title insurance policy for the transferee with respect to the transferred residential real property, such as a title insurance company; (v) If no person described in paragraphs (c)(1)(i) through (iv) of this section is involved in the transfer, then the person that disburses in any form, including from an escrow account, trust account, or lawyers’ trust account, the greatest amount of funds in connection with the residential real property transfer; (vi) If no person described in paragraphs (c)(1)(i) through (v) of this section is involved in the transfer, then the person that provides an evaluation of the status of the title; or E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations (vii) If no person described in paragraphs (c)(1)(i) through (vi) of this section is involved in the transfer, then the person that prepares the deed or, if no deed is involved, any other legal instrument that transfers ownership of the residential real property, including, with respect to shares in a cooperative housing corporation, the person who prepares the stock certificate. (2) Employees, agents, and partners. If an employee, agent, or partner acting within the scope of such individual’s employment, agency, or partnership would be the reporting person as determined in paragraph (c)(1) of this section, then the individual’s employer, principal, or partnership is deemed to be the reporting person. (3) Financial institutions. A financial institution that has an obligation to maintain an anti-money laundering program under this chapter is not a reporting person for purposes of this section. (4) Designation agreement. (i) The reporting person described in paragraph (c)(1) of this section may enter into an agreement with any other person described in paragraph (c)(1) of this section to designate such other person as the reporting person with respect to the reportable transfer. The person designated by such agreement shall be treated as the reporting person with respect to the transfer. If reporting persons decide to use designation agreements, a separate agreement is required for each reportable transfer. (ii) A designation agreement shall be in writing, and shall include: (A) The date of the agreement; (B) The name and address of the transferor; (C) The name and address of the transferee entity or transferee trust; (D) Information described in in paragraph (g) identifying transferred residential real property; (E) The name and address of the person designated through the agreement as the reporting person with respect to the transfer; and (F) The name and address of all other parties to the agreement. (d) Information concerning the reporting person. The reporting person shall report: (1) The full legal name of the reporting person; (2) The category of reporting person, as determined in paragraph (c) of this section; and (3) The street address that is the reporting person’s principal place of business in the United States. (e) Information concerning the transferee—(1) Transferee entities. For each transferee entity involved in a VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 reportable transfer, the reporting person shall report: (i) The following information for the transferee entity: (A) Full legal name; (B) Trade name or ‘‘doing business as’’ name, if any; (C) Complete current address consisting of: (1) The street address that is the transferee entity’s principal place of business; and (2) If such principal place of business is not in the United States, the street address of the primary location in the United States where the transferee entity conducts business, if any; and (D) Unique identifying number, if any, consisting of: (1) The Internal Revenue Service Taxpayer Identification Number (IRS TIN) of the transferee entity; (2) If the transferee entity has not been issued an IRS TIN, a tax identification number for the transferee entity that was issued by a foreign jurisdiction and the name of such jurisdiction; or (3) If the transferee entity has not been issued an IRS TIN or a foreign tax identification number, an entity registration number issued by a foreign jurisdiction and the name of such jurisdiction; (ii) The following information for each beneficial owner of the transferee entity: (A) Full legal name; (B) Date of birth; (C) Complete current residential street address; (D) Citizenship; and (E) Unique identifying number consisting of: (1) An IRS TIN; or (2) Where an IRS TIN has not been issued: (i) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (ii) The unique identifying number and the issuing jurisdiction from a nonexpired passport issued by a foreign government; and (iii) The following information for each signing individual, if any: (A) Full legal name; (B) Date of birth; (C) Complete current residential street address; (D) Unique identifying number consisting of: (1) An IRS TIN; or (2) Where an IRS TIN has not been issued: (i) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (ii) The unique identifying number and the issuing jurisdiction from a non- PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 70291 expired passport issued by a foreign government to the individual; (E) Description of the capacity in which the individual is authorized to act as the signing individual; and (F) If the signing individual is acting in that capacity as an employee, agent, or partner, the name of the individual’s employer, principal, or partnership. (2) Transferee trusts. For each transferee trust in a reportable transfer, the reporting person shall report: (i) The following information for the transferee trust: (A) Full legal name, such as the full title of the agreement establishing the transferee trust; (B) Date the trust instrument was executed; (C) Unique identifying number, if any, consisting of: (1) IRS TIN; or (2) Where an IRS TIN has not been issued, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; and (D) Whether the transferee trust is revocable; (ii) The following information for each trustee that is a legal entity: (A) Full legal name; (B) Trade name or ‘‘doing business as’’ name, if any; (C) Complete current address consisting of: (1) The street address that is the trustee’s principal place of business; and (2) If such principal place of business is not in the United States, the street address of the primary location in the United States where the trustee conducts business, if any; and (D) Unique identifying number, if any, consisting of: (1) The IRS TIN of the trustee; (2) In the case that a trustee has not been issued an IRS TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (3) In the case that a trustee has not been issued an IRS TIN or a foreign tax identification number, an entity registration number issued by a foreign jurisdiction and the name of such jurisdiction; (E) For purposes of this section, an individual trustee of the transferee trust is considered to be a beneficial owner of the trust. As such, information on individual trustees must be reported in accordance with the requirements set forth in paragraph (e)(2)(iii) of this section; (iii) The following information for each beneficial owner of the transferee trust: (A) Full legal name; E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 70292 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations (B) Date of birth; (C) Complete current residential street address; (D) Citizenship; (E) Unique identifying number consisting of: (1) An IRS TIN; or (2) Where an IRS TIN has not been issued: (i) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (ii) The unique identifying number and the issuing jurisdiction from a nonexpired passport issued by a foreign government; and (F) The category of beneficial owner, as determined in paragraph (j)(1)(ii) of this section; and (iv) The following information for each signing individual, if any: (A) Full legal name; (B) Date of birth; (C) Complete current residential street address; (D) Unique identifying number consisting of: (1) An IRS TIN; or (2) Where an IRS TIN has not been issued: (i) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (ii) The unique identifying number and the issuing jurisdiction from a nonexpired passport issued by a foreign government to the individual; (E) Description of the capacity in which the individual is authorized to act as the signing individual; and (F) If the signing individual is acting in that capacity as an employee, agent, or partner, the name of the individual’s employer, principal, or partnership. (f) Information concerning the transferor. For each transferor involved in a reportable transfer, the reporting person shall report: (1) The following information for a transferor who is an individual: (i) Full legal name; (ii) Date of birth; (iii) Complete current residential street address; and (iv) Unique identifying number consisting of: (A) An IRS TIN; or (B) Where an IRS TIN has not been issued: (1) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (2) The unique identifying number and the issuing jurisdiction from a nonexpired passport issued by a foreign government to the individual; (2) The following information for a transferor that is a legal entity: (i) Full legal name; VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 (ii) Trade name or ‘‘doing business as’’ name, if any; (iii) Complete current address consisting of: (A) The street address that is the legal entity’s principal place of business; and (B) If the principal place of business is not in the United States, the street address of the primary location in the United States where the legal entity conducts business, if any; and (iv) Unique identifying number, if any, consisting of: (A) An IRS TIN; (B) In the case that the legal entity has not been issued an IRS TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (C) In the case that the legal entity has not been issued an IRS TIN or a foreign tax identification number, an entity registration number issued by a foreign jurisdiction and the name of such jurisdiction; and (3) The following information for a transferor that is a trust: (i) Full legal name, such as the full title of the agreement establishing the trust; (ii) Date the trust instrument was executed; (iii) Unique identifying number, if any, consisting of: (A) IRS TIN; or (B) Where an IRS TIN has not been issued, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; (iv) For each individual who is a trustee of the trust: (A) Full legal name; (B) Current residential street address; and (C) Unique identifying number consisting of: (1) An IRS TIN; or (2) Where an IRS TIN has not been issued: (i) A tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (ii) The unique identifying number and the issuing jurisdiction from a nonexpired passport issued by a foreign government; and (v) For each legal entity that is a trustee of the trust: (A) Full legal name; (B) Trade name or ‘‘doing business as’’ name, if any; (C) Complete current address consisting of: (1) The street address that is the legal entity’s principal place of business; and (2) If the principal place of business is not in the United States, the street address of the primary location in the United States where the legal entity conducts business, if any; and PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 (D) Unique identifying number, if any, consisting of: (1) An IRS TIN; (2) In the case that the legal entity has not been issued an IRS TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction; or (3) In the case that the legal entity has not been issued an IRS TIN or a foreign tax identification number, an entity registration number issued by a foreign jurisdiction and the name of such jurisdiction. (g) Information concerning the residential real property. For each residential real property that is the subject of the reportable transfer, the reporting person shall report: (1) The street address, if any; (2) The legal description, such as the section, lot, and block; and (3) The date of closing. (h) Information concerning payments. (1) The reporting person shall report the following information concerning each payment, other than a payment disbursed from an escrow or trust account held by a transferee entity or transferee trust, that is made by or on behalf of the transferee entity or transferee trust regarding a reportable transfer: (i) The amount of the payment; (ii) The method by which the payment was made; (iii) If the payment was paid from an account held at a financial institution, the name of the financial institution and the account number; and (iv) The name of the payor on any wire, check, or other type of payment if the payor is not the transferee entity or transferee trust. (2) The reporting person shall report the total consideration paid or to be paid by the transferee entity or transferee trust regarding the reportable transfer, as well as the total consideration paid by or to be paid by all transferees regarding the reportable transfer. (i) Information concerning hard money, private, and other similar loans. The reporting person shall report whether the reportable transfer involved credit extended by a person that is not a financial institution with an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions under this chapter. (j) Reasonable reliance—(1) General. Except as described in paragraph (j)(2) of this section, the reporting person may rely upon information provided by other persons, absent knowledge of facts that would reasonably call into question the E:\FR\FM\29AUR2.SGM 29AUR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations reliability of the information provided to the reporting person. (2) Certification when reporting beneficial ownership information. For purposes of reporting information described in paragraphs (e)(1)(ii) and (e)(2)(iii) of this section, the reporting person may rely upon information provided by the transferee or a person representing the transferee in the reportable transfer, absent knowledge of facts that would reasonably call into question the reliability of the information provided to the reporting person, if the person providing the information certifies the accuracy of the information in writing to the best of the person’s knowledge. (k) Filing procedures—(1) What to file. A reportable transfer shall be reported by completing a Real Estate Report. (2) Where to file. The Real Estate Report shall be filed electronically with FinCEN, as indicated in the instructions to the report. (3) When to file. A reporting person is required to file a Real Estate Report by the later of either: (i) the final day of the month following the month in which the date of closing occurred; or (ii) 30 calendar days after the date of closing. (l) Retention of records. A reporting person shall maintain a copy of any certification described in paragraph (j)(2) of this section. In addition, all parties to a designation agreement described in paragraph (c)(4) of this section shall maintain a copy of such designation agreement. (m) Exemptions—(1) Confidentiality. Reporting persons, and any director, officer, employee, or agent of such persons, and Federal, State, local, or Tribal government authorities, are exempt from the confidentiality provision in 31 U.S.C. 5318(g)(2) that prohibits the disclosure to any person involved in a suspicious transaction that the transaction has been reported or any information that otherwise would reveal that the transaction has been reported. (2) Anti-money laundering program. A reporting person under this section is exempt from the requirement to establish an anti-money laundering program, in accordance with 31 CFR 1010.205(b)(1)(v). (n) Definitions. For purposes of this section, the following terms have the following meanings. (1) Beneficial owner—(i) Beneficial owners of transferee entities. (A) The beneficial owners of a transferee entity are the individuals who would be the beneficial owners of the transferee entity on the date of closing if the transferee entity were a reporting VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 company under 31 CFR 1010.380(d) on the date of closing. (B) The beneficial owners of a transferee entity that is established as a non-profit corporation or similar entity, regardless of jurisdiction of formation, are limited to individuals who exercise substantial control over the entity, as defined in 31 CFR 1010.380(d)(1) on the date of closing. (ii) Beneficial owners of transferee trusts. The beneficial owners of a transferee trust are the individuals who fall into one or more of the following categories on the date of closing: (A) A trustee of the transferee trust. (B) An individual other than a trustee with the authority to dispose of transferee trust assets. (C) A beneficiary who is the sole permissible recipient of income and principal from the transferee trust or who has the right to demand a distribution of, or withdraw, substantially all of the assets from the transferee trust. (D) A grantor or settlor who has the right to revoke the transferee trust or otherwise withdraw the assets of the transferee trust. (E) A beneficial owner of any legal entity that holds at least one of the positions in the transferee trust described in paragraphs (n)(1)(ii)(A) through (D) of this section, except when the legal entity meets the criteria set forth in paragraphs (n)(10)(ii)(A) through (P) of this section. Beneficial ownership of any such legal entity is determined under 31 CFR 1010.380(d), utilizing the criteria for beneficial owners of a reporting company. (F) A beneficial owner of any trust that holds at least one of the positions in the transferee trust described in paragraphs (n)(1)(ii)(A) through (D) of this section, except when the trust meets the criteria set forth in paragraphs (n)(11)(ii)(A) through (D). Beneficial ownership of any such trust is determined under this paragraph (n)(1)(ii), utilizing the criteria for beneficial owners of a transferee trust. (2) Closing or settlement agent. The term ‘‘closing or settlement agent’’ means any person, whether or not acting as an agent for a title agent or company, a licensed attorney, real estate broker, or real estate salesperson, who for another and with or without a commission, fee, or other valuable consideration and with or without the intention or expectation of receiving a commission, fee, or other valuable consideration, directly or indirectly, provides closing or settlement services incident to the transfer of residential real property. (3) Closing or settlement statement. The term ‘‘closing or settlement PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 70293 statement’’ means the statement of receipts and disbursements prepared for the transferee for a transfer of residential real property. (4) Date of closing. The term ‘‘date of closing’’ means the date on which the transferee entity or transferee trust receives an ownership interest in residential real property. (5) Non-financed transfer. The term ‘‘non-financed transfer’’ means a transfer that does not involve an extension of credit to all transferees that is: (i) Secured by the transferred residential real property; and (ii) Extended by a financial institution that has both an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions under this chapter. (6) Ownership interest. The term ‘‘ownership interest’’ means the rights held in residential real property that are demonstrated: (i) Through a deed, for a reportable transfer described in paragraph (b)(1)(i), (ii), or (iii) of this section; or (ii) Through stock, shares, membership, certificate, or other contractual agreement evidencing ownership, for a reportable transfer described in paragraph (b)(1)(iv) of this section. (7) Recordation office. The term ‘‘recordation office’’ means any State, local, Territory and Insular Possession, or Tribal office for the recording of reportable transfers as a matter of public record. (8) Signing individual. The term ‘‘signing individual’’ means each individual who signed documents on behalf of the transferee as part of the reportable transfer. However, it does not include any individual who signed documents as part of their employment with a financial institution that has both an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions under this chapter. (9) Statutory trust. The term ‘‘statutory trust’’ means any trust created or authorized under the Uniform Statutory Trust Entity Act or as enacted by a State. For the purposes of this subpart, statutory trusts are transferee entities. (10) Transferee entity. (i) Except as set forth in paragraph (n)(10)(ii) of this section, the term ‘‘transferee entity’’ means any person other than a transferee trust or an individual. (ii) A transferee entity does not include: (A) A securities reporting issuer defined in 31 CFR 1010.380(c)(2)(i); E:\FR\FM\29AUR2.SGM 29AUR2 70294 Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 (B) A governmental authority defined in 31 CFR 1010.380(c)(2)(ii); (C) A bank defined in 31 CFR 1010.380(c)(2)(iii); (D) A credit union defined in 31 CFR 1010.380(c)(2)(iv); (E) A depository institution holding company defined in 31 CFR 1010.380(c)(2)(v); (F) A money service business defined in 31 CFR 1010.380(c)(2)(vi); (G) A broker or dealer in securities defined in 31 CFR 1010.380(c)(2)(vii); (H) A securities exchange or clearing agency defined in 31 CFR 1010.380(c)(2)(viii); (I) Any other Exchange Act registered entity defined in 31 CFR 1010.380(c)(2)(ix); (J) An insurance company defined in 31 CFR 1010.380(c)(2)(xii); (K) A State-licensed insurance producer defined in 31 CFR 1010.380(c)(2)(xiii); (L) A Commodity Exchange Act registered entity defined in 31 CFR 1010.380(c)(2)(xiv); VerDate Sep<11>2014 19:56 Aug 28, 2024 Jkt 262001 (M) A public utility defined in 31 CFR 1010.380(c)(2)(xvi); (N) A financial market utility defined in 31 CFR 1010.380(c)(2)(xvii); (O) An investment company as defined in section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a– 3(a)) that is registered with the Securities and Exchange Commission under section 8 of the Investment Company Act (15 U.S.C. 80a–8); and (P) Any legal entity controlled or wholly owned, directly or indirectly, by an entity described in paragraphs (n)(10)(ii)(A) through (O) of this section. (11) Transferee trust. (i) Except as set forth in paragraph (n)(11)(ii) of this section, the term ‘‘transferee trust’’ means any legal arrangement created when a person (generally known as a grantor or settlor) places assets under the control of a trustee for the benefit of one or more persons (each generally known as a beneficiary) or for a specified purpose, as well as any legal arrangement similar in structure or function to the above, whether formed PO 00000 Frm 00038 Fmt 4701 Sfmt 9990 under the laws of the United States or a foreign jurisdiction. A trust is deemed to be a transferee trust regardless of whether residential real property is titled in the name of the trust itself or in the name of the trustee in the trustee’s capacity as the trustee of the trust. (ii) A transferee trust does not include: (A) A trust that is a securities reporting issuer defined in 31 CFR 1010.380(c)(2)(i); (B) A trust in which the trustee is a securities reporting issuer defined in 31 CFR 1010.380(c)(2)(i); (C) A statutory trust; or (D) An entity wholly owned by a trust described in paragraphs (n)(11)(ii)(A) through (C) of this section. § 1031.321 [Reserved] Andrea M. Gacki, Director, Financial Crimes Enforcement Network. [FR Doc. 2024–19198 Filed 8–28–24; 8:45 am] BILLING CODE 4810–02–P E:\FR\FM\29AUR2.SGM 29AUR2

Agencies

[Federal Register Volume 89, Number 168 (Thursday, August 29, 2024)]
[Rules and Regulations]
[Pages 70258-70294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19198]



[[Page 70257]]

Vol. 89

Thursday,

No. 168

August 29, 2024

Part II





Department of the Treasury





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 Financial Crimes Enforcement Network





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31 CFR Chapter X





Anti-Money Laundering Regulations for Residential Real Estate 
Transfers; Final Rule

Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 / 
Rules and Regulations

[[Page 70258]]


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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network

31 CFR Chapter X

RIN 1506-AB54


Anti-Money Laundering Regulations for Residential Real Estate 
Transfers

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Final rule.

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SUMMARY: FinCEN is issuing a final rule to require certain persons 
involved in real estate closings and settlements to submit reports and 
keep records on certain non-financed transfers of residential real 
property to specified legal entities and trusts on a nationwide basis. 
Transfers made directly to an individual are not covered by this rule. 
This rule describes the circumstances in which a report must be filed, 
who must file a report, what information must be provided, and when a 
report is due. These reports are expected to assist the U.S. Department 
of the Treasury, law enforcement, and national security agencies in 
addressing illicit finance vulnerabilities in the U.S. residential real 
estate sector, and to curtail the ability of illicit actors to 
anonymously launder illicit proceeds through transfers of residential 
real property, which threatens U.S. economic and national security.

DATES: Effective December 1, 2025.

ADDRESSES: The FinCEN Regulatory Support Section at 1-800-767-2825 or 
electronically at [email protected].

SUPPLEMENTARY INFORMATION:

I. Executive Summary

    Among the persons required by the Bank Secrecy Act (BSA) to 
maintain anti-money laundering and countering the financing of 
terrorism (AML/CFT) \1\ programs are ``persons involved in real estate 
closings and settlements.'' \2\ For many years, FinCEN has exempted 
such persons from comprehensive regulation under the BSA. However, 
information received in response to FinCEN's geographic targeting 
orders relating to non-financed transfers of residential real estate 
(Residential Real Estate GTOs) has demonstrated the need for increased 
transparency and further regulation of this sector. Furthermore, the 
U.S. Department of the Treasury (Treasury) has long recognized the 
illicit finance risks posed by criminals and corrupt officials who 
abuse opaque legal entities and trusts to launder ill-gotten gains 
through transfers of residential real estate. This illicit use of the 
residential real estate market threatens U.S. economic and national 
security and can disadvantage individuals and small businesses that 
seek to compete fairly in the U.S. economy.
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    \1\ Section 6101 of the AML Act, codified at 31 U.S.C. 5318(h), 
amended the BSA's requirement that financial institutions implement 
AML programs to also combat terrorist financing. This rule refers to 
``AML/CFT program'' in reference to the current obligation contained 
in the BSA.
    \2\ 31 U.S.C. 5312(a)(2)(U).
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    Earlier this year, pursuant to the BSA's authority to impose AML 
regulations on persons involved in real estate closings and 
settlements, FinCEN proposed a new reporting requirement. Under the 
proposed rule, certain persons involved in real estate closings and 
settlements would be required to report on certain transfers that 
Treasury deems high risk for illicit financial activity--namely, non-
financed transfers of residential real property to legal entities and 
trusts.
    FinCEN is now issuing a final rule that adopts the proposed rule 
with some modifications. The final rule imposes a streamlined 
suspicious activity report (SAR) filing requirement under which 
reporting persons, as defined, are required to file a ``Real Estate 
Report'' on certain non-financed transfers of residential real property 
to legal entities and trusts. Transfers to individuals, as well as 
certain transfers commonly used in estate planning, do not have to be 
reported. The reporting person for any transfer is one of a small 
number of persons who play specified roles in the real estate closing 
and settlement, with the specific individual determined through a 
cascading approach, unless superseded by an agreement among persons in 
the reporting cascade. The reporting person is required to identify 
herself, the legal entity or trust to which the residential real 
property is transferred, the beneficial owner(s) of that transferee 
entity or transferee trust, the person(s) transferring the residential 
real property, and the property being transferred, along with certain 
transactional information about the transfer.
    The final rule adopts a reasonable reliance standard, allowing 
reporting persons to rely on information obtained from other persons, 
absent knowledge of facts that would reasonably call into question the 
reliability of that information. For purposes of reporting beneficial 
ownership information in particular, a reporting person may reasonably 
rely on information obtained from a transferee or the transferee's 
representative if the accuracy of the information is certified in 
writing to the best of the information provider's own knowledge.
    FinCEN has sought to minimize burdens on reporting persons to the 
extent practicable without diminishing the utility of the Real Estate 
Report to law enforcement and believes the final rule appropriately 
balances the collection of information that is highly useful to 
Treasury, law enforcement, and national security agencies against the 
burdens associated with collecting that information, particularly on 
small businesses.

II. Background

A. Addressing High-Risk Transfers of Residential Real Estate

1. Authority To Require Reports From Persons Involved in Real Estate 
Closings and Settlements
    The BSA is intended to combat money laundering, the financing of 
terrorism, and other illicit financial activity.\3\ The purposes of the 
BSA include requiring financial institutions to keep records and file 
reports that ``are highly useful in criminal, tax, or regulatory 
investigations or proceedings'' or in the conduct of ``intelligence or 
counterintelligence activities, including analysis, to protect against 
international terrorism.'' \4\ The Secretary of the Treasury 
(Secretary) has delegated the authority to implement, administer, and 
enforce compliance with the BSA and its implementing regulations to the 
Director of FinCEN.\5\
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    \3\ See 31 U.S.C. 5311. Section 6003(1) of the Anti-Money 
Laundering Act of 2020 defines the BSA as section 21 of the Federal 
Deposit Insurance Act (12 U.S.C. 1829b), Chapter 2 of Title I of 
Public Law 91-508 (12 U.S.C. 1951 et seq.), and 31 U.S.C. chapter 
53, subchapter II. AML Act, Public Law 116-283, Division F, section 
6003(1) (Jan. 1, 2021). Under this definition, the BSA is codified 
at 12 U.S.C. 1829b and 1951-1960, and 31 U.S.C. 5311-5314 and 5316-
5336, including notes thereto. Its implementing regulations are 
found at 31 CFR Chapter X.
    \4\ 31 U.S.C. 5311(1).
    \5\ Treasury Order 180-01, Paragraph 3(a) (Jan. 14, 2020), 
available at https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01.
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    The BSA requires ``financial institutions'' to establish an AML/CFT 
program, which must include, 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.'' \6\ The BSA also 
authorizes the Secretary to require financial institutions to report 
any suspicious transaction relevant to a possible violation of law or 
regulation.\7\ Among the financial institutions subject to these

[[Page 70259]]

requirements are ``persons involved in real estate closings and 
settlements.'' \8\
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    \6\ 31 U.S.C. 5318(h)(1)(A)-(D).
    \7\ 31 U.S.C. 5318(g).
    \8\ 31 U.S.C. 5312(a)(2)(U).
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    In particular, section 5318(g) of the BSA authorizes the Secretary 
to require financial institutions to report, via SARs, any ``suspicious 
transactions relevant to a possible violation of law or regulation.'' 
\9\ However, the BSA affords the Secretary flexibility in implementing 
that requirement, and indeed directs the Secretary to consider ``the 
means by or form in which the Secretary shall receive such reporting,'' 
including the relevant ``burdens imposed by such means or form of 
reporting,'' ``the efficiency of the means or form,'' and the 
``benefits derived by the means or form of reporting.'' \10\ A 
provision added to the BSA by section 6202 of the Anti-Money Laundering 
Act of 2020 (AML Act) further directs FinCEN to ``establish streamlined 
. . . processes to, as appropriate, permit the filing of noncomplex 
categories of reports of suspicious activity.'' In assessing whether 
streamlined filing is appropriate, FinCEN must determine, among other 
things, that such reports would ``reduce burdens imposed on persons 
required to report[,]'' while at the same time ``not diminish[ing] the 
usefulness of the reporting to Federal law enforcement agencies, 
national security officials, and the intelligence community in 
combating financial crime, including the financing of terrorism[.]'' 
\11\
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    \9\ 31 U.S.C. 5318(g)(1)(A).
    \10\ 31 U.S.C. 5318(g)(5)(B)(i)-(iii).
    \11\ See AML Act, section 6202 (codified at 31 U.S.C. 
5318(g)(D)(i)(1)). Section 6102(c) of the AML Act also amended 31 
U.S.C. 5318(a)(2) to give the Secretary the authority 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.'' FinCEN believes this authority also provides an 
additional basis for the reporting requirement adopted in this final 
rule.
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2. Reporting High-Risk Transfers of Residential Real Estate
    Most transfers of residential real estate are associated with a 
mortgage loan or other financing provided by financial institutions 
subject to AML/CFT program requirements. As non-financed transfers do 
not involve such financial institutions, such transfers can be and have 
been exploited by illicit actors of all varieties, including those that 
pose domestic threats, such as persons engaged in fraud or organized 
crime, and foreign threats, such as international drug cartels, human 
traffickers, and corrupt political or business figures. Non-financed 
transfers to legal entities and trusts heighten the risk that such 
transfers will be used for illicit purposes. Numerous public law 
enforcement actions illustrate this point.\12\ As such, FinCEN believes 
that the reporting of non-financed transfers to legal entities and 
trusts will benefit national security by facilitating law enforcement 
investigations into, and strategic analysis of, the use of residential 
real estate transfers having these particular characteristics to 
facilitate money laundering.\13\
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    \12\ As the Financial Action Task Force (FATF) noted in July 
2022, ``[d]isparities with rules surrounding legal structures across 
countries means property can often be acquired abroad by shell 
companies or trusts based in secrecy jurisdictions, exacerbating the 
risk of money laundering.'' International bodies, such as the FATF 
have found that ``[s]uccessful AML/CFT supervision of the real 
estate sector must contend with the obfuscation of true ownership 
provided by legal entities or arrangements[.]'' FATF, ``Guidance for 
a Risk Based Approach: Real Estate Sector'' (July 2022), p. 17, 
available at https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/RBA-Real-Estate-Sector.pdf.coredownload.pdf; see, e.g., 
U.S. v. Delgado, 653 F.3d 729 (8th Cir. 2011) (drug trafficking, 
money laundering); U.S. v. Fernandez, 559 F.3d 303 (5th Cir. 2009) 
(drug trafficking, money laundering); Complaint for Forfeiture, U.S. 
v. All the Lot or Parcel of Land Located at 19 Duck Pond Lane 
Southampton, New York 11968, Case No. 1:23-cv-01545 (S.D.N.Y. Feb. 
24, 2023) (sanctions evasion); Indictment and Forfeiture, U.S. v. 
Maikel Jose Moreno Perez, Case No. 1:23-cr-20035-RNS (S.D. Fla. Jan. 
26, 2023) (bribery, money laundering, conspiracy); Motion for 
Preliminary Order of Forfeiture and Preliminary Order of Forfeiture, 
U.S. v. Colon, Case No. 1:17-cr-47-SB (D. Del. Nov. 18, 2022) (drug 
trafficking, money laundering); U.S. v. Andrii Derkach, 1:2022-cr-
00432 (E.D.N.Y. Sept. 26, 2022) (sanctions evasion, money 
laundering, bank fraud); Doc. No. 10 at p. 1, U.S. vs. Ralph 
Steinmann and Luis Fernando Vuiz, 1:2022-cr-20306 (S.D. Fla. July 
12, 2022) (bribery, money laundering); U.S. v. Jimenez, Case No. 
1:18-cr-00879, 2022 U.S. Dist. LEXIS 77685, 2022 WL 1261738 
(S.D.N.Y. Apr. 28, 2022) (false claim fraud, wire fraud, money 
laundering, identity theft); Complaint for Forfeiture, U.S. v. Real 
Property Located in Potomac, Maryland, Commonly Known as 9908 
Bentcross Drive, Potomac, MD 20854, 8:2020-cv-02071 (D. Md. July 15, 
2020) (public corruption, money laundering); Final Order of 
Forfeiture, U.S. v. Raul Torres, Case No. 1:19-cr-390 (N.D. Ohio 
Mar. 30, 2020) (operating an animal fighting venture, operating an 
unlicensed money services business, money laundering); U.S. v. 
Bradley, Case No. 3:15-cr-00037-2, 2019 U.S. Dist. LEXIS 141157, 
2019 WL 3934684 (M.D. Tenn. Aug. 20, 2019) (drug trafficking, money 
laundering); Indictment, U.S. v. Patrick Ifediba, et al., Case No. 
2:18-cr-00103-RDP-JEO, Doc. 1 (N.D. Ala. Mar. 29, 2018) (health care 
fraud); Redacted Indictment, U.S. v. Paul Manafort, Case 1:18-cr-
00083-TSE (E.D. Va. Feb. 26, 2018) (money laundering, acting as an 
unregistered foreign agent); U.S. v. Miller, 295 F. Supp. 3d 690 
(E.D. Va. 2018) (wire fraud); U.S. v. Coffman, 859 F. Supp. 2d 871 
(E.D. Ky. 2012) (mail, wire, and securities fraud); U.S. v. 10.10 
Acres Located on Squires Rd., 386 F. Supp. 2d 613 (M.D.N.C. 2005) 
(drug trafficking); Atty. Griev. Comm'n of Md. v. Blair, 188 A.3d 
1009 (Md. Ct. App. 2018) (money laundering drug trafficking 
proceeds); State v. Harris, 861 A.2d 165 (NJ Super. Ct. App. Div. 
2004) (money laundering, theft); U.S. Department of Justice, Press 
Release, ``Associate of Sanctioned Oligarch Indicted for Sanctions 
Evasion and Money Laundering: Fugitive Vladimir Vorontchenko Aided 
in Concealing Luxury Real Estate Owned by Viktor Vekselberg'' (Feb. 
7, 2023), available at https://www.justice.gov/usao-sdny/pr/associate-sanctioned-oligarch-indicted-sanctions-evasion-and-money-laundering; U.S. Department of Justice, Press Release, United States 
Reaches Settlement to Recover More Than $700 Million in Assets 
Allegedly Traceable to Corruption Involving Malaysian Sovereign 
Wealth Fund (Oct. 30, 2019), available at https://www.justice.gov/opa/pr/united-states-reaches-settlement-recover-more-700-million-assets-allegedly-traceable; U.S. Department of Justice, Press 
Release, ``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'' (May 12, 2017), available at https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-59-million-settlement-civil-money-laundering-and.
    \13\ As explained in the notice of proposed rulemaking (NPRM) 
issued on February 16, 2024, while other investigative methods and 
databases may be available to law enforcement seeking information 
concerning persons involved in non-financed transfers of residential 
real property, the information obtained through such investigative 
methods or the databases themselves are often incomplete, 
unreliable, and diffuse, resulting in misalignment between those 
methods or sources and the potential risks posed by the transfers. 
For example, the non-uniformity of the title transfer processes 
across states and the fact that the recording of title information 
is largely done at the local level complicates and hinders 
investigative efforts. To presently verify how many non-financed 
purchases of residential real property a known illicit actor has 
made, law enforcement may have to issue subpoenas and travel to 
multiple jurisdictions--assuming that they are known--to obtain the 
relevant information. Law enforcement is also likely to experience 
difficulty in finding beneficial ownership information for legal 
entities or trusts not registered in the United States which have 
engaged in non-financed transfers of residential real estate. 
Furthermore, existing commercial databases do not collect much of 
the information that is the focus of this rule, such as that 
involving funds transfers. In these respects, a search of Real 
Estate Reports would be a far more efficient and complete mechanism. 
See FinCEN, NPRM, ``Anti-Money Laundering Regulations for 
Residential Real Estate Transfers,'' 89 FR 12424, 12430 (Feb. 16, 
2024).
---------------------------------------------------------------------------

    Indeed, since 2016, FinCEN has used a targeted reporting 
requirement--the Residential Real Estate GTOs--to collect information 
on a subset of transfers of residential real estate that FinCEN 
considers to present a high risk for money laundering.\14\ 
Specifically, the Residential Real Estate GTOs have required certain 
title insurance companies to file reports and maintain records 
concerning non-financed

[[Page 70260]]

purchases of residential real estate above a specific price threshold 
by certain legal entities in select metropolitan areas of the United 
States. In combination with the numerous public law enforcement actions 
illustrating the heightened risks posed by non-financed transfers to 
legal entities and trusts, information obtained from the Residential 
Real Estate GTOs, as well as other studies conducted by Treasury and 
FinCEN, FinCEN has confirmed the need for a more permanent regulatory 
solution that would require consistent reporting of information about 
certain high-risk real estate transfers.
---------------------------------------------------------------------------

    \14\ See 31 U.S.C. 5326; 31 CFR 1010.370; Treasury Order 180-01 
(Jan. 14, 2020), available at https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01. In 
general, a GTO is an order administered by FinCEN which, for a 
finite period of time, imposes additional recordkeeping or reporting 
requirements on domestic financial institutions or other businesses 
in a given geographic area, based on a finding that the additional 
requirements are necessary to carry out the purposes of, or to 
prevent evasion of, the BSA. The statutory maximum duration of a GTO 
is 180 days, though it may be renewed.
---------------------------------------------------------------------------

a. Benefits of Reporting
    The Residential Real Estate GTOs have been effective in identifying 
the risks of non-financed purchases of residential real estate by 
providing relevant information about such transfers to law enforcement 
within specified geographic areas. Indeed, FinCEN regularly receives 
feedback from law enforcement partners that they use the information to 
generate new investigative leads, identify new and related subjects in 
ongoing cases, and support prosecution and asset forfeiture efforts. 
Law enforcement has also made requests to FinCEN to expand the 
Residential Real Estate GTOs to new geographic areas, which FinCEN has 
done multiple times, adding both additional metropolitan areas and 
methods of payment. This has provided law enforcement with additional 
insight into the risks in both the luxury and non-luxury residential 
real estate markets.
    The Residential Real Estate GTOs have also proven the benefit of 
having reports identifying high risk residential real estate transfers 
housed in the same database as other BSA reports, such as traditional 
SARs and currency transaction reports (CTRs). For example, housing 
reports filed under the Residential Real Estate GTOs in the same 
database as other BSA reports enables FinCEN to cross-reference 
identifying information across reports, and having done so, FinCEN has 
been able to determine that a substantial proportion of purchases 
reported under the Residential Real Estate GTOs have been conducted by 
persons also engaged in other activity that financial institutions have 
characterized as suspicious. Specifically, FinCEN has found that from 
2017 to early 2024, approximately 42 percent of non-financed real 
estate transfers captured by the Residential Real Estate GTOs were 
conducted by individuals or legal entities on which a SAR has been 
filed. In other words, individuals engaging in a type of transaction 
known to be used to further illicit financial activity--the non-
financed purchase of residential real estate through a legal entity--
are also engaging in other identified forms of suspicious activities. 
The ability to connect these activities across reports allows law 
enforcement to efficiently identify potential illicit actors for 
investigation and build out current investigations.
b. Necessity of a Permanent Nationwide Reporting Requirement
    The Residential Real Estate GTOs, while effective within the 
covered geographic areas, do not address the illicit finance risks 
posed by certain real estate transfers on a nationwide basis--a 
significant shortcoming. For instance, a study of money laundering 
through real estate in several countries by Global Financial Integrity, 
a non-profit that studies illicit financial flows, money laundering, 
and corruption, found that, of Federal money laundering cases involving 
real estate between 2016 and 2021, nearly 61 percent involved at least 
one transfer in a county not covered by the Residential Real Estate 
GTOs. FinCEN believes that money laundering through real estate is 
indeed a nationwide problem that jurisdictionally limited reporting 
requirements are insufficient to address.\15\ Furthermore, the 
Residential Real Estate GTOs were also intended to be a temporary 
information collection measure. Thus, FinCEN believes that a more 
comprehensive and permanent regulatory approach is needed.
---------------------------------------------------------------------------

    \15\ Global Financial Integrity, ``Acres of Money Laundering: 
Why U.S. Real Estate is a Kleptocrat's Dream'' (Aug. 2021), p. 26, 
available at https://gfintegrity.org/report/acres-of-money-laundering-why-u-s-real-estate-is-a-kleptocrats-dream/. According to 
its website, Global Financial Integrity is ``a Washington, DC-based 
think tank focused on illicit financial flows, corruption, illicit 
trade and money laundering.'' See Global Financial Integrity, 
``About,'' available at https://gfintegrity.org/about/.
---------------------------------------------------------------------------

B. The Notice of Proposed Rulemaking

    On February 16, 2024, FinCEN published a notice of proposed 
rulemaking (NPRM) proposing a reporting requirement to address the 
risks related to non-financed transfers of residential real estate to 
either a legal entity or trust on a nationwide basis.\16\ The proposal 
targeted the transfers that posed a high risk for illicit finance and 
was built on lessons learned from the Residential Real Estate GTOs and 
from public comments received in response to an Advance Notice of 
Proposed Rulemaking.\17\ Importantly, the NPRM was narrowly focused and 
did not propose a reporting requirement for most transfers of 
residential real estate--for example, it excluded purchases that 
involve a mortgage or other financing from a covered financial 
institution, as well as any transfer, including all-cash transfers, to 
an individual.
---------------------------------------------------------------------------

    \16\ See supra note 13.
    \17\ See FinCEN, Advance Notice of Proposed Rulemaking, ``Anti-
Money Laundering Regulations for Real Estate Transactions,'' 86 FR 
69589 (Dec. 8, 2021).
---------------------------------------------------------------------------

    In the NPRM, FinCEN proposed that certain persons involved in 
residential real estate closings and settlements file a version of a 
SAR--referred to as a ``Real Estate Report''--focused exclusively on 
certain transfers of residential real property. The persons subject to 
this reporting requirement were deemed reporting persons for purposes 
of the proposed rule. Under the proposed rule, a reporting person would 
be determined through a ``cascading'' approach based on the function 
performed by the person in the real estate closing and settlement. The 
proposed cascade was designed to minimize burdens on persons involved 
in real estate closings and settlements, while leaving no reporting 
gaps and creating no incentives for evasion.\18\ To provide some 
flexibility in this reporting cascade, FinCEN's proposal included the 
option to designate (by agreement) a reporting person from among those 
in the cascade.
---------------------------------------------------------------------------

    \18\ Through the proposed reporting cascade hierarchy, a real 
estate professional would be a reporting person required to file a 
report and keep records for a given transfer if the person performs 
a function described in the cascade and no other person performs a 
function described higher in the cascade. For example, if no person 
is involved in the transfer as described in the first tier of 
potential reporting persons, the reporting obligation would fall to 
the person involved in the transfer as described in the second tier 
of potential reporting persons, if any, and so on. The reporting 
cascade includes only persons engaged as a business in the provision 
of real estate closing and settlement services within the United 
States.
---------------------------------------------------------------------------

    As proposed, information to be reported in the Real Estate Report 
would identify the reporting person, the legal entity or trust 
(including any legal arrangement similar in structure or function to a 
trust) to which the residential real property was transferred, the 
beneficial owners of that transferee entity or transferee trust, the 
person that transferred the residential real property, and the property 
being transferred, along with certain transactional information about 
the transfer. Regarding beneficial ownership information that a 
reporting person would be required to report, the rule proposed that a 
reporting person could collect such information directly from a

[[Page 70261]]

transferee or a representative of the transferee, so long as the person 
certified that the information was correct to the best of their 
knowledge. On the timing of the reports, the proposed rule stated that 
the reporting person was required to file the Real Estate Report no 
later than 30 days after the date of closing.

C. Comments Received

    In response to the NPRM, FinCEN received 621 comments, 164 of which 
were unique. Submissions came from a broad array of individuals, 
businesses, and organizations, including trade associations, 
transparency groups, law enforcement representatives, and other 
interested groups and individuals.
    General support for the rule was expressed by law enforcement 
officials, transparency groups, certain industry associations, and 
individuals. For instance, attorneys general of 25 states and 
territories jointly submitted a comment stating that the proposed 
regulations would permit Federal, State, and local law enforcement to 
access information about suspicious real estate transfers more 
efficiently because that information would all be available from a 
single source, and that the information would aid them in identifying 
suspicious residential real estate transfers on a nationwide basis that 
might otherwise remain undetected. These attorneys general and one 
industry association applauded FinCEN's choice to use a transaction-
specific reporting mechanism rather than imposing an AML/CFT program 
requirement on persons involved in real estate closings and 
settlements. One non-profit commenter expressed support for FinCEN's 
recognition of the wide-ranging impacts that money laundering through 
real estate can have on tenants, homebuyers, and the affordability and 
stability of regional housing markets and believed the rule will 
improve housing access. Two industry associations expressed strong 
support for the proposed rule, with one commenter expressing the view 
that it reflected a pragmatic approach. One industry association and an 
individual commenter stated that a permanent and nationwide rule would 
provide greater predictability and certainty to industry than 
Residential Real Estate GTOs.
    Other commenters expressed opposition to the proposed rule. Some 
expressed concern about FinCEN's legal authority to impose a reporting 
requirement in the manner set forth in the proposed rule. Other 
commenters argued that the proposed reporting requirement would be 
ineffective, burdensome, or would require reporting of information that 
is reported to the government through other avenues. The majority of 
private sector commenters--primarily small businesses, individuals 
employed in the real estate industry, and certain trade associations--
asserted that the proposed reporting requirements are too broad and 
complex and would be burdensome to implement. They further assert that 
this would result in increased costs for businesses and, ultimately, 
consumers, potentially delaying closings and causing consumers to 
decline to seek their services. Many of these commenters expressed 
concerns that the proposed regulations, if finalized without 
significant change, would impose numerous and costly reporting and 
recordkeeping requirements on small businesses. Some commenters 
suggested the proposed rule would put large businesses at a competitive 
disadvantage while others suggested the same about small businesses. 
These commenters also suggested that the proposed regulation would 
create privacy and security concerns with respect to personally 
identifiable information. A number of these commenters suggested that 
FinCEN either not issue a final regulation or adopt a narrower 
approach, requiring reporting of less information on fewer transfers. 
Several commenters suggested that attorneys that fulfill any of the 
functional roles set out in the reporting cascade should not be 
required to report, primarily due to concerns about attorney-client 
privilege and confidentiality requirements.
    Furthermore, many commenters suggested a range of modifications to 
the proposed regulations to: enhance clarity; reduce the potential 
burdens to industry; include or exclude certain professions from 
reporting requirements; refine the impact to certain segments of the 
industry; and enhance the usefulness of the resulting reports. Several 
commenters also asked hypothetical questions that sought clarification 
on the application of the proposed rule to certain situations.
    FinCEN carefully reviewed and considered each comment submitted, 
and a more detailed discussion of comments appears in Section III. 
FinCEN believes that the regulatory requirements set out in this final 
rule reflect the appropriate balance between ensuring that reports 
filed under the rule have a high degree of usefulness to law 
enforcement and minimizing the compliance burden incurred by 
businesses, including small businesses. As detailed in Section III, 
FinCEN has made several amendments to the proposed rule that are 
responsive to commenters and that may also reduce certain anticipated 
burdens.

III. Discussion of Final Rule

A. Overview

    FinCEN is issuing a final rule that generally adopts the framework 
set out in the proposed rule but makes certain modifications and 
clarifications that are responsive to comments. The final rule imposes 
a reporting requirement on ``reporting persons'' that are involved in 
certain kinds of transfers of residential real property. In response to 
comments, the rule adopts a reasonable reliance standard, allowing 
reporting persons to, in general, reasonably rely on information 
obtained from other persons. FinCEN has also made other amendments in 
the final rule that are intended to clarify and simplify the reporting 
requirements, such as clarifying the definition of residential real 
property. Additionally, the rule excludes several additional transfers 
from needing to be reported, including one designed to exempt certain 
transfers commonly executed for estate and tax planning purposes. 
FinCEN also limited the requirement to retain certain records. We 
discuss these and other specific issues, comments, modifications, and 
clarifications in this section, beginning with issues that cut across 
the entire rule and continuing with a section-by-section analysis of 
changes and clarifications to the regulatory text, including sections 
for which FinCEN received no feedback from commenters.
    FinCEN notes that it will consider issuing frequently asked 
questions (FAQs) and other guidance, as appropriate, to further clarify 
the application of the rule to specific circumstances. FinCEN also 
intends to continue to engage with stakeholders, for example through 
public outreach events, to assist with ensuring that the rule's 
requirements are understood by affected members of the public, 
including small businesses.

B. Comments Addressing the Rule Broadly

    FinCEN received several comments that cut across various provisions 
of the rule or were otherwise broadly applicable. The subjects 
addressed by these comments include: FinCEN's authority to issue the 
rule; alternatives to the reporting and recordkeeping requirements; 
attorneys as reporting persons; the extent to which a reporting person 
can rely on information received from other persons; penalties for 
noncompliance; and the collection of unique identifying numbers. FinCEN

[[Page 70262]]

has carefully considered these comments and addresses them below.
1. Authority
    Proposed Rule. The NPRM set out the legal authority that authorized 
the agency's issuance of the rule. Specifically, the NPRM cited the BSA 
provisions set forth at 31 U.S.C. 5312(a)(2), which defines a financial 
institution to include ``persons involved in real estate closings and 
settlements,'' and at 31 U.S.C. 5318(g), authorizing FinCEN to impose a 
requirement on financial institutions to report suspicious activity 
reports, and to establish streamlined processes regarding the filing of 
such reports.
    Comments Received. Several commenters questioned the legal 
authority underpinning the rule and the BSA reporting regime more 
generally, with one commenter stating that ``the Constitutionality of 
this regime is not an entirely closed question.'' These commenters 
argued that the rule potentially infringes on certain constitutional 
rights and that it is inconsistent with certain statutes and Executive 
Orders (EOs), citing primarily to Gramm-Leach-Bliley Act (GLBA) and 
E.O. 12866. With regard to GLBA, one commenter stated that ``[t]he 
[r]ule proposed by FinCEN directly clashes with the legal guideposts 
and requirements of the GLBA.''
    Final Rule. FinCEN is issuing this final rule pursuant to its BSA 
authority to require ``financial institutions'' to report ``suspicious 
transactions'' under 31 U.S.C. 5318(g)(1); the rule falls squarely 
within the scope of this authority. As discussed in the NPRM and in 
Section II.A.1 of this final rule, ``persons involved in real estate 
closings and settlements'' are a type of ``financial institution'' 
under the BSA.\19\ As such, FinCEN has clear statutory authority to 
require ``persons involved in real estate closings and settlements'' to 
file reports on suspicious activity,\20\ and courts have long affirmed 
the constitutionality of, such reporting requirements.\21\ Furthermore, 
a more recent amendment to the BSA at 31 U.S.C. 5318(g)(5)(D) provides 
FinCEN with additional flexibility to tailor the form of the SAR 
reporting requirement. Consistent with that authority, FinCEN is 
instituting a streamlined SAR filing requirement to require specified 
``persons involved in real estate closings and settlements'' to report 
certain real estate transactions that FinCEN views as high-risk for 
illicit finance.
---------------------------------------------------------------------------

    \19\ 31 U.S.C. 5312(a)(2)(U); see FinCEN, NPRM, ``Anti-Money 
Laundering Regulations for Residential Real Estate Transfers,'' 89 
FR 12424, 12427 (Feb. 16, 2024).
    \20\ See 31 U.S.C. 5318(g).
    \21\ See California Bankers Ass'n v. Shultz, 416 U.S. 21 (1974); 
U.S. v. Miller, 425 U.S. 435 (1976).
---------------------------------------------------------------------------

    With regard to the comment concerning the relationship between the 
final rule and GLBA, FinCEN notes that information in reports filed 
under the BSA, which will include any information in a Real Estate 
Report, is exempt from the requirements of GLBA.\22\ Finally, FinCEN 
notes that significant comments relating to applicable E.O. are 
addressed in the regulatory impact analysis in this final rule.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 6802(e)(5).
---------------------------------------------------------------------------

2. Suggested Alternatives to Proposed Rule
    Proposed Rule. The NPRM proposed that certain persons involved in 
the closing and settlement of real estate report and keep records about 
certain non-financed transfers of residential real estate to certain 
legal entities and trusts.
    Comments Received. Commenters suggested several alternatives to the 
proposed reporting and recordkeeping requirement. One commenter 
suggested expanding the Internal Revenue Service (IRS) Form 1099-S to 
include the collection of buyer-side information in addition to the 
seller-side information already collected. Some commenters suggested 
that, rather than requiring reporting by real estate professionals, 
FinCEN should require reporting from county clerk offices when they 
accept a deed for a reportable transfer or directly from transferees 
before a reportable transfer. Finally, other commenters urged FinCEN to 
fund alternative databases or purchase access to electronic records at 
each county clerk's office and monitor filed deeds.
    Final Rule. The final rule retains the fundamental framework of the 
proposed rule. FinCEN believes that the alternatives suggested by 
commenters are either technically or legally unworkable and would 
likely not result in the reporting of information that is equally 
useful to law enforcement. First, the IRS Form 1099-S is filed 
annually, making it significantly less useful to law enforcement and, 
as discussed in the NPRM,\23\ is not readily available for FinCEN or 
broader law enforcement uses due to confidentiality protections around 
federal taxpayer information. Second, FinCEN believes that county 
clerks' offices and individuals do not typically play a role in the 
kinds of transfers that would require reporting. Therefore, these 
individuals would not likely be in a position to interact with both the 
transferor(s) and the transferee(s), and thus, may not have ready 
access to reportable information. Regarding the suggested alternative 
of collecting reportable information directly from transferees instead 
of through reporting persons, FinCEN believes that buyers and sellers 
would be less willing to share personal information with each other 
than with a real estate professional fulfilling a function described in 
this rule's reporting cascade. Third, simply monitoring deeds at the 
county clerk level would likely not produce the information, including 
beneficial ownership and payment information, that FinCEN believes is 
important to law enforcement in combating illicit actors' abuse of 
opaque legal structures in the residential real estate market. Further, 
funding alternative databases would similarly not result in this 
information being made available to law enforcement, as private service 
providers would be unable to gather the same variety of highly relevant 
information, and any information they did provide would not be 
consolidated in a database with other BSA reports. The consolidation of 
Real Estate Reports with other BSA reports--including, but not limited 
to, traditional SARs, CTRs, Reports of Cash Payments Over $10,000 
Received in a Trade or Business (Forms 8300), and Reports of Foreign 
Bank and Financial Accounts--is important for law enforcement purposes, 
as doing so will allow law enforcement to efficiently cross-reference 
information across the various BSA reports.
---------------------------------------------------------------------------

    \23\ See FinCEN NPRM, ``Anti-Money Laundering Regulations for 
Residential Real Estate Transfers,'' 89 FR 12424, 12447-12448 (Feb. 
16, 2024).
---------------------------------------------------------------------------

3. Attorneys as Potential Reporting Persons
    Proposed Rule. Under the proposed rule, attorneys could potentially 
be subject to a reporting requirement if they perform any of the real 
estate closing and settlement functions described in the reporting 
cascade. The proposed rule did not differentiate between attorneys and 
non-attorneys when they perform the same functions involving transfers 
of residential real property.
    Comments Received. A number of commenters addressed the inclusion 
of attorneys in the reporting cascade. In general, legal associations 
opposed the inclusion of attorneys performing certain closing and 
settlement functions in the cascade as reporting persons, while others, 
in particular transparency organizations, supported the inclusion of 
attorneys as reporting persons. Commenters opposed to inclusion of 
attorneys generally argued that an attorney could not act as a 
reporting

[[Page 70263]]

person without either breaching the attorney's professional ethical 
obligations to maintain client confidentiality or violating attorney-
client privilege. Some commentors also suggested that FinCEN lacks 
legal authority to regulate attorneys under the BSA.
    Final Rule. FinCEN declines to amend the reporting cascade to 
exclude attorneys from the requirement to report.
    First, FinCEN does not believe that attorneys would violate their 
professional ethical obligations by filing a Real Estate Report. 
Although commenters noted that the ABA Model Rules on Professional 
Conduct generally require attorneys to keep client information 
confidential regardless of whether it is subject to the attorney-client 
privilege, Rule 1.6(b)(6) of the Model Rules states that ``[a] lawyer 
may reveal information relating to the representation of a client to 
the extent the lawyer reasonably believes necessary . . . to comply 
with other law or a court order.'' The annotations to the Model Rules 
further elaborate that ``[t]he required-by-law exception may be 
triggered by statutes, administrative agency regulations, or court 
rules.'' FinCEN believes that the Real Estate Report falls squarely 
within the required-by-law exception described in Rule 1.6(b)(6).
    Second, FinCEN believes that the information required in the Real 
Estate Report (e.g., client identity and fee information) is of a type 
not generally protected by the attorney-client privilege, and 
accordingly FinCEN is not persuaded that attorneys should be 
categorically excluded from the reporting cascade on that basis.\24\ 
Moreover, even if there were an unusual circumstance in which some 
information required to be reported in the Real Estate Report might 
arguably be subject to the attorney-client privilege, an attorney in 
such an unusual situation need not assume a reporting obligation, as 
that attorney might allow other parties in the reporting cascade to 
file the Real Estate Report through a designation agreement or, in 
certain circumstances, might decline to perform the function that 
triggers the obligation. It is therefore unlikely that any attorney 
would necessarily be required to disclose privileged information. 
Nonetheless, FinCEN expects to issue guidance that will address the 
rare circumstance in which an attorney is concerned about the 
disclosure of potentially privileged information, which will provide 
further information on the mechanism for asserting the attorney-client 
privilege and appropriately filing the relevant Real Estate Report.
---------------------------------------------------------------------------

    \24\ See, e.g., In re Grand Jury Subpoenas, 906 F.2d 1485, 1488 
(10th Cir. 1990) (collecting cases).
---------------------------------------------------------------------------

    Similarly, FinCEN is not persuaded by commentors who argued that 
FinCEN lacks the authority to regulate attorneys under the BSA, 
claiming that the BSA does not clearly evince an intention to regulate 
attorneys. The BSA expressly authorizes regulation of ``persons 
involved in real estate closings and settlements,'' and it is common 
for such persons to be attorneys. Congress thus made clear its 
intention to authorize regulation of functions commonly performed by 
attorneys, and it would be anomalous to regulate those functions only 
when performed by non-attorneys. FinCEN also notes that attorneys are 
not exempt from submitting reporting forms to FinCEN in other contexts 
in which they are not explicitly identified by statute, such as with 
FinCEN Form 8300, which must be submitted by any ``[a]ny person . . . 
engaged in a trade or business.'' All courts of appeals that have 
considered the question have concluded that Form 8300 reporting 
requirements do not per se violate the attorney-client privilege and 
that attorneys must file such a form absent certain narrow 
exceptions.\25\
---------------------------------------------------------------------------

    \25\ See; U.S. v. Sindel, 53 F.3d 874, 876 (8th Cir. 1995); U.S. 
v. Blackman, 72 F.3d 1418, 1424-25 (9th Cir. 1995); U.S. v. Ritchie, 
15 F.3d 592, 602 (6th Cir. 1994); U.S. v. Leventhal, 961 F.2d 936, 
940 (11th Cir. 1992); U.S. v. Goldberger & Dubin, P.C., 935 F.2d 
501, 505 (2d Cir. 1991); In re Grand Jury Subpoenas, 906 F.2d 1485, 
1492 (10th Cir. 1990).
---------------------------------------------------------------------------

4. Reasonable Reliance Standard
    Proposed Rule. Proposed 31 CFR 1031.320(e)(3) provided that the 
reporting person may collect beneficial ownership information for the 
transferee entity or transferee trust directly from a transferee or a 
representative of the transferee, so long as the person certifies in 
writing that the information is correct to the best of their knowledge. 
However, the proposed rule did not state whether and to what extent a 
reporting person could rely on information provided by other persons in 
the context of other required information (i.e., other than beneficial 
ownership information) required under the rule or to make any 
determination necessary to comply with the rule.
    Comments Received. Several commenters asked for clarification of 
this provision, suggesting that the burden to industry would be 
significant if reporting persons were required to verify the accuracy 
of each piece of reportable information provided by a transferee or 
another party, with one commenter questioning whether true verification 
is possible. Several commenters also expressed liability concerns, 
including that reporting persons could be penalized if a third party 
provides information that turns out to be incorrect.
    To resolve these concerns, commenters suggested that reporting 
persons should be able to rely on information provided by the 
transferee or that the transferee should certify the accuracy of 
required information beyond beneficial ownership information. One 
industry group took the reliance standard a step further, suggesting 
that the reporting person be able to rely on the representations of the 
transferee for purposes of determining whether the transferee is an 
exempt entity or trust. One transparency group suggested that the final 
rule require that reporting persons perform a ``clear error'' or ``best 
efforts'' check to ensure they are not reporting obviously fraudulent 
information.
    Some commenters suggested that, where a transferee is unwilling to 
provide complete or accurate information, reporting persons should be 
allowed to file incomplete forms, with some arguing that ``good faith 
attempts'' to file reports that are ultimately incomplete should not be 
penalized. Another argued that the reporting person should be able to 
simply file the information provided without any responsibility for its 
accuracy or completeness. However, one transparency group argued that 
reporting persons should not be allowed to file incomplete forms and 
that the final rule should clarify that, where a reporting person 
cannot gather complete information from a transferee, then the 
reporting person should decline to take part in the real estate 
transfer. Other commenters similarly questioned whether a reporting 
person can continue to facilitate a transfer if the transferee refuses 
to cooperate in providing reportable information. Additionally, one 
industry group requested that the final rule impose a clear duty on 
other persons described in the reporting cascade to share information 
reportable under the proposed rule.
    Final Rule. In 31 CFR 1031.320(j), the final rule adopts a 
reasonable reliance standard that allows reporting persons to 
reasonably rely on information provided by other persons. As a result, 
the reporting person generally may rely on information provided by any 
other person for purposes of reporting information or to make a 
determination necessary to comply with the final rule, but only if the 
reporting person does not have knowledge of facts that would

[[Page 70264]]

reasonably call into question the reliability of the information. This 
reasonable reliance standard is consistent with that used by certain 
financial institutions subject to customer due diligence 
requirements.\26\
---------------------------------------------------------------------------

    \26\ 31 CFR 1010.230(b)(2).
---------------------------------------------------------------------------

    This reasonable reliance standard is slightly more limited when a 
reporting person is reporting beneficial ownership information of 
transferee entities or transferee trusts. As expressed in the proposed 
rule, and as adopted in the final rule, when a reporting person is 
collecting the beneficial ownership information of transferee entities 
and transferee trusts. In those situations, the reasonable reliance 
standard applies only to information provided by the transferee or the 
transferee's representative and only if the person providing the 
information certifies the accuracy of the information in writing to the 
best of their knowledge.
    FinCEN recognizes the necessity of permitting reliance on 
information supplied to the reporting person, considering the time and 
effort it would take for the reporting person to verify each piece of 
information independently. FinCEN believes that the reasonable reliance 
standard is significantly less burdensome than an alternative full 
verification standard, while still ensuring that obviously false or 
fraudulent information would not be reported.
    As an example, FinCEN expects that the reporting person would be 
able to reasonably rely on the accuracy of a person's address provided 
orally or in writing, without reviewing government-issued documentation 
such as a drivers' license, provided the reporting person does not have 
reason to question the information provided (e.g., if the information 
provided were to contain a numerically unlikely ZIP code or the person 
providing it makes comments bringing into question the reliability of 
the address or has provided other unreliable information).
    As an additional example, in the context of ascertaining whether 
particular transfers are ``non-financed transfers,'' \27\ a reporting 
person may rely on the information provided by the relevant lender 
extending credit secured by the underlying residential real property as 
to whether the lender has an obligation to maintain an AML program and 
an obligation to report suspicious transactions under 31 CFR Chapter X, 
provided the reporting person does not have reason to question the 
lender's information (e.g., if the lender were to represent that he (as 
a natural person) is subject to AML obligations).
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    \27\ Discussed below in Section III.C.2.b.
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    In response to the comment requesting that FinCEN permit the filing 
of an incomplete report, FinCEN declines to add language to the 
regulation to provide for that option. FinCEN believes that allowing 
for the submission of incomplete reports could make it easier for 
transferees to avoid reporting requirements while simultaneously also 
making it difficult for FinCEN to ensure compliance with the rule. It 
could also greatly reduce the reports' utility to law enforcement. 
FinCEN believes the adoption of the reasonable reliance standard 
addresses many of the concerns expressed about access to reportable 
information.
    Finally, FinCEN does not adopt the suggestion that a legal duty be 
imposed on other persons in the reporting cascade to share reportable 
information with the reporting person. FinCEN believes that the 
reasonable reliance standard will make the sharing of information 
easier and therefore will decrease potential friction among the persons 
described in the reporting cascade. Further, FinCEN believes that 
reporting persons are unlikely to perform the function described in the 
reporting cascade until they have either obtained the required 
information or are reasonably certain that they will be able to obtain 
it soon after the date of closing. If information cannot be obtained 
from a person in the reporting cascade, the reporting person would 
reach out directly to a relevant party to the transfer (e.g., the 
transferee) to gather the missing information.
    FinCEN notes that there is no exception from reporting under the 
final rule should a transferee fail to cooperate in providing 
information about a reportable transfer. The final rule does not 
authorize the filing of incomplete reports, and a reporting person who 
fails to report the required information about a reportable transfer 
could be subject to penalties. However, FinCEN will consider issuing 
additional public guidance to assist the financial institutions subject 
to these regulations in complying with their reporting obligations.
5. Penalties
    Proposed Rule. The proposed rule did not include a specific 
reference to potential penalties for noncompliance, as those penalties 
are already set forth in the provisions of the BSA that discuss 
criminal and civil penalties for violating a BSA requirement.
    Comments Received. Several commenters sought clarification about 
penalties for noncompliance, with one commenter noting that the 
proposed rule did not explicitly address potential penalties for 
failing to file a report or for filing an inaccurate report.
    Final Rule. Consistent with the NPRM, FinCEN believes that it is 
unnecessary to list potential penalties in the regulatory text because 
the applicable penalties are already set forth by statute. Negligent 
violations of the final rule could result in a civil penalty of, as of 
the publication of the final rule, not more than $1,394 for each 
violation, and an additional civil money penalty of up to $108,489 for 
a pattern of negligent activity.\28\ Willful violations of the final 
rule could result in a term of imprisonment of not more than five years 
or a criminal fine of not more than $250,000, or both.\29\ Such 
violations also could result in a civil penalty of, as of the 
publication of the final rule, not more than the greater of the amount 
involved in the transaction (not to exceed $278,937) or $69,733.\30\ 
This penalty structure generally applies to any violation of a BSA 
requirement.\31\ FinCEN intends to conduct outreach to potential 
reporting persons on the need to comply with the final rule's 
requirements.
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    \28\ 31 U.S.C. 5321.
    \29\ 31 U.S.C. 5322.
    \30\ 31 U.S.C. 5321; 31 CFR 1010.821.
    \31\ See FinCEN, ``Financial Crimes Enforcement Network (FinCEN) 
Statement on Enforcement of the Bank Secrecy Act'' (Aug. 18, 2020), 
available at https://www.fincen.gov/sites/default/files/shared/FinCENEnforcementStatement_FINAL508.pdf.
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6. Unique Identifying Numbers
    Proposed Rule. Proposed 31 CFR 1031.320(e) set forth requirements 
for the reporting person to report a unique identifying number of the 
transferee entity or transferee trust, the beneficial owners of the 
transferee entity or trust, the individuals signing documents on behalf 
of the transferee entity or trust, and the trustee of a transferee 
trust. FinCEN proposed that the specific form of unique identifying 
number required would be a taxpayer identification number (TIN) issued 
by the IRS, such as a Social Security Number or Employer Identification 
Number. However, the proposed rule provided that, when no IRS TIN had 
been issued, the proposed rule required the reporting of a foreign tax 
identification number or other form of foreign identification number, 
such as a passport number or entity registration number issued by a 
foreign government.
    Comments Received. One commenter argued against the collection of 
TINs as a unique identifying number, citing to the reporting 
requirements of the Beneficial Ownership Information

[[Page 70265]]

Reporting Rule (BOI Reporting Rule).\32\ In the NPRM for the BOI 
Reporting Rule,\33\ which was issued pursuant to the Corporate 
Transparency Act (CTA),\34\ FinCEN initially proposed the voluntary 
reporting of TINs by a reporting company of its beneficial owners but 
eliminated this optional reporting in the final rule. The final BOI 
Reporting Rule does, however, require that reporting companies report 
their own TINs.\35\
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    \32\ The BOI Reporting Rule implements the CTA's reporting 
provisions. In recognition of the fact that illicit actors 
frequently use corporate structures to obfuscate their identities 
and launder ill-gotten gains, the BOI Reporting Rule requires 
certain legal entities to file reports with FinCEN that identify 
their beneficial owners. See FinCEN, ``Beneficial Ownership 
Information Reporting Requirements,'' 87 FR 59498 (Sept. 30, 2022). 
Access by authorized recipients to beneficial ownership information 
collected under the CTA are governed by other FinCEN regulations. 
See FinCEN, ``Beneficial Ownership Information Access and 
Safeguards,'' 88 FR 88732 (Dec. 22, 2023).
    \33\ See FinCEN, NPRM, ``Beneficial Ownership Information 
Reporting Requirements,'' 86 FR 69920 (Dec. 8, 2021).
    \34\ The CTA is Title LXIV of the William M. (Mac) Thornberry 
National Defense Authorization Act for Fiscal Year 2021, Public Law 
116-283 (Jan. 1, 2021) (the NDAA). Division F of the NDAA is the 
Anti-Money Laundering Act of 2020, which includes the CTA. Section 
6403 of the CTA, among other things, amends the Bank Secrecy Act 
(BSA) by adding a new section 5336, Beneficial Ownership Information 
Reporting Requirements, to subchapter II of chapter 53 of title 31, 
United States Code.
    \35\ See 31 CFR 1010.380(b)(1)(i).
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    Final Rule. In the final rule, FinCEN adopts the proposed 
requirement to collect the unique identifying numbers of entities and 
individuals, including their TINs, but clarifies that, for legal 
entities, a unique identifying number is required only if such number 
has been issued to that entity. The proposed rule contained a similar 
provision for transferee trusts, which the final rule adopts. In the 
trust context, no unique identifying number would need to be reported 
if a unique identifying number has not been issued to the trust. For 
instance, there may be a situation in which a transferee trust has not 
been issued an IRS TIN, nor has it been issued any of the foreign 
identifying numbers set out in the rule. With the clarifying edit to 
the unique identifying numbers required for legal entities, the rule 
makes clearer that a unique identifying number would similarly not be 
required to be reported in such a situation. FinCEN notes that the 
final rule does not extend this language to the TINs of individuals, as 
FinCEN expects that individuals will have been issued one of the unique 
identifying numbers required by the regulations.
    While FinCEN continues to acknowledge that IRS TINs are subject to 
heightened privacy concerns and that the collection of such information 
could entail cybersecurity and operational risks, several factors 
weighed heavily in its decision to retain this requirement. TINs are 
commonly required on other BSA reports, including, for example, Forms 
8300, which FinCEN notes are commonly filed by the real estate 
industry. Furthermore, TINs are frequently necessary to identify the 
same actors, particularly those with similar names or those using 
aliases, across different BSA reports and investigations. FinCEN 
believes that nearly all reporting persons--primarily businesses 
performing functions typically conducted by settlement companies, 
including many that already file reports containing TINs with the 
government--will have preexisting data security systems and programs to 
protect information such as TINs, particularly since such information 
is often collected in the course of financed transfers of residential 
real estate.

C. Section-by-Section Analysis

1. 31 CFR 1031.320(a) General
    FinCEN did not receive any comments to the general paragraph of the 
proposed rule found in proposed 31 CFR 1031.320(a), which provided a 
framework for the rule. That paragraph has been adopted in the final 
rule without substantial change. The technical changes that have been 
made include the renumbering of paragraph references, the addition of a 
reference to a new paragraph discussing the concept of reasonable 
reliance, and certain clarifying changes, such as the addition of 
language clarifying that reports required under this section and any 
other information that would reveal that a reportable transfer has been 
reported are not confidential.
2. 31 CFR 1031.320(b) Reportable Transfer
    The proposed rule defined a reportable transfer as a non-financed 
transfer of any ownership interest in residential real property to a 
transferee entity or transferee trust, with certain exceptions. These 
proposed exceptions, found in 31 CFR 1031.320(b), reflected FinCEN's 
intent to capture only higher risk transfers. The proposed rule 
provided that transfers would be reportable irrespective of the value 
of the property or the dollar value of the transaction; there was no 
proposed dollar threshold for a reportable transfer. The proposed rule 
also provided that transfers would only be reportable if a reporting 
person is involved in the transfer and if the transferee is either a 
legal entity or trust. Transfers between individuals would not be 
reportable.
a. Residential Real Property
    Proposed Rule. Proposed 31 CFR 1031.320(b) defined ``residential 
real property'' to include real property located in the United States 
containing a structure designed principally for occupancy by one to 
four families; vacant or unimproved land located in the United States 
zoned, or for which a permit has been issued, for the construction of a 
structure designed principally for occupancy by one to four families; 
and shares in a cooperative housing corporation.
    Comments Received. Several commenters argued that reporting persons 
would not have ready access to the zoning or permitting information 
necessary to determine whether vacant or unimproved land is reportable 
under the rule. Commenters noted that reporting persons do not 
routinely determine zoning information and that accurate zoning 
information may take several weeks to obtain. Examination of permits, 
they argued further, would take similar time and effort. Some 
commenters also noted that purchases of unimproved or vacant land are 
often for lower dollar amounts and therefore present a lower risk for 
money laundering. Two other commenters suggested that the determination 
of whether a property is ``residential real property'' as defined under 
the rule should turn on whether the real estate sales contract or 
purchase and sale agreement describes the property as being 
residential.
    Furthermore, two commenters suggested that the proposed definition 
of residential real property lacked clarity, with one focusing on the 
treatment of mixed-use property and the other requesting that the 
definition provide clearer criteria, taking into account the treatment 
of residential real estate under tax law, zoning processes, and 
mortgage agreements, with examples provided. Another commenter 
suggested that FinCEN provide a non-exhaustive list of possible 
transfers intended to be subject to reporting requirements and that the 
list specifically include any transfer of ownership and any creation of 
an equitable interest, whether in whole or in part, directly or 
indirectly, in the property. One commenter requested clarity as to 
whether a transfer of residential real property as defined under the 
rule includes assignment contracts.
    Final Rule. The definition of residential real property in 
paragraph 31 CFR 1031.320(b), as adopted in the final

[[Page 70266]]

rule, contains several modifications and clarifications of the language 
in the proposed rule. This definition continues to include vacant or 
unimproved land, as FinCEN does not agree with the comment suggesting 
that transfers of such property inherently pose a lower risk for money 
laundering.
    The revised definition addresses the difficulty raised by 
commenters in determining whether vacant or unimproved land is zoned or 
permitted for residential use by focusing on whether the transferee 
intends to build on the property a structure designed principally for 
occupancy by one to four families. Furthermore, the new provision added 
to the rule concerning reasonable reliance permits the reporting person 
to reasonably rely on information provided by the transferee to 
determine such intent. To address comments that requested clarity on 
whether mixed-use property qualifies as residential real property, the 
definition of residential real property also clarifies that separate 
residential units within a building, such as individually owned 
condominium units, as well as entire buildings designed for occupancy 
by one to four families, are included.
    Taking into account the above changes, the definition of 
residential real property is now: (1) real property located in the 
United States containing a structure designed principally for occupancy 
by one to four families; (2) land located in the United States on which 
the transferee intends to build a structure designed principally for 
occupancy by one to four families; (3) a unit designed principally for 
occupancy by one to four families within a structure on land located in 
the United States; or (4) any shares in a cooperative housing 
corporation for which the underlying property is located in the United 
States. Given the ability for a reporting person to reasonably rely on 
information obtained from other persons, FinCEN declines to adopt the 
other suggestions made by some of the commenters to facilitate the 
determination of whether the property is residential in nature. FinCEN 
further notes that the definition is meant to include property such as 
single-family houses, townhouses, condominiums, and cooperatives, 
including condominiums and cooperatives in large buildings containing 
many such units, as well as entire apartment buildings designed for one 
to four families. Furthermore, transfers of such properties may be 
reportable even if the property is mixed use, such as a single-family 
residence that is located above a commercial enterprise.
    FinCEN also notes that the rule is not designed to require 
reporting of the transfer of contractual obligations other than those 
demonstrated by a deed or, in the case of a cooperative housing 
corporation, through stock, shares, membership, certificate, or other 
contractual agreement evidencing ownership. Therefore, the transfer of 
an interest in an assignment contract would not be reportable. 
Assignment contracts typically involve a wholesaler contracting with 
homeowners to buy residential real property and then assigning their 
rights in the contract to a person interested in owning the property as 
an investment. The eventual purchase of the property by the assignee 
investor may be reportable under this rule because a transfer of an 
ownership interest demonstrated by a deed has occurred, but the initial 
signing of the contract between the assignor and the original homeowner 
would not be reportable.
b. Non-Financed Transfers
    Proposed Rule. Proposed 31 CFR 1031.320(b)(1) defined the term 
``reportable transfer'' to only include transfers that do not involve 
an extension of credit to all transferees that is both secured by the 
transferred residential real property and extended by a financial 
institution that has both an obligation to maintain an AML program and 
an obligation to report suspicious transactions under 31 CFR Chapter X. 
As explained in the NPRM, FinCEN considers such transfers to be ``non-
financed'' for purposes of this rule.
    Comments Received. One industry organization noted that the 
proposal would result in reporting when an individual transfers 
property subject to qualified financing to a trust, because the 
qualified financing is in the name of the transferor rather than the 
transferee trust. Another commenter similarly requested clarity as to 
whether the reporting of non-financed transfers applies only with 
respect to qualified financing held by the transferee, as opposed to 
qualified financing held by the transferor.
    Two transparency organizations requested that FinCEN clarify 
whether partially financed transfers are reportable. These commenters 
cited as examples a situation in which some or all of the source of 
funds originate from entities or beneficial owners that have not 
undergone AML checks from a covered financial institution or where 
qualified credit is extended to some, but not all, beneficial owners of 
transferees. Finally, one commenter requested clarity as to how the 
reporting person would determine if the transfer is non-financed.
    Final Rule. The substance of the definition of a ``non-financed 
transfer'' is adopted as proposed, but FinCEN has elected to move the 
definitions paragraph of the rule to 31 CFR 1031.320(n)(5). FinCEN 
declines to adopt the commenter's suggestion to include a specific 
carveout in the definition to account for transfers where the qualified 
financing is extended to the grantor or settlor of a trust, rather than 
to the trust itself--an issue raised in the comments. This situation is 
addressed, however, in the new exception for certain transfers to 
trusts for no consideration, discussed in depth in Section III.C.2.c.
    In regards to requests for clarity about whether partially financed 
transfers meet the definition of a non-financed transfer, FinCEN notes 
that partially financed transfers involving one transferee (for 
example, in which the transferee entity or transferee trust puts down a 
50 percent down payment but obtains a mortgage to finance the rest of 
the transfer) would not be reported. However, the definition of a non-
financed transfer would result in reporting of transfers in which there 
are multiple transferee entities or transferee trusts receiving the 
property and financing is secured by some, but not all, of the 
transferees.
    As to the comment questioning how reporting persons would determine 
whether a transfer is non-financed, it has been FinCEN's experience 
with the Residential Real Estate GTOs that persons required to report 
have readily determined whether a given financial institution extending 
financing has such AML program obligations by asking the financial 
institution directly. The reporting person can reasonably rely on the 
representations made by the financial institution.
c. Excepted Transfers
    Proposed Rule. Proposed 31 CFR 1031.320(b)(2) provided exceptions 
for transfers that are: the result of a grant, transfer, or revocation 
of an easement; the result of the death of an owner; incident to 
divorce or dissolution of marriage; to a bankruptcy estate; to 
individuals; or for which there is no reporting person.
    Comments Received. Support for the proposed exceptions came from an 
industry group that applauded the decision to except transfers made to 
individuals. Other commenters did not oppose the proposed regulation 
and instead suggested modifications or clarifications that built on the 
proposed

[[Page 70267]]

exceptions. Numerous commenters also proposed additional exceptions.
    However, FinCEN received several comments suggesting that FinCEN 
clarify or otherwise amend certain other exceptions, including those 
proposed for death, divorce, and bankruptcy. Two legal associations 
proposed that FinCEN clarify the exception for transfers that are the 
result of a death to ensure that the exception applies even if a 
transfer is not executed pursuant to a will or where the decedent is 
not technically the owner of the property at death because the property 
is owned by a revocable trust set up by the decedent. One legal 
association suggested that FinCEN expand the proposed exceptions for 
divorce, death, or bankruptcy to include transfers to certain specific 
types of trusts. One State bar association suggested that the rule 
build on the exceptions for death and divorce by excepting any 
transfers made in connection with a court-supervised legal settlement. 
A transparency organization recommended limiting the exceptions to 
transfers made to family members or heirs pursuant to divorce, probate 
proceedings, or a will, expressing concern that transfers resulting 
from death or divorce would remain at risk for money laundering.
    Multiple commenters requested additional exceptions. Several 
commenters focused on exceptions for transfers to trusts used for 
estate or tax planning purposes. A State bar association requested the 
exclusion of transfers for estate planning purposes that involve no 
monetary consideration. One commenter suggested excepting gifts between 
family members, whether being transferred into a trust or legal entity, 
and in particular suggested excluding transfers to revocable trusts in 
which the trustee confirms by affidavit that the trustee or the settlor 
is the same person as the primary beneficiary. Similarly, another State 
bar association suggested that FinCEN except any intrafamily transfers 
and transfers into certain trusts created for estate or tax planning 
purposes, including revocable trusts, irrevocable trusts, irrevocable 
life insurance trusts, grantor trusts, purpose trusts, qualified 
personal residence trusts, pooled trusts, special needs and 
supplemental trusts, creditor protection trusts, various charitable 
trusts, certain State business trusts, and certain State business 
associations.
    Some commenters suggested exceptions built around the relationship 
between the transferor and the transferee in the context of estate 
planning. Two such commenters requested that the final rule exclude any 
transfer where the transferor is the settlor of a transferee trust, 
because beneficial ownership of the property would remain the same. A 
State bar association suggested excluding transfers that include the 
creation of a self-settled revocable or irrevocable trust, wherein the 
grantor(s)/settlors(s) of the trust have created it for the benefit of 
the grantor(s) or members of their family, arguing that such trusts for 
the purposes of estate planning are low risk for money laundering, and 
therefore of little interest to FinCEN, and that their exclusion would 
reduce the number of reports required from reporting persons. In a 
similar vein, a State land title association suggested the exclusion of 
living trusts with the same name as the property owner, citing the 
example of an individual purchasing property in a non-financed transfer 
and then subsequently transferring the property to a trust for estate 
planning purposes. A trust and estate-focused legal association 
similarly suggested the exclusion of transfers to trusts in which at 
least one of the beneficial owners is the same as the transferor or in 
which the transfer is for the benefit of the family of the transferor. 
One legal association asked that exceptions be made for transfers in 
which there is no change in beneficial ownership of the property and 
two other commenters similarly requested that FinCEN exclude any 
transfers where the transferor is the managing or sole member of a 
transferee entity or is the settlor of a transferee trust. The legal 
association also suggested an exception when the ownership interest in 
the property remains within a family.
    Two commenters suggested the exclusion of sequential transfers 
involving a trust. One described these sequential transfers as 
occurring when an individual purchases residential real property in 
their own name with a mortgage and subsequently transfers the property 
to a trust, or when an individual seeks to refinance property held in a 
trust by transferring title of the property from the trust to the 
individual, refinancing in the name of the individual, and then 
transferring title of the property back to the trust. Another commenter 
stated that properties held in revocable trusts for estate planning are 
often only removed from the trust for refinancing or taking on 
additional debt and therefore have oversight from those processing 
mortgage loans. Such transfers, argued the commenters, are low risk and 
would result in unnecessary and redundant reporting.
    Some commenters suggested excepting transfers where the transferee 
or transferor is a qualified intermediary for the purposes of 26 U.S.C. 
1031 (1031 Exchange), also known as a like-kind exchange. A national 
trade association for 1031 Exchange practitioners suggested adding an 
exception that would mirror the exception found in the BOI Reporting 
Rule for reporting of individuals acting as nominee, intermediary, 
custodian, or agent on behalf of another individual.\36\ Three title 
insurance associations and two State bar associations urged FinCEN to 
include an exception for corrective conveyances, one commenter 
requested exclusion of transfers involving additional insured 
endorsements, another commenter suggested that FinCEN explicitly 
exclude foreclosures and evictions, and several commenters suggested 
that the final rule focus only on foreign transferees.
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    \36\ 31 CFR 1010.380(d)(3)(ii).
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    FinCEN also received a range of comments related to whether a 
dollar threshold should be included, below which reporting would not be 
required. In general, commenters representing transparency 
organizations supported the lack of a threshold in the proposed rule, 
with one commenter arguing that any threshold would provide a clear 
path for evasion. Other commenters--mostly real estate associations, 
businesses, or professionals--advocated for the inclusion of a 
threshold to reduce the number of reports that would need to be filed 
and avoid the reporting of transfers perceived as low risk for money 
laundering. One commenter suggested implementing a $1 threshold, others 
suggested $1,000, one suggested $10,000, and another suggested adopting 
the same threshold as FinCEN's Residential Real Estate GTOs.
    Final Rule. In the final rule, FinCEN is adopting the exceptions 
proposed in 31 CFR 1031.320(b)(2) and adding several additional 
exceptions.
    First, in response to comments asking FinCEN to clarify the scope 
of the exception for transfers resulting from death, FinCEN has adopted 
language, set forth at 31 CFR 1031.320(b)(2)(ii), to clarify that the 
exception includes all transfers resulting from death, whether pursuant 
to the terms of a will or a trust, by operation of law, or by 
contractual provision. In the context of transfers resulting from 
death, transfers resulting by operation of law include, without 
limitation, transfers resulting from intestate succession, surviving 
joint owners, and transfer-on-death deeds, and transfers resulting from 
contractual provisions include, without limitation, transfers resulting 
from beneficiary designations. With respect to inclusion

[[Page 70268]]

of transfers required under the terms of a trust, by operation of law, 
or by contractual agreements, FinCEN believes such transfers are akin 
to transfers required by a will, as they result from the death of the 
grantor or settlor or individual who currently owns the residential 
real property. As described in the NPRM, the exception was meant to 
include transfers governed by preexisting legal documents, such as 
wills, or that generally involve the court system. FinCEN believes that 
the adopted language will clarify the intended scope of the exception, 
which is meant to exclude only low-risk transfers of residential real 
property involving transfers that are required by legal or judicial 
processes at the time of the decedent's death.
    Second, the rule adds an exception for any transfer supervised by a 
court in the United States at 31 CFR 1031.320(b)(2)(v). This exception 
builds on a commenter's suggestion to expand the list of exceptions to 
include transfers made in connection with a court-supervised legal 
settlement, but is focused on transfers required by a court instead of 
simply supervised by a court, which narrows the opportunity for such 
transfers to be abused by illicit actors. FinCEN believes that, like 
probate and divorce, transfers required as a result of judicial 
determination in the United States are generally publicly documented 
and subject to oversight and therefore are subject to a lower risk for 
money laundering.
    Third, while FinCEN did not receive comments on the scope of the 
exception for transfers incident to divorce or the dissolution of 
marriage, FinCEN believes it is appropriate to clarify in the 
regulation that the exception also applies to the dissolution of civil 
unions and has done so at 31 CFR 1031.320(b)(2)(iii). Civil unions are 
similar to marriages with regard to property issues in form and 
function and are terminated in a similar manner--generally with the 
involvement of courts.
    Fourth, in response to the comments requesting exceptions for 
estate planning techniques and for sequential transfers to trusts, an 
exception is added at 31 CFR 1031.320(b)(2)(vi) for transfers of 
residential real property to a trust where the transfer meets the 
following criteria: (1) the transfer is for no consideration; (2) the 
transferor of the property is an individual (either alone or with the 
individual's spouse); and (3) the settlor or grantor of the trust is 
that same transferor individual, that individual's spouse, or both of 
them. FinCEN expects that this addition will except many common 
transfers made for estate planning purposes described by commenters, 
including transfers described in the exception where the grantor or 
settlor's family are beneficiaries of the trust, as well as sequential 
transfers to trusts, such as where the qualified financing is extended 
to the grantor or settlor rather than to the trust itself and the 
grantor or settlor then is transferring the secured residential real 
property for no consideration to the trust.
    FinCEN intended to scope this exception in a manner that was 
responsive to comments but that would not create an overly broad 
exception that would be open to significant abuse. To be sure, illicit 
actors are known to use estate planning techniques to obscure the 
ownership of residential real estate, and all non-financed transfers of 
residential real estate not subject to this rule are subject to less 
oversight from financial institutions than financed transfers and are 
therefore inherently more vulnerable to money laundering. However, 
transfers in which an individual who currently owns residential real 
property is funding their own trust with that property are believed to 
be a lower risk for money laundering because the true owner of the 
property is not obscured when the property is transferred. Given this 
limitation on the exception and how common it is for an individual to 
place residential real property into a trust, whether revocable or 
irrevocable, for estate planning purposes, FinCEN believes it is 
appropriate to except such transfers at this time. Additionally, the 
expanded exception benefits from relying on information readily 
available to the reporting person, as the reporting person will know 
the identity of the transferor and can ascertain, such as through a 
trust certificate, whether the transferor is the grantor or settlor of 
the trust.
    FinCEN does not agree with some commenters that the exception 
should be broader by excepting transfers where beneficial ownership 
does not change or where the transfer is an intrafamily one. An 
exception for such transfers would be difficult for the reporting 
person to administer, as it would require a review of the dispositive 
terms of the trust instrument, and it would be difficult for the 
reporting person to assess the reliability of information provided to 
them about beneficial ownership or family relationships. FinCEN also 
does not agree that all such transfers are automatically low risk for 
money laundering, especially when consideration is involved. Overall, 
the adopted exception offers a low-risk, bright line that should be 
easy to understand and implement, lowering the burden on both industry 
and the parties to the transfer, when compared with the proposed rule.
    FinCEN also does not believe that this same logic can be extended 
to justify excepting transfers of property by an individual to a legal 
entity owned or controlled by such individual, as some commenters 
suggested. In the exception described above concerning no consideration 
transfers to trusts, the exception applies when the transferor of 
residential real property is also the grantor or settlor of the trust--
the identity of the grantor or settlor of the trust is a fact tied to 
the creation of the trust, is revealed on the face of the trust 
instrument, and generally cannot be changed. Although the trustee and 
beneficiaries of the trust may change over time, the identification of 
the settlor or grantor of the trust generally allows FinCEN to identify 
the source of the property being contributed to the trust, a factor 
that is critical to the identification and prevention of money 
laundering. That same identification and persistent connection with the 
transferor does not exist in the context of transfers of residential 
real property to a legal entity, where it is common for various owners 
of interests in the entity to each contribute assets to it.
    Finally, the final rule adopts an exception, at 31 CFR 
1031.320(b)(2)(vii), for transfers made to qualified intermediaries for 
purposes of effecting 1031 Exchanges. Such exchanges are commonly 
conducted to defer the realization of gain or loss, and, thus, the 
payment of any related taxes, for Federal income tax purposes.\37\ This 
exception is limited to transfers made to the qualified intermediary; 
transfers from a qualified intermediary to the person conducting the 
exchange (the exchanger) remain potentially reportable if the exchanger 
is a legal entity or trust. When taking ownership of property in a 1031 
Exchange, the qualified intermediary is acting on behalf of the 
exchanger for the limited purpose of effecting the exchange. In 
addition, the qualified intermediary may hold the property for only a 
limited

[[Page 70269]]

period of time before it jeopardizes the transaction's ability to 
qualify as a valid 1031 Exchange. Accordingly, FinCEN has determined 
that requiring the reporting of transfers made to a qualified 
intermediary would likely result in information that is of lower value 
to law enforcement. FinCEN considered whether to resolve commenter 
concerns around qualified intermediaries by relying, as one commenter 
suggested, on the rule's definition of transferee entity, which adopts 
by reference the exception found in 31 CFR 1010.380(d)(3)(ii) for the 
reporting of individuals who are acting as a nominee, intermediary, 
custodian, or agent. Without noting whether such exception for 
nominees, intermediaries, custodians, or agents would appropriately 
apply in the context of qualified intermediaries, FinCEN believes that 
allowing the broader exception for 1031 Exchanges in this rule more 
clearly resolves commenter concerns.
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    \37\ In a 1031 Exchange, real property held for productive use 
in a trade or business or held for investment is exchanged for other 
business or investment property that is the same type or kind; as a 
result, the person conducting the exchange is not required to 
realize taxable gain or loss as part of the exchange. To avoid the 
exchange being disqualified, a qualified intermediary may be used to 
ensure that the exchanger avoids taking premature control of the 
proceeds from the sale of the relinquished property or, in a reverse 
1031 Exchange in which the replacement property is identified and 
purchased before the original property is relinquished, ownership of 
the replacement property.
---------------------------------------------------------------------------

    The final rule does not adopt the suggestions to exclude corrective 
conveyances and additional insured endorsements, as FinCEN believes 
such exceptions are not necessary. Corrective conveyances are used to 
correct title flaws, such as misspelled names, and are not used to 
create a new ownership interest in a property. As such, corrective 
conveyances do not involve a transfer of residential real property and 
are therefore not reportable. Similarly, additional insured 
endorsements are used to extend coverage of title insurance to an 
additional party identified by the policyholder and do not meet the 
rule's definition of a reportable transfer of residential real 
property.
    The final rule also does not adopt the suggestion to exclude 
foreclosure sales, although FinCEN notes that foreclosure court 
proceedings wherein a lender obtains a judgment to foreclose on 
property would be excluded under the exception for transfers required 
by a court in the United States. Outside of such court-supervised 
foreclosure proceedings, FinCEN does not agree that potential reporting 
persons involved in sales of foreclosed property should be treated 
differently from other transfers, as such sales, where the property is 
sold to a third party, do not necessarily present a lower risk for 
money laundering.
    FinCEN also declines to implement the suggestion that the final 
rule collect information only on foreign transferee entities and 
trusts. Law enforcement investigations and FinCEN's experience with the 
Residential Real Estate GTOs have repeatedly confirmed that non-
financed transfers of residential real estate to both foreign and 
domestic legal entities and trusts are high risk for money laundering.
    Furthermore, the rule does not adopt suggestions to include a 
dollar threshold for reporting. Low value non-financed transfers to 
legal entities and trusts, including gratuitous ones for no 
consideration, can present illicit finance risks and are therefore of 
interest to law enforcement. Although the Residential Real Estate GTOs 
have had an evolving dollar threshold over the course of the program, 
ranging from over $1 million to the current threshold of $300,000, 
FinCEN's experience with administering the program and discussions with 
law enforcement shows that money laundering through real estate occurs 
at all price points. FinCEN believes that incorporation of a dollar 
threshold could move illicit activity into the lower priced market, 
which would be counter to the aims of the rule.\38\ Rather than 
specifically exclude all such transfers from being reported, the final 
rule includes additional exceptions, discussed here and in Section 
III.C.2.c, that FinCEN believes will focus the reporting requirement on 
higher-risk low-value transfers.
---------------------------------------------------------------------------

    \38\ The current Residential Real Estate GTO threshold is 
$300,000 for all covered jurisdictions, except for in the City and 
County of Baltimore, where the threshold is $50,000.
---------------------------------------------------------------------------

d. Transferee Entities
    Proposed Rule. Proposed 31 CFR 1031.320(j)(10) provided that a 
``transferee entity'' is any person other than a transferee trust or an 
individual and set out the exceptions from this definition for certain 
entities, including certain highly regulated entities and government 
authorities. The definition of transferee entity was meant to include, 
for example, a corporation, partnership, estate, association, or 
limited liability company. Among the exceptions FinCEN proposed was an 
exception for any legal entity whose ownership interests are controlled 
or wholly owned, directly or indirectly, by an exempt entity.
    Comments Received. Some commenters supported the proposed rule's 
inclusion of transferee entities as defined in the proposed rule, with 
one transparency organization highlighting that pooled investment 
vehicles (PIVs) and non-profits are largely exempt from beneficial 
ownership information reporting requirements under the CTA, which 
increases their risks for money laundering.
    Final Rule. In 31 CFR 1031.320(n)(10), the final rule adopts the 
proposed definition of ``transferee entity'' with technical edits to 
two specific exceptions from that definition. First, in 31 CFR 
1031.320(n)(10)(O), FinCEN removed the unnecessary inclusion of the 
acronym ``(SEC)'' because the Securities and Exchange Commission is 
referred to only once in 31 CFR 1031.320. Second, FinCEN removed the 
term ``ownership interests'' from 31 CFR 1031.320(n)(10)(P), so that 
the regulation now excludes from the definition of a transferee entity 
a ``legal entity controlled or wholly owned, directly or indirectly, by 
[an excepted legal entity].'' FinCEN made this amendment to avoid 
potential confusion because the term ``ownership interests'' is 
specifically defined in the regulations at 31 CFR 1031.320(n)(6) and 
employed only in relation to residential real property.
e. Transferee Trusts
    Proposed Rule. Proposed 31 CFR 1031.320(j)(11) defined ``transferee 
trust'' as any legal arrangement created when a person (generally known 
as a grantor or settlor) places assets under the control of a trustee 
for the benefit of one or more persons (each generally known as a 
beneficiary) or for a specified purpose, as well as any legal 
arrangement similar in structure or function to the above, whether 
formed under the laws of the United States or a foreign jurisdiction. 
The NPRM proposed several exceptions for certain types of trusts that 
FinCEN views as highly regulated--for instance, trusts that are 
securities reporting issuers and trusts that have a trustee that is a 
securities reporting issuer. Accordingly, such trusts were not covered 
by the proposed rule. Similarly, the proposed rule excluded statutory 
trusts from the definition of a transferee trust but, instead, proposed 
to capture statutory trusts within the definition of a transferee 
entity.
    Comments Received. Several commenters supported the general 
inclusion of trusts within the scope of the rule and provided examples 
of money laundering through real estate transfers to trusts. One 
transparency organization highlighted that trusts are not required to 
directly report beneficial ownership information under the CTA and are 
therefore a higher risk for money laundering. However, other commenters 
were not supportive of the inclusion of trusts, arguing that trusts 
are: complicated arrangements for which the paperwork would not be 
easily understood by reporting persons; used for probate avoidance; and 
inherently low risk.

[[Page 70270]]

    Several commenters suggested excluding living trusts. Three 
commenters suggested excluding transfers to irrevocable living trusts, 
arguing either that such trusts are low risk for money laundering or 
that such reporting is redundant with information received by the IRS. 
Some focused on revocable trusts, particularly those used for estate 
planning, arguing that they are subject to a lower risk of money 
laundering and that requiring reporting on such trusts would be 
burdensome given how commonly they are used.
    Other commenters suggested the exclusion of specialized types of 
trusts. Two suggested excluding transfers to a qualified personal 
residence trust and another suggested excluding transfers to an 
intentionally defective grantor trust, charitable remainder trust, any 
qualified terminal interest property trust benefitting the contributing 
homeowner, testamentary trust, third-party common law discretionary 
trust, a discretionary support trust, or a trust for the support of an 
incapacitated beneficiary, including supplemental or special needs 
trusts, arguing that these transfers generally do not involve property 
purchased in cash within the last year and are low risk for money 
laundering.
    Final Rule. In the final rule, FinCEN retains the requirement to 
report transfers to transferee trusts and, in 31 CFR 1031.320(n)(11), 
adopts the definition of ``transferee trust'' as proposed with one 
technical edit to make certain language consistent across similar 
provisions in the rule. As discussed in Section II.A.2, FinCEN 
continues to believe that non-financed residential real estate 
transfers to certain trusts present a high risk for money laundering. 
FinCEN also believes that the potential difficulties described by 
commenters, such as the need to review complex trust documents to 
determine whether a trust is reportable, will be minimized by the 
addition of new exceptions and by the reasonable reliance standard 
adopted in the final rule which is discussed in Section III.B.4.
    FinCEN considered comments suggesting that it adopt additional 
exceptions from the definition of a transferee trust for specific types 
of trusts. In particular, comments suggested exceptions for all living 
trusts, all revocable trusts, or all irrevocable trusts, as well as 
more specialized types of trusts such as qualified personal residence 
trusts or defective grantor trusts. FinCEN believes that the suggested 
exceptions would be overly broad and, as such, would exclude from 
reporting certain transfers that pose a high risk for illicit finance. 
However, depending on the particular facts and circumstances of a trust 
arrangement, some of the aforementioned trusts may be covered under the 
more tailored exception for ``no consideration transfers'' to trusts 
described in Section III.C.2.c. We also note that certain trusts, such 
as testamentary trusts, are not captured by the reporting requirement, 
as such trusts are created by wills and therefore fall within the 
exception for transfers occurring as a result of death.
3. 31 CFR 1031.320(c) Determination of Reporting Person
    Proposed 31 CFR 1031.320(c) set forth a cascading reporting 
hierarchy to determine which person providing real estate closing and 
settlement services in the United States must file a report for a given 
reportable transfer. As an alternative, the persons described in the 
reporting cascade could enter into an agreement to designate a 
reporting person.
a. Reporting Cascade
    Proposed Rule. Through the proposed reporting cascade, a real 
estate professional would be a reporting person required to file a 
report and keep records for a given transfer if the person performs a 
function described in the reporting cascade and no other person 
performs a function described higher in the reporting cascade. For 
example, if no person is involved in the transfer as described in the 
first tier of potential reporting persons, the reporting obligation 
would fall to the person involved in the transfer as described in the 
second tier of potential reporting persons, if any, and so on. The 
reporting cascade includes only persons engaged as a business in the 
provision of real estate closing and settlement services within the 
United States. The proposed reporting cascade was as follows: (1) the 
person listed as the closing or settlement agent on the closing or 
settlement statement for the transfer; (2) the person that prepares the 
closing or settlement statement for the transfer; (3) the person that 
files with the recordation office the deed or other instrument that 
transfers ownership of the residential real property; (4) the person 
that underwrites an owner's title insurance policy for the transferee 
with respect to the transferred residential real property, such as a 
title insurance company; (5) the person that disburses in any form, 
including from an escrow account, trust account, or lawyers' trust 
account, the greatest amount of funds in connection with the 
residential real property transfer; (6) the person that provides an 
evaluation of the status of the title; and finally (7) the person that 
prepares the deed or, if no deed is involved, any other legal 
instrument that transfers ownership of the residential real property.
    Comments Received. Some commenters, including real estate agent 
associations and transparency organizations, supported the use of a 
reporting cascade, believing it to be functional and useful in 
preventing arbitrage, while one commenter specifically opposed it, 
arguing that the cascading approach would be burdensome. One industry 
group asked that FinCEN exclude banks and other financial institutions 
subject to AML/CFT program requirements as reporting persons, arguing 
that such financial institutions are already subject to a higher 
standard of BSA compliance. Some commenters variously opposed the 
inclusion of settlement and closing agents, title agents, or escrow 
agents as reporting persons because they felt it threatened their 
status as neutral third parties with limited responsibilities when 
facilitating a transfer of residential real property. Other commenters 
expressed concern that certain professionals in the reporting cascade 
would be ill-equipped to report.
    Associations representing real estate agents agreed with the 
absence in the cascade of functions typically associated with real 
estate agents, while two escrow industry commenters proposed including 
real estate agents as reporting persons. One commenter suggested adding 
appraisers as reporting persons, arguing that required inclusion of 
appraisers would help to identify potential market distortion by 
illicit actors and that appraisers are otherwise well-equipped to be 
reporting persons. That commenter also suggested that FinCEN require 
appraisals be included in every non-financed transfer. One industry 
association urged FinCEN to exempt small businesses from reporting 
altogether. One commenter asked for a clear exclusion for homeowners 
associations, arguing that their burden would be high. A transparency 
organization and an industry commenter suggested that FinCEN explicitly 
prohibit transferees, transferors, and their owners from being 
reporting persons.
    Some commenters argued that certain functions described in the 
proposed reporting cascade should be moved further up in the cascade to 
ensure parties with what they viewed as the best access to information 
are the first-line reporters. One commenter suggested that 31 CFR 
1031.320(c)(1)(iii) be modified to include the person who prepares a 
stock certificate or a

[[Page 70271]]

proprietary lease to better cover potential reporting persons closing 
transfers of cooperative units, and another requested clarity as to who 
files deeds with the recording office.
    Two commenters noted that the reporting cascade may result in more 
than one reporting person in split settlements, in which the buyer and 
seller use separate settlement agents. One of those commenters also 
suggested that certain scenarios could result in the identification of 
multiple reporting persons, such as when transfers are closed by 
independent escrow companies but also involve title insurance or when 
an attorney performs the document preparation, document signing, and 
disbursement of funds in a transfer that also involves title insurance. 
Finally, one commenter noted that, in some locations, it is possible 
for title insurance to be issued several months after closing.
    Final Rule. FinCEN adopts the reporting cascade largely as 
proposed. The reporting cascade is designed to efficiently capture both 
sale and non-sale transfers, and FinCEN notes that the real estate 
industry already uses a similar reporting cascade to comply with 
requirements associated with IRS Form 1099-S.\39\
---------------------------------------------------------------------------

    \39\ See 29 CFR 1.6045-4 (Information reporting on real estate 
transactions with dates of closing on or after January 1, 1991).
---------------------------------------------------------------------------

    As set forth at 31 CFR 101.320(c)(3), FinCEN adopts the suggestion 
made by one commenter to exclude from the definition of a reporting 
person financial institutions with an obligation to maintain an AML 
program. Where a financial institution would have otherwise been a 
reporting person, the reporting obligation falls to the next available 
person described in the reporting cascade. The intent of this 
rulemaking is to address money laundering vulnerabilities in the U.S. 
real estate market, recognizing that most persons involved in real 
estate closings and settlements are not subject to AML program 
requirements. FinCEN considered imposing comprehensive AML obligations 
on such unregulated persons, but ultimately decided, as reflected in 
the final rule, to impose the narrower obligation of a streamlined SAR 
filing requirement. Financial institutions that already have an 
obligation to maintain AML programs, however, generally already have a 
SAR filing requirement that is more expansive than the streamlined 
reporting requirement adopted by this final rule. Therefore, FinCEN 
believes that it would not be appropriate at this time to add a 
streamlined reporting requirement to the existing obligations of a 
financial institution with an obligation to maintain an AML program. 
FinCEN also believes that the removal of financial institutions from 
the cascade of reporting persons will generally result in real estate 
reports simply being filed by others in the reporting cascade, not in 
those reports remaining unfiled.
    FinCEN is not persuaded by commenters suggesting that other types 
of professionals should be added to or excluded from the cascade. 
Excluding categories of real estate professionals that execute 
functions listed in the reporting cascade based on their professional 
title or business size would result in a significant reporting loophole 
that illicit actors would exploit. FinCEN believes it is also 
unnecessary for the effectiveness of the reporting cascade to include 
additional functions, such as the provision of appraisal services or 
services that real estate agents typically provide to buyers and 
sellers. FinCEN believes that the reporting cascade, as adopted, will 
effectively capture high risk non-financed transfers of residential 
real estate and any additional functions would unnecessarily increase 
the complexity of the rule. Furthermore, real estate agents and 
appraisers usually perform their primary functions in advance of the 
actual closing or settlement and therefore generally do not perform a 
central role in the actual closing or settlement process, unlike real 
estate professionals performing the functions described in the 
reporting cascade. FinCEN believes that focusing the reporting cascade 
on functions more central to the actual closing or settlement is 
necessary to ensure the reporting person has adequate access to 
reportable information. Regarding homeowners associations, FinCEN 
believes that is not necessary to explicitly exempt them the definition 
of a reporting person because they do not traditionally play the roles 
enumerated in the reporting cascade.
    FinCEN is also not persuaded by commenters' suggestion that the 
reporting obligation would affect or decrease the neutral position of 
settlement agents and escrow agents. These real estate professionals 
are ``neutral'' in that they have similar obligations to both the 
transferee and transferor and are therefore seen as an independent 
party acting only to facilitate the transfer, as opposed to a party 
acting primarily to advance the interests of just one of the parties to 
the transfer. The reporting obligation does not upset the balance 
between service to the transferee and transferor. It merely requires 
the professional to report additional information about the transfer.
    FinCEN confirms that transferees, transferors, and their beneficial 
owners cannot be reporting persons unless they are engaged within the 
United States as a business in the provision of a real estate closing 
and settlement service listed in the reporting cascade, but declines to 
explicitly prohibit transferees, transferors, and their beneficial 
owners from being reporting persons when they do play these roles, as 
it would create an exploitable loophole in the reporting cascade, if 
such persons were the only real estate professionals involved in the 
transfer.
    The final rule adopts clarifications proposed by commenters with 
respect to cooperatives. For cooperatives, the stock certificate is 
akin to a deed prepared for other types of residential real estate, and 
therefore FinCEN believes that it is appropriate to include these types 
of functions in the reporting cascade. However, FinCEN declines to 
modify the language for the person that files with the recordation 
office the deed or other instrument that transfers ownership of the 
residential real property, as requested by one commenter. FinCEN 
believes the proposed language clearly captures a person engaged as a 
business in the provision of real estate closing and settlement 
services that files the deed with the recordation officer. It would not 
include the individual clerk at the office who accepts the deed or 
other instrument.
    In regard to concerns raised by a commenter about split 
settlements, the definition of ``closing or settlement statement'' 
found in 31 CFR 1031.320(n)(2) is modified in the final rule to make 
clarify that the closing or settlement statement is limited to the 
statement prepared for the transferee only. FinCEN does not agree that 
the other situations described by the commenter would result in 
multiple reporting persons being identified, given the inherent nature 
of the reporting cascade wherein the reporting responsibility flows 
down the cascade depending on the presence of a person performing each 
listed function.
    The final rule does not adopt any changes to account specifically 
for title insurance purchased a significant period of time after a 
transfer of property. In those situations, FinCEN expects that the 
underwriting of title insurance would not be part of the closing or 
settlement process, and therefore another person in the reporting 
cascade would file the report. However, in the rare situation where 
there is no other person in the reporting

[[Page 70272]]

cascade participating in the closing or settlement of a reportable 
transfer, the underwriter of title insurance may ultimately be required 
to file the report when the insurance is eventually purchased.
b. Designation Agreements
    Proposed Rule. Proposed 31 CFR 1031.320(c)(3) set forth the option 
for persons in the reporting cascade to enter into an agreement 
deciding which person should be the reporting person with respect to 
the reportable transfer. For example, if a real estate professional 
involved in the transfer provides certain settlement services in the 
settlement process, as described in the first tier of the reporting 
cascade, that person may enter into a written designation agreement 
with a title insurance company underwriting the transfer as described 
in the second tier of the reporting cascade, through which the two 
parties agree that the title insurance company would be the designated 
reporting person with respect to that transfer. The person who would 
otherwise be the reporting person must be a party to the agreement; 
however, it is not necessary that all persons involved in the transfer 
who are described in the reporting cascade be parties to the agreement. 
The agreement must be in writing and contain specified information, 
with a separate agreement required for each reportable transfer.
    Comments Received. Two business associations requested that the 
rule allow for what they described as ``blanket'' designation 
agreements. Such agreements would allow two or more persons described 
in the reporting cascade to designate a potential reporting person for 
a set period of time or a set number of transfers. For example, a 
commenter put forward the example of a title insurance company and a 
settlement company entering into an agreement wherein, for any transfer 
in which they are both involved, the title insurance company would be 
the designated reporting person. One of these commenters stated that 
blanket designation agreements would bring a type of certainty that is 
required for them to benefit from the costs savings provided by 
designation agreements. A third business association argued that 
designation agreements will not be effective, resulting in settlement 
companies being the primary reporting person. A fourth business 
association asked whether a third-party vendor could be a designated 
reporting person.
    Final Rule. In the final rule, FinCEN adopts the allowance for 
designation agreements in 31 CFR 1031.320(c)(4) as proposed. Although 
FinCEN sees the potential benefits of blanket designation agreements, 
such agreements would undermine FinCEN's ability to enforce the rule, 
particularly when a Real Estate Report is not filed as required, and 
accordingly the final rule does not permit a blanket designation 
agreement in lieu of a separate designation agreement for each relevant 
transfer. A single transfer could be subject to multiple, potentially 
overlapping, blanket designation agreements between different parties. 
In such a situation, it would be difficult for FinCEN to determine 
which person had ultimate responsibility for filing the report, and 
even the persons described in the reporting cascade may not know who 
had filing responsibility. By comparison, a separate designation 
agreement for each transfer, describing the specific details of the 
transfer, makes that determination straightforward. The designation 
agreement is designed to provide an optional alternative to the 
reporting cascade that can be effectively and efficiently implemented 
by reporting persons if they choose. However, nothing in the final rule 
prohibits persons in the reporting cascade from having an 
understanding, in writing or otherwise, as to how they generally intend 
to comply with the rule, provided that they continue to effect 
designation agreements for applicable transfers.
    The final rule also does not allow for third-party vendors who are 
not described in the reporting cascade to be designated as a reporting 
person, as such vendors are not financial institutions that can be 
regulated by FinCEN; a reporting person could outsource the preparation 
of the form to a third-party vendor, but the ultimate responsibility 
for the completion and filing of the report would lie with the 
reporting person.
4. 31 CFR 1031.320(d) Information Concerning the Reporting Person
    Proposed Rule. Proposed 31 CFR 1031.320(d) set forth a requirement 
that reporting persons must report their full legal name and the 
category into which they fall in the reporting cascade, as well as the 
street address of their principal place of business in the United 
States.
    Comments Received. FinCEN did not receive any comments on 
reportable information concerning the reporting person.
    Final Rule. FinCEN is adopting 31 CFR 1031.320(d) as proposed.
5. 31 CFR 1031.320(e) Information Concerning the Transferee
a. General Information Concerning Transferee Entities
    Proposed Rule. Proposed 31 CFR 1031.320(e)(1) set forth a 
requirement for the reporting of the name, address, and unique 
identifying number of a transferee entity, as well as similar 
identifying information for the beneficial owners of the transferee 
entity and the persons signing documents on behalf of the transferee 
entity.
    Comments Received. One organization requested that the final rule 
collect legal entity identifiers (LEIs) for transferee entities. As 
described by the commenter, the LEI was developed by the International 
Organization for Standards and is ``the only global standard for legal 
entity identification.''
    Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(e)(1) 
as proposed. It does not incorporate the suggestion to require 
reporting of LEIs. For purpose of this reporting requirement, FinCEN 
believes that a TIN is preferable, as it is broadly utilized by law 
enforcement and may be easily connected to other BSA documents.
b. General Information Concerning Transferee Trusts
    Proposed Rule. Proposed 31 CFR 1031.320(e)(2) set forth a 
requirement to report certain information about transferee trusts, 
including the name of the trust, the date the trust instrument was 
executed, the address of the place of administration, a unique 
identifying number, and whether the trust is revocable. Proposed 31 CFR 
1031.320(e)(2) also required the reporting of information about each 
trustee that is an entity, including full legal name, trade name, 
current address, the name and address of the trust officer, and a 
unique identifying number. Furthermore, proposed 31 CFR 1031.320(e)(2) 
required the reporting of identifying information about the trust's 
beneficial owners and the individuals signing documents on behalf of 
the trust.
    Comments Received. Two industry organizations and two other 
commenters associated with the title insurance industry argued that 
information reportable for trusts should align with that on trust 
certificates issued under State law. As described by one industry 
organization, ``[u]nder the Uniform Trust Act promulgated by the 
Uniform Law Commission and enacted in 35 states, a trustee is 
authorized to issue a certification of trust containing much of the 
information sought under

[[Page 70273]]

this proposed rule.'' Another commenter requested that the beneficial 
ownership information collected under this rule align more closely with 
that collected under the BOI Reporting Rule. One other commenter, a 
non-profit organization, requested that the final rule collect legal 
entity identifiers (LEIs) for transferee trusts, for the reason 
discussed in Section III.C.5.a above with respect to legal entities.
    Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(e)(2) 
largely as proposed. FinCEN is persuaded by the recommendation to align 
information collected about trust transferees more closely with what is 
available on trust certificates. While they vary by state, trust 
certificates generally contain much of a trust's basic identifying 
information, such as the name of the trust, the date the trust was 
entered into, the name and address of the trustee, and whether the 
trust is revocable. The final rule eliminates the proposal to report 
information identifying the trust officer or the address that is the 
trust's place of administration, as this information is not commonly 
found on trust certificates and FinCEN believes other information 
collected will be sufficient to support law enforcement investigations. 
However, reporting persons are still required to report some 
information that may not be available on trust certificates, such as 
the identifying information for the trustee, as this is basic 
information necessary to conclusively identify the trust and to 
effectively conduct investigations into illicit activity. FinCEN 
believes this information will be readily collected by reporting 
persons; for example, because trustees generally manage the assets of 
the trust, the trustee will likely be directly involved in the transfer 
of residential real property to the trust.
    The final rule does not adopt the suggestion to completely align 
the collection of beneficial ownership information with that collected 
under the BOI Reporting Rule. While the two rules do align in the 
collection of the beneficial owner's name, date of birth, and address, 
they differ in two key respects: first, regarding the unique 
identifying number, the real estate rule relies largely on TINs instead 
of passport numbers; and second, the real estate rule collects 
citizenship information, while the BOI Reporting Rule does not. As 
discussed in Section III.B.6, TINs are a key piece of identifying 
information for purposes of the database that would hold Real Estate 
Reports, and other BSA reports typically require TINs for this reason. 
Furthermore, FinCEN believes that the collection of citizenship 
information is necessary in this context to better analyze the volume 
of illicit funds entering the United States via entities or trusts 
beneficially owned by non-U.S. persons and is a key element for 
ensuring that the implementation of this rule will enhance and protect 
U.S. national security. FinCEN notes that such citizenship information, 
along with TINs, are reported on traditional SARs. Finally, the rule 
does not incorporate the suggestion to require reporting of LEIs, for 
the reasons discussed in Section III.C.2.d with respect to information 
collected for transferee entities.
c. Beneficial Ownership Information of Transferee Entities and Trusts
    Proposed Rule. Proposed 31 CFR 1031.320(e) set forth requirements 
to report certain beneficial ownership information with respect to 
transferee entities and transferee trusts. Proposed 31 CFR 
1031.320(j)(1)(i) largely defined beneficial owners of transferee 
entities through a reference to regulations in the BOI Reporting Rule, 
specifically 31 CFR 1010.380(d). Similarly, proposed 31 CFR 
1031.320(j)(1)(ii) established a definition for the beneficial owners 
of transferee trusts by leveraging concepts from the BOI Reporting 
Rule. For both transferee entities and transferee trusts, the proposed 
regulation set forth that the determination of beneficial ownership 
would be as of the date of closing. The proposed rule did not require 
reporting persons to determine whether an individual was a beneficial 
owner, allowing them instead to use a certification form described in 
31 CFR 1031.320(e)(3) to collect beneficial ownership information 
directly from a transferee trust or a person representing a trust in 
the reportable transfer, as discussed further in Section III.B.4.
    Comments Received. Three commenters expressed support for the 
collection of beneficial ownership information on the Real Estate 
Report, with one transparency organization specifically supporting the 
proposed rule's adoption of definitions from the BOI Reporting Rule. 
This commenter noted that the proposal would minimize confusion, 
promote consistency, and maximize the ability to cross-reference data. 
Multiple commenters, however, argued that the collection of beneficial 
ownership information under the proposed rule is unnecessary due to the 
collection of similar information under the BOI Reporting Rule. Some of 
these commenters also argued that, if beneficial ownership information 
is collected, it should be limited to the reporting of a FinCEN 
Identifier, which is an identification number that reporting entities 
and their beneficial owners may use to report beneficial ownership 
information under the BOI Reporting Rule. An industry group 
representing trust and estate lawyers argued that the definition of a 
beneficial owner of a transferee trust should be limited to trustees, 
rather than also including grantors/settlors and beneficiaries.
    One commenter requested that the final rule retain the exception 
from beneficial ownership information reporting found in 31 CFR 
1010.380(d)(3)(ii) for nominees, intermediaries, custodians, and 
agents, while two other commenters requested that the rule should 
except reporting where a beneficial owner is a minor.
    Final Rule. The final rule retains the requirement to provide 
beneficial ownership information in the report, as proposed, with one 
technical edit to correct a cross reference. FinCEN agrees that the 
Real Estate Report will contain some information that is also reported 
under the BOI Reporting Rule. However, because these two distinct 
reports would be filed on different facets of a single legal entity's 
activities, FinCEN believes it is appropriate for some of the same 
information to be reported on both forms. As FinCEN explained in the 
NPRM, the beneficial ownership information report (BOIR) and the report 
required by this rule serve different purposes.
    The information reported on a BOIR informs FinCEN about the 
reporting companies that have been formed or registered in the United 
States, while Real Estate Reports will inform FinCEN about the legal 
entities, some of which may be ``reporting companies'' within the 
meaning of the BOI Reporting Rule, that have participated in reportable 
real estate transfers that Treasury believes to be at high risk for 
money laundering. Real Estate Reports, by including beneficial 
ownership information and real estate transfer information in a single 
report, will enable law enforcement to investigate potential criminal 
activity in a timely and efficient manner, and will allow Treasury and 
law enforcement to connect money laundering through real estate with 
other types of illicit activities and to conduct broad money laundering 
trend analyses. BOIRs are kept secure but are intended to be made 
available not only to government agencies but to financial institutions 
for certain compliance purposes. Real Estate Reports will be subject to 
all of the protections and limitations on access and use that already 
apply to SARs.

[[Page 70274]]

    The need for two different types of report, of course, does not 
mean that FinCEN is not concerned about eliminating unnecessary 
duplication of effort. FinCEN appreciates the suggestion that reporting 
persons be allowed to submit FinCEN Identifiers in lieu of collecting 
and submitting beneficial ownership information for legal entities that 
are considered reporting companies under the BOI Reporting Rule. 
However, FinCEN has identified a number of legal and operational 
limitations that would prevent FinCEN from accepting FinCEN identifiers 
outside of the CTA context.\40\ For instance, information provided to 
FinCEN under the CTA, including the information provided in order to 
obtain FinCEN identifiers, is housed in an information technology 
system kept separate from other Bank Secrecy Act reports. The CTA 
imposes strict limits on access to that system, and those statutory 
limits are reflected in implementing regulations and the relevant 
Privacy Act System of Records Notice.\41\ There is no reason to think 
that persons entitled to access to CTA information will routinely also 
be entitled to access to SARs and other BSA reports, or vice versa. 
Thus, at this time, allowing FinCEN identifiers to be reported in lieu 
of the underlying information would limit the usefulness of Real Estate 
Reports to law enforcement. As discussed in Section II.A.2 in the 
context of cross-referencing data from Residential Real Estate GTOs 
with SARs, the ability to link non-financed transfers of residential 
real property with other BSA reports is of significant value to law 
enforcement. Thus, FinCEN has not adopted this suggestion in the final 
rule.
---------------------------------------------------------------------------

    \40\ See FinCEN, ``Beneficial Ownership Information Access and 
Safeguards,'' 88 FR 88732 (Dec. 22, 2023).
    \41\ FinCEN, ``Notice of a New System of Records,'' 88 FR 62889 
(Sept. 13, 2023).
---------------------------------------------------------------------------

    With regard to the comments suggesting a more limited definition of 
a beneficial owner, FinCEN does not adopt the suggestion that 
beneficial owners of trusts be limited to trustees. The final rule 
instead adopts the approach in the proposed rule, which set forth 
several positions in a transferee trust that FinCEN considers to be 
occupied by the beneficial owners of the trust, including: the trustee; 
an individual other than a trustee with the authority to dispose of 
transferee trust assets; a beneficiary that is the sole permissible 
recipient of income and principal from the transferee trust or that has 
the right to demand a distribution of, or withdraw, substantially all 
of the assets from the transferee trust; a grantor or settlor who has 
the right to revoke the transferee trust or otherwise withdraw the 
assets of the transferee trust; and the beneficial owner(s) of any 
legal entity that holds at least one of these positions. The persons 
holding these positions have clear ownership or control over trust 
assets and therefore should be reported as beneficial owners of the 
trust.
    For legal entities, 31 CFR 1031.320(n)(1)(i) continues to reference 
31 CFR 1010.380(d) and therefore the final rule incorporates exceptions 
from the definition of beneficial owner of a reporting company; these 
exceptions include nominees, intermediaries, custodians, and agents, as 
well as minor children (when certain other information is reported). 
For transferee trusts, the definition of beneficial owner in 31 CFR 
1031.320(n)(1)(ii) does not contain exceptions mirroring those found in 
the definition of a beneficial owner of a transferee entity. FinCEN 
considered adding an exception for minor children as suggested by 
commenters but believes at this time that such an exception is not 
appropriate for trusts. Trusts, unlike legal entities, are largely 
designed to transfer assets to family members such as minor children, 
and therefore the reporting of minor children will accurately reflect 
the nature of the trust and, in aggregate, will allow FinCEN to more 
accurately determine the risks related to trusts. FinCEN notes, 
however, that the definition of beneficial owner is unlikely to result 
in significant reporting of minor children, as minor children would 
fall into only one category of beneficial owner--as the beneficiary of 
the transferee trust, and only when the minor child is the beneficiary 
who is the sole permissible recipient of income and principal from the 
transferee trust.
6. 31 CFR 1031.320(f) Information Concerning the Transferor
    Proposed Rule. Proposed 31 CFR 1031.320(f) required the reporting 
person to report information relevant to identifying the transferor, 
such as the transferor's name, address, and identifying number. If the 
transferor is a trust, similar information would be reported 
identifying the trustee.
    Comments Received. One think tank supported the collection of 
information on transferors, while three industry organizations opposed 
it, arguing that such information is unnecessary for law enforcement 
and is redundant with other information available to law enforcement 
through public land records, BOI reports filed under the CTA, or IRS 
Form 1099-S.
    Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(f) as 
proposed. Information identifying the transferor is necessary to 
identify certain money laundering typologies, such as where the 
transferor and transferee are related parties mispricing the real 
estate in order to transfer value from one to the other. There is 
therefore a significant benefit to having the transferor's information 
on the same report as the transferee's information. The transferor's 
information is basic information about the transferor and does not 
include information that may be more difficult to gather, such as 
beneficial ownership information. There is a significant value in 
adding transferor information in the same report as transferee 
information and in the same database as information from other BSA 
reports. FinCEN has addressed the suggestion that similar information 
is available through reports filed under the BOI Reporting Rule or IRS 
Form 1099-S in Section III.B.2.
7. 31 CFR 1031.320(g) Information Concerning the Residential Real 
Property
    Proposed Rule. Proposed 1031.320(g) required the reporting person 
to report the street address, if any, and the legal description (such 
as the section, lot, and block) of each residential real property that 
is the subject of a reportable transfer.
    Comments Received. FinCEN did not receive any comments related to 
the reporting of information concerning residential real property.
    Final Rule. FinCEN adopts 31 CFR 1031.320(g) with technical edits 
that are meant to lay out the requirements more clearly, and a 
modification to the text to require the reporting of the date of 
closing. The NPRM requested comments as to whether the proposed 
information reported regarding the description of the transferred 
residential real property was sufficient. Although FinCEN received no 
comments regarding the reporting of date of closing, FinCEN has 
subsequently determined that such information is necessary for it to 
confirm whether reporting persons are complying with the final rule. 
The term ``date of closing'' was defined in the NPRM (and is adopted in 
the final rule) to mean the date on which the transferee entity or 
transferee trust receives an ownership interest in the residential real 
property. As proposed in the NPRM and adopted in the final rule, 
reporting persons have to ascertain the date of closing to make key 
determinations, such as the filing

[[Page 70275]]

deadline, discussed in Section III.C.11, and whether an individual is a 
beneficial owner, discussed in Section III.C.5.c. Because the date of 
closing is information that a reporting person must obtain to comply 
with the final rule and, relatedly, is information FinCEN also must 
receive to enforce compliance with the rule, the reporting of such 
information is a logical outgrowth of the NPRM. The parties to the 
transfer will know the date of closing and be able to report that date 
easily on the Real Estate Report.
8. 31 CFR 1031.320(h) Information Concerning Payments
    Proposed Rule. Proposed 31 CFR 1031.320(h) set forth a requirement 
that reporting persons report detailed information about the 
consideration, if any, paid in relation to any reportable transfer. 
This would include total consideration paid for the property, the 
amount of each separate payment made by or on behalf of the transferee 
entity or transferee trust, the method of such payment, the name of and 
account number with the financial institution originating the payment, 
and the name of the payor.
    Comments Received. Several commenters argued that reporting persons 
would not have ready access to the proposed information to be collected 
about payments. An industry group, for example, stated that state-level 
``good funds'' laws limit settlement agents to accepting fully and 
irrevocably settled and collected funds, meaning typically wire 
payments and cashier's checks, which would not contain information such 
as the originator's full account number. A business clarified that, for 
wire payments, a settlement company would only see: the date on which 
the wire transfer was received; the amount of the wire transfer; the 
name on the originator's account; the routing number for the sending 
bank; the name of the bank used by the beneficiary; the beneficiary's 
account number; the beneficiary's name and address; and wire 
information providing a reference number relevant to escrow. Some 
commenters also argued that the originating financial institution would 
be unlikely to provide the relevant information; that the person 
holding the originating account, such as an escrow company or attorney, 
would similarly be unlikely to provide the relevant information; or 
that transferees may refuse to provide information, believing the 
reporting of account numbers would put them at risk.
    To remedy these issues, commenters argued that payment information 
should instead be limited to either the total consideration or to the 
information readily available on wire instructions or a check. Some 
commenters suggested eliminating the reporting of payment information 
entirely, questioning the usefulness of reporting such information 
given that covered financial institutions are likely involved in the 
processing of such payments and that the reporting person may be 
separately required to report payment information on a Form 8300, and 
also raising concerns about the potential increased risk of fraud if 
detailed account information is required to be reported.
    Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(h) 
largely as proposed, with edits to clarify the reporting of the total 
consideration paid. FinCEN acknowledges that the information required 
may be beyond what is normally available to the reporting person, but 
nevertheless believes that the information can be readily collected 
from the transferee. FinCEN expects that the adoption of the reasonable 
reliance standard in this rule will help relieve concerns articulated 
by commenters about the burden of verifying payment information or 
their ability to collect such information. FinCEN also notes that 
filers of IRS Form 1099-S must report the account numbers of 
transferors and therefore believes these to be accessible to reporting 
persons, many of whom file such forms.
    FinCEN appreciates commenters' concerns about potential risks 
associated with collecting and retaining detailed payment information 
in relation to reportable transfers and believes that the removal of 
the requirement to retain Real Estate Reports, in which personal 
information would be aggregated, for five years, as discussed in 
Section III.C.12, will help mitigate this risk.
9. 31 CFR 1031.320(i) Information Concerning Hard Money, Private, and 
Similar Loans
    Proposed Rule. Proposed 31 CFR 1031.320(i) set forth the 
requirement that reporting persons report whether the transfer involved 
an extension of credit from any institution or individual that does not 
have AML program obligations.
    Comments Received. FinCEN did not receive any comments about the 
reporting of information concerning hard money, private, and similar 
loans.
    Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(i) as 
proposed. FinCEN believes this information will be valuable to 
understanding the risks presented by private lenders. FinCEN notes 
that, as discussed in Section III.C.2.b covering the definition of a 
non-financed transfer, reporting persons may rely on information from 
the lender as to whether the lender has an AML program obligation.
10. 31 CFR 1031.320(j) Reasonable Reliance
    The final rule adopts a reasonable reliance standard, set forth in 
31 CFR 1031.320(j), that generally allows reporting persons, whether 
when reporting information required by the final rule or when necessary 
to make a determination to comply with the rule, to reasonably rely on 
information provided by other persons. This change from the proposed 
rule is explained in detail in Section III.B.4.
11. 31 CFR 1031.320(k) Filing Procedures
    Proposed Rule. Proposed 31 CFR 1031.320(k) set forth a requirement 
that reporting persons file a Real Estate Report with FinCEN no later 
than 30 calendar days after the date of a given closing.
    Comments Received. One transparency organization supported the 30-
day filing period, arguing that 30 days is both reasonable and 
necessary to ensure that current and useful information is available to 
law enforcement soon after a reportable transfer takes place. Two other 
commenters, however, argued that a 30-day window would be too short a 
timeframe in which to gather the required information and that it would 
be burdensome to monitor differing filing dates for each reportable 
transfer. As an alternative, these commenters proposed an annual filing 
deadline, akin to IRS Form 1099-S, with another suggesting that a 
quarterly filing deadline would also be an improvement.
    Final Rule. In the final rule, FinCEN adopts, in 31 CFR 
1031.320(k)(3), a reporting deadline of the final day of the following 
month after which a closing took place, or 30 days after the date of 
the closing, whichever is later. FinCEN believes that this approach 
will reduce date tracking burdens for industry and may further reduce 
the logistical burden of compliance by providing a longer period of 
time in which to gather the reportable information, while still 
providing timely information to law enforcement. FinCEN recognizes that 
Real Estate Reports are unique when compared with other BSA reports and 
therefore necessitate a unique reporting deadline. Real Estate Reports 
require more information than forms such as a CTR or Form 8300--both 
required to be filed within 15 days of a transaction--

[[Page 70276]]

and the information may need to be gathered from a variety of sources, 
and not just from the single individual conducting the transaction. 
Relatedly, traditional SARs, which must be filed within 30 days after 
suspicious activity is detected, also frequently rely on information 
known to the filer and, critically, are filed by financial institutions 
required to have AML programs. FinCEN believes the final filing date 
will benefit both reporting persons and law enforcement by ensuring 
reporting persons have sufficient time to gather information, resulting 
in more complete and accurate reports.
    FinCEN believes that a filing period longer than adopted here would 
adversely impact the utility of the reports for law enforcement and 
that the extended filing period adopted in this final rule strikes the 
appropriate balance between accommodating commenters' concerns and 
ensuring timely reporting of transfers, particularly given other 
modifications and clarifications in this rule. In particular, FinCEN 
believes that the adoption of the reasonable reliance standard will 
significantly reduce the time needed to file the form compared to 
verifying the accuracy of each piece of information. FinCEN therefore 
declines to adopt the longer quarterly or annual suggested filing 
periods.
    The final rule deletes as unnecessary the reference in proposed 31 
CFR 1031.320(k) to the collection and maintenance of supporting 
documentation. In contrast with a traditional SAR requirement, the 
requirement to file a Real Estate Report does not require the reporting 
person to maintain records documenting the reasons for filing, and 
therefore there is no need to consider such documentation to have been 
deemed filed with the Real Estate Report, or to reference such 
documentation when discussing what a reporting person should file.
12. 31 CFR 1031.320(l) Retention of Records
    Proposed Rule. Proposed 31 CFR 1031.320(l) set forth a requirement 
that reporting persons maintain a copy of any Real Estate Report filed 
and a copy of any beneficial ownership certification form provided to 
them for five years. It also proposed that all parties to any 
designation agreement maintain a copy of the agreement for five years.
    Comments Received. Several commenters stated that retaining records 
for five years represents an ongoing data storage cost and increases 
concerns about data security. Two commenters expressed concern that 
collecting and retaining the information that reporting persons would 
need to FinCEN to report would run counter to the principles that 
underly certain State laws that the comments stated were designed to 
protect data privacy. One commenter argued that there were Fourth 
Amendment implications for the records retention requirement, which 
they viewed as requiring businesses to maintain records and produce 
them to law enforcement on demand. However, a transparency organization 
supported the proposed five-year recordkeeping requirement, noting also 
that FinCEN would need access to the designation agreement to determine 
who had responsibility for filing the report in a particular transfer.
    Final Rule. The final rule retains the requirement that certain 
records be kept for five years but limits the requirement to a copy of 
any beneficial ownership certification form that was provided to the 
reporting person, as well as a copy of any designation agreement. As 
amended, the rule does not require reporting persons to retain a copy 
of a Real Estate Report that was submitted to FinCEN. FinCEN believes 
that eliminating the requirement to retain a Real Estate Report may 
reduce concerns related to data security and to costs associated with 
the retention of records. FinCEN also notes, more generally, that the 
BSA reporting framework has long been held to be consistent with the 
Fourth Amendment of the U.S. Constitution.\42\
---------------------------------------------------------------------------

    \42\ U.S. v. Miller, 425 U.S. 435 (1976).
---------------------------------------------------------------------------

    While FinCEN considered eliminating the record retention 
requirement in its entirety, it believes that it is necessary to the 
enforceability of the rule that reporting persons retain copies of 
documents that will not be filed with FinCEN--namely, a copy of any 
beneficial ownership information certification form and any designation 
agreement to which a reporting person is a party. Furthermore, FinCEN 
has retained the requirement in the proposed rule that all parties to a 
designation agreement--not just the reporting person--must retain a 
copy of such designation agreement, also to ensure enforceability of 
the rule. As previously stated, records that are required to be 
retained must be maintained for a period of five years.
13. 31 CFR 1031.320(m) Exemptions
    Proposed Rule. Proposed 31 CFR 1031.320(m)(1) exempted reporting 
persons, and any director, officer, employee, or agent of such persons, 
and Federal, State, local or Tribal government authorities, from the 
confidentiality provision in 31 U.S.C. 5318(g)(2) that prohibits the 
disclosure to any person involved in a suspicious transaction that the 
transaction has been reported or any information that would otherwise 
reveal that the transaction has been reported.
    Proposed 31 CFR 1031.320(m)(2) confirmed that the exemption from 
the requirement to establish an AML program, in accordance with 31 CFR 
1010.205(b)(1)(v), would continue to apply to those businesses that may 
be reporting persons under the final rule. It also stated that no such 
exemption applies for a financial institution that is otherwise 
required to establish an anti-money laundering program, as provided in 
31 CFR 1010.205(c).
    Comments Received. FinCEN received one comment by 25 Attorneys 
General that supported the exemption of Federal, State, local, or 
Tribal government authorities from the confidentiality provision. 
Additionally, one industry association supported the proposed rule's 
exemption for reporting persons from establishing an AML program.
    Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(m) 
largely as proposed, with one minor deletion for consistency. As in the 
NPRM, FinCEN recognizes that the confidentiality provision in 31 U.S.C. 
5318(g)(2) applying to financial institutions that file SARs is not 
feasible with the Real Estate Report, as reporting persons needs to 
collect information directly from the subjects of the Report, thus 
revealing its existence. Moreover, all parties to a non-financed 
residential real estate transfer subject to this rule would already be 
aware that a report would be filed, given such filing is non-
discretionary, rendering confidentiality unnecessary. The final rule 
maintains the exemption from the requirement for reporting persons to 
establish an AML program. However, given the change discussed earlier 
explicitly excluding financial institutions with AML program 
obligations from the definition of a reporting person, the sentence 
referring to such financial institutions has been deleted.
14. 31 CFR 1031.320(n) Definitions
    Proposed Rule. The proposed rule set forth several definitions in 
31 CFR 1031.320(j) for key concepts, such as ``transferee entity,'' 
``transferee trust,'' and the beneficial owners of these aforementioned 
entities.
    Comments Received. FinCEN received comments related to the 
definition of ``Beneficial owner,'' discussed above in Section 
III.C.5.c; ``Residential real property,'' discussed above in Section

[[Page 70277]]

III.C.2.a; ``Transferee entity,'' discussed above in Section III.C.2.d; 
and ``Transferee trust,'' discussed above in Section III.C.2.e. FinCEN 
did not receive comments on other proposed definitions.
    Final Rule. For clarity, in the final rule, FinCEN moves the 
paragraph containing definitions to the end of the regulations, so that 
they appear at 31 CFR 1031.320(n). In addition to modifications and 
clarifications discussed in the sections referenced above, the rule 
adopts the following modifications:
     The definition of ``closing or settlement statement'' is 
limited to the statement prepared for the transferee, as discussed in 
Section III.C.3.a;
     The rule adds a definition for ``Non-financed transfer'' 
for clarity, as discussed in Section III.C.2.b;
     The rule is meant to be applied nationwide, and therefore 
the definition of ``Recordation office'' is modified to make clear that 
the recordation office may be located in a territory or possession of 
the United States, and is not limited to State, local, or Tribal 
offices for the recording of reportable transfers as a matter of public 
record. As a result, a person may be a reporting person if they file a 
deed or other instrument that transfers ownership of the residential 
real property with a recordation office located in any state, local 
jurisdiction, territory of possession of the United States, or Tribe;
     For clarity, the term ``Residential real property'' is 
removed from the list of definitions found in 31 CFR 1031.320(n) and is 
instead defined in 31 CFR 1031.320(b).
    The remaining definitions are adopted as proposed.

IV. Effective Date

    Proposed Rule. The NPRM proposed that the final rule would be 
effective one year after the final rule is published in the Federal 
Register.
    Comments Received. Several industry commenters agreed that a one-
year delayed effective date is necessary to implement the requirements, 
with some indicating that one year, at a minimum, would be feasible. 
One commenter suggested that the final rule be implemented in phases to 
allow industry time to adapt to the regulation.
    Final Rule. The final rule provides for an effective date of 
December 1, 2025, at which point reporting persons will be required to 
comply with all of the rule's requirements, chief among them the 
requirement to file Real Estate Reports with FinCEN. FinCEN believes 
that this effective date, which delays the effective date by slightly 
more than the one-year that industry commenters generally supported at 
a minimum, will provide additional opportunity for potential reporting 
persons to understand the requirements of the rule and put appropriate 
compliance measures into place. Furthermore, this effective date will 
provide FinCEN with the additional time necessary to issue the Real 
Estate Report, including the completion of any process required by the 
Paperwork Reduction Act (PRA).
    However, FinCEN declines to adopt a phased approach to 
implementation of the rule, such as by initially limiting the reporting 
obligation to persons performing a limited number of functions 
described in the reporting cascade or phasing-in the rule 
geographically. FinCEN believes a phased approach would likely create 
unneeded complexity for industry, as industry would need to adapt 
processes and procedures multiple times over the implementation period. 
A phased implementation would also undermine the effectiveness of the 
rule for an extended period of time. The rule is intended to provide 
comprehensive reporting for a subset of high-risk residential real 
estate transfers; phased implementation may enable avoidance of 
reporting requirements by illicit actors, replicating some of the 
issues FinCEN has encountered under the Residential Real Estate GTOs.

V. Severability

    If any of the provisions of this rule, or the application thereof 
to any person or circumstance, is held to be invalid, such invalidity 
shall not affect other provisions or application of such provisions to 
other persons or circumstances that can be given effect without the 
invalid provision or application.
    Indeed, the provisions of this rule can function sensibly if any 
specific provision or application is invalidated, enjoined or stayed. 
For example, if a court were to hold as invalid the application of the 
rule with respect to any category of potential reporting persons, 
FinCEN would preserve the reporting cascade approach for all other 
persons that perform the functions set out in the cascade. In such an 
instance, the provisions of the rule should remain in effect, as those 
provisions could function sensibly with respect to other potential 
reporting persons. Likewise, if a court were to hold invalid the 
application of the rule to any category of residential real property, 
as defined, the other categories should still remain covered. Because 
these categories operate independently from each other, the remainder 
of the rule's provisions could continue to function sensibly: a 
reportable transfer would continue to be a non-financed transfer of any 
ownership interest in the remaining categories of residential real 
property when transferred to a transferee entity or transferee trust. 
Similarly, with respect to transferee entities and transferee trusts, 
if a court were to enjoin FinCEN from enforcing the rule's reporting 
requirements as applied to, for example, transferee trusts, the 
reporting of transfers to transferee entities should continue because 
the two types of transferees are separate and distinct from one 
another. Thus, even if the transferee trust provisions were severed 
from the rule, the remaining portions of the rule could still function 
sensibly. In sum, in the event that any of the provisions of this rule, 
or the application thereof to any person or circumstance, is held to be 
invalid, FinCEN has crafted this rule with the intention to preserve 
its provisions to the fullest extent possible and any adverse holding 
should not affect other provisions.

VI. Regulatory Analysis

    This regulatory impact analysis (RIA) evaluates the anticipated 
effects of the final rule in terms of its expected costs and benefits 
to affected parties, among other economic considerations, as required 
by EOs 12866, 13563, and 14094. This RIA also affirms FinCEN's original 
assessments of the potential economic impact on small entities pursuant 
to the Regulatory Flexibility Act (RFA) and presents the expected 
reporting and recordkeeping burdens under the Paperwork Reduction Act 
of 1995 (PRA). Furthermore, it sets out the analysis required under the 
Unfunded Mandates Reform Act of 1995 (UMRA).
    As discussed in greater detail below, the rule is expected to 
promote national security objectives and enhance compliance with 
international standards by improving law enforcement's ability to 
identify the natural persons associated with transfers of residential 
real property conducted in the U.S. residential real estate sector, and 
thereby diminish the ability of corrupt and other illicit actors to 
launder their proceeds through real estate purchases in the United 
States. More specifically, the collection of the transfer-specific 
SARs--Real Estate Reports--in a repository that is readily accessible 
to law enforcement and that contains other BSA reports is expected to 
increase the efficiency with which resources can be utilized to 
identify such natural persons, or beneficial owners, when they have 
conducted non-financed purchases of residential real

[[Page 70278]]

property using legal entities or trusts, and to cross-reference those 
beneficial owners and their legal entity or trust against other 
reported financial activities in the system.
    This RIA first describes the economic analysis FinCEN undertook to 
inform its expectations of the rule's impact and burden. That is 
followed by certain pieces of additional and, in some cases, more 
specifically tailored analysis as required by EOs 12866, 13563, and 
14094, the RFA, the UMRA, and the PRA, respectively. Responses to 
public comments related to the RIA--regarding specific findings, 
assumptions, or expectations, or with respect to the analysis in its 
entirety--can be found in Sections VI.A.1.b and VI.C and have been 
previewed and cross-referenced throughout the RIA.

A. Assessment of Impact

    This final rule has been determined to be a ``significant 
regulatory action'' under Section 3(f) of E.O. 12866 as amended by 
14094. The following assessment indicates that the rule may also be 
considered significant under Section 3(f)(1), as the rule is expected 
to have an annual effect on the economy of $200 million or more.\43\ 
Consistent with certain identified best practices in regulatory 
analysis, the economic analysis conducted in this section begins with a 
review of FinCEN's broad economic considerations,\44\ identifying the 
relevant market failures (or fundamental economic problems) that 
demonstrate the need or otherwise animate the impetus for the policy 
intervention.\45\ Next, the analysis turns to details of the current 
regulatory requirements and the background of market practices against 
which the rule will introduce changes (including incremental costs) and 
establishes FinCEN's estimates of the number of entities and 
residential real property transfers it anticipates to be affected in a 
given year.\46\ The analysis then briefly reviews the final rule with a 
focus on the specifically relevant elements of the definitions and 
requirements that most directly inform how FinCEN contemplates 
compliance would be operationalized.\47\ Next, the analysis proceeds to 
outline the estimated costs to the respective affected parties that 
would be associated with such operationalization.\48\ Finally, the 
analysis concludes with a brief discussion of the regulatory 
alternatives FinCEN considered in the NPRM, including a discussion of 
the public comments received in response.\49\ Throughout the analysis, 
FinCEN has attempted to incorporate public comments received in 
response to the NPRM where most relevant. Certain broad commentary 
themes that are pertinent to the RIA as a whole are addressed 
specifically in Sections VI.A.1.b and VI.C below, while the remainder 
are integrated into the general discussion throughout the rest of the 
analysis.
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    \43\ E.O. 12866, 58 FR 51735 (Oct. 4, 1993), section 3(f)(1); 
E.O. 14094, 88 FR 21879 (Apr. 11, 2023), section 1(b).
    \44\ See Section VI.A.1.
    \45\ Broadly, the anticipated economic value of a rule can be 
measured by the extent to which it might reasonably be expected to 
resolve or mitigate the economic problems identified by such review.
    \46\ See Section VI.A.2.
    \47\ See Section VI.A.3.
    \48\ See Section VI.A.4.
    \49\ See Section VI.A.5.
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1. Economic Considerations
a. Broad Economic Considerations
    As FinCEN articulated in the RIA of the NPRM, two problematic 
phenomena animate this rulemaking.\50\ The first is the use of the 
United States' residential real estate market to facilitate money 
laundering and illicit activity. The second, and related, phenomenon is 
the difficulty of determining who beneficially owns legal entities or 
trusts that may engage in non-financed transfers of residential real 
estate, either because this data is not available to law enforcement or 
access is not sufficiently centralized to be meaningfully usable for 
purposes of market level risk-monitoring or swift investigation and 
prosecution. The second phenomenon contributes to the first, making 
money laundering and illicit activity through residential real property 
more difficult to detect and prosecute, and thus can reduce the 
appropriate disciplinary and deterrent effects of law enforcement. 
FinCEN therefore expects that the reporting of non-financed residential 
real estate transfers required by this rule would generate benefits by 
mitigating those two phenomena. In other words, FinCEN expects that 
benefits would flow from the rule's ability to make law enforcement 
investigations of illicit activity and money laundering through 
residential real estate less costly and more effective, and it would 
thereby generate value by reducing the social costs associated with 
related illicit activity to the extent that it is more effectively 
disciplined or deterred.
---------------------------------------------------------------------------

    \50\ See FinCEN, NPRM, ``Anti-Money Laundering Regulations for 
Residential Real Estate Transfers,'' 89 FR 12424 (Feb. 16, 2024).
---------------------------------------------------------------------------

b. Consideration of Comments Received
    In completing the analysis to accompany the final rule, FinCEN took 
all submitted public comments to the NPRM into consideration. While the 
NPRM received over six hundred comment letters, fewer than 25 percent 
of those comments presented non-duplicate content and a smaller 
fraction still provided comment specifically with respect to the NPRM 
RIA. The proportion of comment letters with non-duplicate content 
represents highly geographically concentrated and geographically unique 
feedback, which may therefore limit the generalizability of those 
responses regarding baseline and burden-related elements to other 
regions of the country and other local real estate markets that do not 
face the same general housing market trends or state-specific legal 
constraints. Where FinCEN has declined to revise its original analysis 
in response to certain comments, an attempt has been made to provide 
greater clarification of the reasons underlying FinCEN's original 
methodological choices and expectations.
i. Comments Pertaining to Burden Estimates
    Numerous comment letters spoke to the anticipated burden of the 
rule, though there was substantial variation in parties' expectations 
about which participant in a reportable transfer would ultimately bear 
the financial costs. Some commenters expressed concern that, if 
required to serve as the reporting person, they would not be able to 
absorb the related costs. The majority of these commenters, however, 
did not offer any explanation for why they would therefore not opt to 
designate to another cascade member, though presumably the assumption 
may have been that no other cascade member might be willing to agree. 
This assumption may or may not be consistent with countervailing 
incentives other cascade members face in facilitating reportable 
transfers. Other commenters suggested that certain reporting persons 
might be forced to absorb a large proportion of the rule's costs due 
simply to their considerable market share in their particular industry. 
Additionally, a substantial fraction of those who commented on the 
burden of the rule signaled their expectation that to some degree the 
financial costs would ultimately be passed along to the transferee, the 
transferee's tenants, or to all housing market clients served by that 
potential reporting person.
    For purposes of the economic analysis, FinCEN notes that there may 
be a meaningful distinction between the concept of being burdened, or 
affected, by the rule and bearing the cost of the

[[Page 70279]]

rule. A party may be the primary affected business in terms of needing 
to undertake the most new burden or incremental, novel activity to 
comply with the rule, but to the extent that that work is compensated, 
that party, for purposes of the RIA is not considered to also bear the 
cost of the rule. The comments FinCEN received in response to the NPRM 
suggest that there may be considerable variation across states in the 
distinction between where businesses may be primary affected businesses 
only and where businesses may be both those primarily affected and 
those that bear the majority of the rule's costs.
    Separately, FinCEN notes that while the vast majority of comment 
letters spoke to at least one element of burden as a concern, very few 
provided competing estimates or alternative methods to quantify the 
expected burden of the proposed rule in its entirety. Many commenters, 
in fact, took FinCEN estimates as given when making their own 
arguments, suggesting that at least on some level, they found the 
estimates reasonably credible. In cases where commenters most strongly 
disagreed with the magnitude of FinCEN estimates (suggesting that 
FinCEN vastly underestimated the burden of the rule), it is unclear 
whether the same differences would persist in light of the 
clarifications and modifications to the proposed rule that have been 
made in the process of finalization. Given the divergence between what 
some commenters originally interpreted the rule to require of them and 
what the final rule would entail, a number of those concerns--including 
concerns related to the expected verification of information that are 
addressed by the reasonable reliance standard adopted in the final 
rule--may now be less pressing.
    The primary revision that FinCEN has made to the RIA in response to 
commenters is with respect to wage estimates for the industry 
categories represented in the reporting cascade. In addition to 
updating wages to incorporate the BLS's most recent annual figures, 
FinCEN also elected to incorporate the 90th percentile wage values 
instead of the national average index values used in the NPRM RIA. This 
more conservative approach is meant to address certain commenter 
concerns that FinCEN's expected costs might underestimate the market 
wage rates reporting persons would need to pay, particularly because 
more reporting might occur in geographic areas where skilled labor 
commands higher compensation. Adopting this more conservative, higher 
wage rate approach does not reflect any change in FinCEN's expectations 
about the underlying burden of compliance with the rule.
ii. Comments Suggesting Additional Analysis
    A few comment letters suggested that FinCEN's analysis may have 
benefited from additional research activities, robustness tables, or 
analyses of distributional effects. While in principle FinCEN does not 
object to more, and more empirically robust, quantitative analysis of 
any of its policies, it is nevertheless unpersuaded that the analyses 
requested would have changed the conclusions those additional 
analytical activities would have informed. In none of the enumerated 
requests for additional analysis did the commenter convincingly 
substantiate how the findings of their requested items might have 
actionably changed the contours of the final policy without impairing 
its expected efficacy.
2. Baseline and Affected Parties
    To assess the anticipated regulatory impact of the rule, FinCEN 
took several factors about the current state of the residential real 
estate market into consideration. This is consistent with established 
best practices and certain requirements \51\ that the expected economic 
effects of a rule be measured against the status quo as a primary 
counterfactual. Among other factors, FinCEN's economic analysis of 
regulatory impact considered the rule in the context of existing 
regulatory requirements, relevant distinctive features of groups likely 
to be affected by the rule, and pertinent elements of current 
residential real estate market characteristics and common practices. 
Each of these elements, including additional details and clarifications 
responsive to comments received, is discussed in its respective 
subsection below.
---------------------------------------------------------------------------

    \51\ Office of Management and Budget, Circular A-4 (Nov. 9, 
2023), available at https://www.whitehouse.gov/wp-content/uploads/2023/11/CircularA-4.pdf.
---------------------------------------------------------------------------

a. Regulatory Baseline
    While there are no specific Federal rules that would directly and 
fully duplicate, overlap, or conflict with the rule, there are 
nevertheless components of the rule that mirror, or are otherwise 
consistent with, reporting and procedural requirements of existing 
FinCEN rules and orders, as well as those of other agencies. To the 
extent that a person would have previous compliance experience with 
these elements of the regulatory baseline, FinCEN expects that some 
costs associated with the rule would be lower because the incremental 
changes in behavior from current practices would be smaller. FinCEN 
reviews the most proximate components from these existing rules and 
orders in greater detail below.
i. Residential Real Estate GTOs
    Under the Residential Real Estate GTOs, covered title insurance 
companies are required to report: ``(i) The dollar amount of the 
transaction; (ii) the type of transaction; (iii) information 
identifying a party to the transaction, such as name, address, date of 
birth, and tax identification number; (iv) the role of a party in the 
transaction (i.e., originator or beneficiary); and (v) the name, 
address, and contact information for the domestic financial institution 
or nonfinancial trade or business.''
    As discussed above, FinCEN recognizes that the Residential Real 
Estate GTOs collect beneficial ownership information for certain non-
financed purchases of residential real property by legal entities that 
meet or exceed certain dollar thresholds in select geographic areas. 
However, the Residential Real Estate GTOs are narrow in that they are 
temporary, location-specific, and limited in the transactions they 
cover. The rule is wider in scope of coverage and will collect 
additional useful and actionable information previously not available 
through the Residential Real Estate GTOs. As such, the nationwide 
reporting framework for certain residential real estate transfers will 
replace the current Residential Real Estate GTOs.
    Some evidence suggests that, despite the restriction of reporting 
persons under the existing Residential Real Estate GTOs to title 
insurance companies only, certain additional categories of real estate 
professionals may already be familiar--and have experience--with 
gathering the currently required information. For example, FinCEN 
observes that in some markets presently covered by the Residential Real 
Estate GTOs, realtors and escrow agents often assist title insurance 
companies with their reporting obligations despite not being subject to 
any formal reporting requirements themselves. Some may even have 
multiple years' worth of guidance and informational support by the 
regional or national trade association of which they are a member in 
how best to facilitate and enable compliance with existing FinCEN 
requirements. For instance, in 2021, the National Association of 
Realtors advised that while ``[r]eal estate professionals do

[[Page 70280]]

not have any affirmative duties under the Residential Real Estate 
GTOs,'' such entities should nevertheless expect that ``a title 
insurance company may request information from real estate 
professionals to help maintain its compliance with the Residential Real 
Estate GTOs. Real estate professionals are encouraged to cooperate and 
provide information in their possession.'' \52\ Thus, the historical 
Residential Real Estate GTOs' attempt to limit the definition of 
reporting persons to title insurance companies does not seem to have 
completely forestalled the imposition of time, cost, and training 
burdens on other real estate transfer-related businesses. As such, the 
cascading reporting approach might not mark a complete departure from 
current practices and the related burdens of Residential Real Estate 
GTO requirements, as they may already in some ways be functionally 
applicable to multiple prospective reporting persons in the rule's 
reporting cascade.
---------------------------------------------------------------------------

    \52\ See National Association of Realtors, ``Anti-Money 
Laundering Voluntary Guidelines for Real Estate Professionals'' 
(Feb. 16, 2021), p. 3, available at https://www.narfocus.com/billdatabase/clientfiles/172/4/1695.pdf.
---------------------------------------------------------------------------

ii. BOI Reporting Rule
    Furthermore, following the enactment of the CTA, beneficial 
ownership information of certain legal entities is required to be 
submitted to FinCEN. However, as set out in the NPRM preamble and also 
discussed above,\53\ the information needed to ascertain money 
laundering risk in the residential real estate sector differs in key 
aspects from what is collected under the CTA, and, accordingly, the 
information collected under this rule differs from that collected under 
the CTA.
---------------------------------------------------------------------------

    \53\ See Section III.C.5.c.
---------------------------------------------------------------------------

    For example, FinCEN believes that a critical part of the rule is 
that it will alert law enforcement to the fact that a residential real 
estate transfer fitting within a known money laundering typology has 
taken place. While beneficial ownership information collected under the 
CTA may be available, that information concerns the ownership 
composition of a given entity at a given point in time. As such 
reporting does not dynamically extend to include information on the 
market transactions of the beneficially owned legal entity, it would 
not alert law enforcement officials focused on reducing money 
laundering that any real estate transfer has been conducted, which 
includes those particularly vulnerable to money laundering such as non-
financed transfers of residential property.
    Furthermore, the scope of entities that are the focus of the real 
estate rule is broader than the CTA, as certain types of entities, 
including most trusts, are not required to report under the CTA. 
Because non-excepted trusts under the residential real estate rule 
generally do not have an obligation to report beneficial ownership 
under the CTA, their incremental burden of compliance with the Real 
Estate Report requirements may be moderately higher insofar as the 
activities of collecting, presenting, or certifying beneficial 
ownership information are less likely to have already been performed 
for other purposes.
iii. Customer Due Diligence (CDD) Rule
    The CDD Rule's \54\ beneficial ownership requirement addressed a 
regulatory gap that enabled persons looking to hide ill-gotten proceeds 
to potentially access the financial system anonymously. Among other 
things, it required covered financial institutions to identify and 
verify the identity of beneficial owners of legal entity customers, 
subject to certain exceptions and exemptions; beneficial ownership and 
identification therefore became a component of AML requirements.
---------------------------------------------------------------------------

    \54\ FinCEN, ``Customer Due Diligence Requirements for Financial 
Institutions,'' 81 FR 29398 (May 11, 2016).
---------------------------------------------------------------------------

    Financial institutions subject to the CDD Rule are required to 
collect some beneficial ownership information from legal entities that 
establish new accounts. However, this rule covers non-financed 
transfers of residential real estate that do not involve financial 
institutions covered by the CDD Rule. The rule would also collect 
additional information relevant to the real estate transfers that is 
currently not collected under the CDD Rule.
iv. Other (Form 1099-S)
    In the course of current residential real estate transfers, some 
parties that might be deemed ``transferors'' under the rule already 
prepare and report portions of the requisite information to other 
regulators. For example, the IRS collects taxpayer information through 
Form 1099-S on seller-side proceeds from reportable real estate 
transfers for a broader scope of reportable real estate transfers than 
this rule.\55\ This information, however, is generally unavailable for 
one of the primary purposes of this rule, as there are significant 
statutory limitations on the ability of the IRS to share such 
information with Federal law enforcement or other Federal agencies. In 
addition to these statutory limitations on IRS disclosure of taxpayer 
information, details about the buyer's beneficial ownership (the focus 
of this rule) largely fall outside the scope of transaction information 
reported on the Form 1099-S.
---------------------------------------------------------------------------

    \55\ Reportable real estate for purposes of IRS Form 1099-S 
includes, for example, commercial and industrial buildings (without 
a residential component) and non-contingent interests in standing 
timber, which are not covered under the rule.
---------------------------------------------------------------------------

    However, IRS Form 1099-S is nonetheless relevant to the rule's 
regulatory baseline, given the process by which the Form 1099-S may be 
prepared and submitted to the IRS. Similar to the Real Estate Report, 
the person responsible for filing the IRS Form 1099-S can either be 
determined through a cascade of the various parties who may be involved 
in the closing or settlement process, or, alternatively, certain 
categories of the involved parties may enter into a written agreement 
at or before closing to designate who must file Form 1099-S for the 
transaction. The agreement must identify the designated person 
responsible for filing the form, but it is not necessary that all 
parties to the transaction, or that more than one party even, enter 
into the agreement. The agreement must: (1) identify by name and 
address the person designated as responsible for filing; (2) include 
the names and addresses of each person entering into the agreement; (3) 
be signed and dated by all persons entering into the agreement; (4) 
include the names and addresses of the transferor and transferee; and 
(5) include the address and any other information necessary to identify 
the property. The rule's designation agreement requires, and is limited 
to, the same five components that may be included in a designation 
agreement accompanying Form 1099-S. Therefore, the exercise of 
designation, as well as the collection of information and signatures 
that it involves, may already occur in connection with certain 
transfers of residential real property and in these cases be leveraged 
at minimal additional expense.

[[Page 70281]]

b. Baseline of Affected Parties
i. Transferees
Legal Entities
    According to a recent study \56\ that analyzed Ztrax data \57\ 
covering 2,777 U.S. counties and over 39 million residential housing 
market transactions from 2015 to 2019, the proportion of average 
county-month non-financed residential real estate transactions 
involving purchases by legal entities was approximately 11 percent 
during the five-year period analyzed. When the sample is divided into 
counties that, by 2019, were under Residential Real Estate GTOs versus 
those that were never under Residential Real Estate GTOs, the 
proportions of average county-month non-financed sales to total 
purchases are approximately 13.6 percent and 11.2 percent, 
respectively.
---------------------------------------------------------------------------

    \56\ See Matthew Collin, Florian Hollenbach, and David Szakonyi, 
``The impact of beneficial ownership transparency on illicit 
purchases of U.S. property,'' Brookings Global Working Paper #170, 
(Mar. 2022), p. 14, available at https://www.brookings.edu/wp-content/uploads/2022/03/Illicit-purchases-of-US-property.pdf.
    \57\ Zillow, Transaction and Assessment Database (ZTRAX), 
available at https://www.zillow.com/research/ztrax/.
---------------------------------------------------------------------------

    Legal entities that own U.S. residential real estate vary by size 
and complexity of beneficial ownership structure, and by some measures, 
have increased market participation over time.\58\ FinCEN analysis of 
the Department of Housing and Urban Development and Census Bureau's 
Rental Housing Finance Survey (RHFS) data for 2018 found that micro 
investors or small business landlords who owned 1-2 units owned 66 
percent of all single family and multifamily structures with 2-4 units. 
Conversely, investors in the residential rental market who owned at 
least 1,000 properties owned only 2 percent of single-family homes and 
multi-family structures.
---------------------------------------------------------------------------

    \58\ See Redfin, ``Investors Bought 26% of the Country's Most 
Affordable Homes in the Fourth Quarter--the Highest Share on 
Record,'' (Feb. 14, 2024), available at https://www.redfin.com/news/investor-home-purchases-q4-2023/.
---------------------------------------------------------------------------

    FinCEN did not receive any comments, studies, or data that 
meaningfully conflict with these estimates or the manner in which they 
informed the NPRM RIA's initial estimates of the number of reportable 
transfers per year.
Trusts
    The final rule requires the reporting of certain non-finance 
transfers of residential real property to transferee trusts.\59\ 
Residential real property purchases by transferee trusts have not 
generally been reported under the Residential Real Estate GTOs and the 
entities themselves are typically \60\ not subject to beneficial 
ownership reporting requirements under the CTA. Therefore, FinCEN 
expects that trusts would be more homogenously newly affected by the 
rule than legal entities, discussed above, as a cohort of affected 
parties.
---------------------------------------------------------------------------

    \59\ See Section III.C.2.e.
    \60\ FinCEN notes that while most trusts are not reporting 
companies under the BOI Reporting Rule, a reporting company would be 
required to report a beneficial owner that owned or controlled the 
reporting company through a trust.
---------------------------------------------------------------------------

    Establishing a baseline population of potentially affected 
transferee trusts based on the existing population of legal trusts is 
challenging for several reasons. These reasons include the general lack 
of comprehensive and aggregated data on the number,\61\ value, usage, 
and holdings of trusts formed in the United States, which in turn is a 
result of heterogeneous registration and reporting requirements, 
including instances where neither requirement currently exists. Because 
domestic trusts are created and administered under State law, and 
states have broad authority in how they choose to regulate trusts, 
there is variation in both the proportion of potential transferee 
trusts that are currently required to register as trusts in their 
respective states as well as the amount of information a given trust is 
required to report to its state about the nature of its assets or its 
structural complexity. Thus, limited comparable information may be 
available at a nationwide level besides what is reported for Federal 
tax purposes, and what is available is unlikely to represent the full 
population of potentially affected parties that would meet the 
definition of transferee trust if undertaking the non-financed transfer 
of residential real property.
---------------------------------------------------------------------------

    \61\ FinCEN notes that while the U.S. Census Bureau does produce 
annual statistics on the population of certain trusts (NAICS 525--
Funds, Trusts, and Other Financial Vehicles), such trusts are 
unlikely to be affected by the rule and thus their population size 
is not informative for this analysis.
---------------------------------------------------------------------------

    International heterogeneity in registration and reporting 
requirements for foreign trusts creates similar difficulties in 
assessing the population of potentially affected parties that are not 
originally registered in the United States. Further complicating this 
assessment is the exogeneity and unpredictability of changes to foreign 
tax and other financial policies, which studies in other, related 
contexts have shown, generally affect foreign demand for real 
estate.\62\
---------------------------------------------------------------------------

    \62\ See, e.g., Cristian Badrinza and Tarun Ramadorai, ``Home 
away from home? Foreign demand and London House prices,'' Journal of 
Financial Economics 130 (3) (2018), pp. 532-555, available at 
https://www.sciencedirect.com/science/article/abs/pii/S0304405X18301867?via%3Dihub; see also Caitlan S. Gorback and 
Benjamin J. Keys, ``Global Capital and Local Assets: House Prices, 
Quantities, and Elasticities,'' Technical Report, National Bureau of 
Economic Research (2020), available at https://www.nber.org/papers/w27370.
---------------------------------------------------------------------------

    While it is difficult to know exactly how many existing trusts 
there are, and within that population how many own residential real 
property (as a potential indicator of what proportion of new trusts 
might eventually be used to own residential real property), there is 
nevertheless a consistency in the limited existing empirical evidence 
that would support a conjecture that proportionally few of the expected 
reportable transfers would be likely to involve a transferee trust. A 
recent study of U.S. single-property residential purchases that 
occurred between 2015 and 2019 identified a trust as the buyer in 3.3 
percent of observed transactions.\63\ FinCEN also conducted additional 
analysis of publicly available data that might help to quantify the 
proportion of trust ownership in residential real estate and more 
clearly account for non-sale transfers for no consideration. Based on 
the RHFS, identifiable trusts accounted for approximately 2.5 percent 
of rental housing ownership and approximately 8.2 percent of non-
natural person ownership of rental housing.\64\
---------------------------------------------------------------------------

    \63\ See Matthew Collin, Florian Hollenbach, and David Szakonyi, 
``The impact of beneficial ownership transparency on illicit 
purchases of U.S. property,'' Brookings Global Working Paper #170, 
(Mar. 2022), p. 14, available at https://www.brookings.edu/wp-content/uploads/2022/03/Illicit-purchases-of-US-property.pdf.
    \64\ See U.S. Census Bureau, Rental Housing Finance Survey 
(2021), available at https://www.census.gov/data-tools/demo/rhfs/#/?s_year=2018&s_type=1&s_tableName=TABLE2.
---------------------------------------------------------------------------

    To the extent that trusts' current residential real property 
holdings are linear in the number of housing units and current holdings 
is a reliable proxy for future purchasing activity, FinCEN does not 
expect the proportion of reportable transfers involving a transferee 
trust to exceed 5 percent of potentially affected transfers. No further 
refinements to this upper-bound-like estimate, based on the number of 
existing trusts that may be affected, would be feasible without a 
number of additional assumptions about market behavior that FinCEN 
declines to impose in the absence of better/more data.
    While the majority of public comments pertaining to trusts 
suggested that the number of affected trusts would be substantially 
higher than the original RIA had anticipated, FinCEN is not revising or 
updating its baseline

[[Page 70282]]

estimates at this stage because the final rule has adopted certain 
broad exceptions that materially limit the reporting of transfers to 
trusts.
Excepted Transferees
    Exceptions to the general definitions of transferee entities and 
transferee trusts apply to certain highly regulated entities and trusts 
that are subject to AML/CFT program requirements or to other 
significant regulatory reporting requirements.
    For example, PIVs that are investment companies and registered with 
the SEC under section 8 of the Investment Company Act of 1940 are 
excepted, while unregistered PIVs engaging in reportable transfers are 
not. Unregistered PIVs are instead required to provide the reporting 
person with specified information, particularly including the required 
information regarding their beneficial owners. FinCEN analysis of costs 
below continues to assume that any such unregistered PIV stood up for a 
reportable transfer would generally have, or have low-cost access to, 
the information necessary for filing Real Estate Reports. FinCEN 
expects that a PIV that is not registered with the SEC--which can have 
at maximum four investors whose ownership percent is or exceeds 25 
percent (the threshold for the ownership prong of the beneficial 
ownership test for entities)--would likely either (1) be an extension 
of that large investor, or (2) have a general partner who actively 
solicited known large investors. In either case, the unregistered PIV 
is likely to have most of the beneficial ownership information that 
would be required to complete the Real Estate Report and access to the 
beneficial owner(s) to request the additional components of required 
information not already at hand. FinCEN did not receive any comments 
indicating that these expectations are unreasonable and thus continues 
to operate under these assumptions with respect to baseline costs.
    Operating companies subject to the Securities Exchange Act of 
1934's current and periodic reporting requirements, including certain 
special purpose acquisition companies (SPACs) and issuers of penny-
stock, are also excepted transferees under this rule. FinCEN notes that 
the percent ownership threshold for beneficial ownership for SEC 
regulatory purposes is considerably lower than as defined in the CTA 
and related Exchange Act beneficial ownership-related disclosure 
obligations usually apply to more control persons at such a registered 
operating company.\65\ Additionally, disclosures about the acquisition 
of real estate, including material non-financed purchases of 
residential property, are already required in certain periodic reports 
filed with the SEC.\66\ Therefore, an incremental informational benefit 
from not excepting SEC-registered operating companies as transferees 
for the purposes of this rule's reporting requirements may either not 
exist or, at best, be very low while the costs to operating companies 
of reporting and compliance with an additional Federal regulatory 
agency are expected to be comparatively high.
---------------------------------------------------------------------------

    \65\ See U.S. Securities and Exchange Commission, ``Officers, 
Directors, and 10% Shareholders,'' available at https://www.sec.gov/education/smallbusiness/goingpublic/officersanddirectors.
    \66\ See, e.g., U.S. Securities and Exchange Commission, 
Instructions to Item 2.01 on Form 8-K; see also 17 CFR 210.3-14.
---------------------------------------------------------------------------

    Some commenters expressed concern that it might be difficult or 
burdensome for reporting persons to determine if a transfer might be 
exempt from reporting on the basis of the transfer being made to an 
excepted transferee. However, the final rule adopts a reasonable 
reliance standard, and therefore the reporting person may reasonably 
rely on information provided by others as described in Section 
III.B.2.4, including with respect to whether the transferee is exempt. 
Furthermore, should a reporting person nevertheless want to verify the 
excepted status of a transferee, FinCEN notes that the status of 
transferees as excepted pursuant to being registered with the SEC 
should be easily verifiable by a name search in the agency's Electronic 
Data Gathering, Analysis, and Retrieval (EDGAR) system, which can be 
queried using open access, publicly available search tools.
ii. Reporting Entities
    Because the reporting cascade is ordered by function performed, or 
service provided, rather than by defined occupations or categories of 
service providers,\67\ attribution of work to the capacity in which a 
person is primarily employed is necessarily imprecise. To account for 
the need to map from services provided to entities providing such 
services as a prerequisite to estimating the number of potentially 
affected parties, FinCEN acknowledges, but abstracts from, the common 
observation that title agents and settlement agents are ``often the 
same entity that performs two separate functions in a real estate 
transaction,'' and that ``the terms title agent and settlement agent 
are often used interchangeably.'' \68\ For purposes of the remaining 
RIA, FinCEN groups potential reporting persons by features of their 
primary occupation and treats them as functionally distinct members of 
the cascade, acknowledging that this is done more for analytical 
clarity than as a rigid expectation about the capacity in which an 
individual is employed to service a given transfer. In total, FinCEN 
estimates there may be up to approximately 172,753 reporting persons 
and 642,508 employees of those persons that could be affected by the 
rule. Of this total, the distribution of potential reporting persons as 
identified by primary occupation \69\ is: settlement agents (3.6 
percent of potential reporting persons, 9.8 percent of the potentially 
affected labor force), title insurance companies (0.5 percent, 6.6 
percent), real estate escrow agencies (10.9 percent, 10.5 percent), 
attorneys \70\ (9.3 percent, 16.7 percent), and other real estate 
professionals \71\ (75.5 percent, 56.4 percent). For purposes of cost 
estimates throughout the remaining analysis, FinCEN computed the

[[Page 70283]]

following fully loaded \72\ average \73\ hourly wages \74\ by the 
respective primary occupation categories: settlement agents, $79.35; 
title insurers, $106.49; real estate escrow agencies, $81.74; 
attorneys, $153.48; and other real estate professionals, $81.74. For 
reference, these wages estimates represent the following updates from 
the NPRM RIA:
---------------------------------------------------------------------------

    \67\ See supra Section III.C.3.a for a description of the 
reporting cascade; see also proposed 31 CFR 1031.320(c)(1).
    \68\ See Nam D. Pham, ``The Economic Contributions of the Land 
Title Industry to the U.S. Economy,'' ndp Consulting (Nov. 2012), p. 
6, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2921931. This study was included as an 
appendix to a 2012 American Land Title Association comment letter 
submitted to the Consumer Financial Protection Bureau (CFPB) on the 
Real Estate Settlement Procedures Act (RESPA).
    \69\ FinCEN notes that the capacity in which a reporting person 
facilitates a residential real property transfer may not always be 
in the capacity of their primary occupation. However, as analysis 
here relies on the U.S. Census Bureau's annual Statistics of U.S. 
Business Survey, which is organized by NAICS code, the following 
nominal primary occupations (NAICS codes) are used for grouping and 
counting purposes: Title Abstract and Settlement Offices (541191), 
Direct Title Insurance Carriers (524127), Other Activities Related 
to Real Estate (531390), Offices of Lawyers (541110), and Offices of 
Real Estate Agents and Brokers (531210). As noted in note 73, these 
NAICS codes are not the basis for hourly wage rate information used 
in this paragraph.
    \70\ The estimate of affected attorneys is calculated as ten 
percent of the total SUSB population of Offices of Lawyers. This 
estimate is based on the average from FinCEN analysis of U.S. legal 
bar association membership, performed primarily at the State level, 
identifying the proportion of (state) bar members that are members 
of the organization's (state's) real estate bar association. FinCEN 
considers this proxy more likely to overestimate than underestimate 
the number of potentially affected attorneys because, while not all 
members of a real estate bar association actively facilitate real 
estate transfers each year, it was considered less likely that an 
attorney would, in a given year, facilitate real estate transfers in 
a way that would make them a candidate reporting person for purposes 
of the proposed rule when such an attorney had not previously 
indicated an interest in real estate specific practice (by electing 
to join a real estate bar).
    \71\ NAICS Code 531210 (Offices of Real Estate Agents and 
Brokers).
    \72\ Fully loaded wages are scaled by a benefits factor. The 
ratio between benefits and wages for private industry workers is 
(hourly benefits (11.86))/(hourly wages (28.37)) = 0.42, as of 
December 2023. The benefit factor is 1 plus the benefit/wages ratio, 
or 1.42. See U.S. Bureau of Labor Statistics, ``Employer Costs for 
Employee Compensation Historical Listing,'' available at https://www.bls.gov/web/ecec/ececqrtn.pdf. The private industry workers 
series data for December 2023 is available at https://www.bls.gov/web/ecec/ececqrtn.pdf.
    \73\ Because available wage estimates are not available for each 
SUSB category at the 6-digit NAICS level, FinCEN has estimated 
average wages over the collection of occupational subcategories 
likely to be affected for each corresponding category at the next 
most granular NAICS-level available.
    \74\ Wage estimates presented here, and used throughout the 
subsequent analysis, reflect two forms of updating from the NPRM: 
(1) wage data has been updated to reflect the BLS publication of the 
May 2023 National Occupational Employment and Wage Estimates in 
April 2024, (2) responsive to public comments that the previous wage 
estimates (based on national mean wages) might contribute to an 
underestimate of time cost burdens, FinCEN is electing to 
conservatively adopt 90th-percentile values of occupational wages in 
place of mean hourly wage.

      Table 1--Wage Estimate Revisions From NPRM to Final Rule RIA
------------------------------------------------------------------------
                                           Fully loaded    Fully loaded
       Primary business categories          hourly wage     hourly wage
                                              (NPRM)          (final)
------------------------------------------------------------------------
Title Abstract and Settlement Offices...          $70.33          $79.35
Direct Title Insurance Carriers.........           84.15          106.49
Other Activities Related to Real Estate.           70.46           81.74
Offices of Lawyers......................           88.89          153.48
Offices of Real Estate Agents and                  70.46           81.74
 Brokers................................
------------------------------------------------------------------------

c. Market Baseline
i. Reportable Transfers
    The scope of residential real estate transfers that would be 
affected by the rule is jointly defined by the (1) the nature of the 
property transferred, (2) the financed nature of the transfer, and (3) 
the legal organization of the party to whom the property is 
transferred. For purposes of identification, the defining attribute for 
the nature of the property is that it is principally designed, or 
intended to become, the residence of one to four families, including 
cooperatives and vacant or unimproved land. Additionally, the property 
must be located in the United States as defined in the BSA implementing 
regulations.
    Reportable transfers exclude all those in which the transferees 
receive an extension of credit from a financial institution subject to 
AML/CFT program and SAR Reporting requirements that is secured by the 
residential real property being transferred. Reportable transfers also 
exclude transfers associated with an easement, death, divorce, or 
bankruptcy or that are otherwise supervised by a court in the United 
States, as well as certain no consideration transfers to trusts, 
certain transfers related to 1031 Exchanges, and any transfer for which 
there is no reporting person.
    On the basis of available data, studies, and qualitative evidence, 
subject to certain qualifying caveats about limitations in data 
availability, and in the absence of large, unforeseeable shocks to the 
U.S. residential housing market, FinCEN's NPRM analysis estimated that 
the number of reportable transfers would be between approximately 
800,000 and 850,000 annually. FinCEN received a number of comment 
letters suggesting that this estimate is too low. However, because most 
arguments of this nature were made on the basis of an understanding 
that the rule would include several kinds of transfers that have since 
been explicitly excepted in the final rule, FinCEN is not increasing 
its estimates.
ii. Current Market Characteristics
    FinCEN took certain potentially informative aspects of the current 
market for residential real property into consideration when forming 
its expectations about the anticipated economic impact of the rule. 
Among other things, FinCEN considered trends in the observable rate of 
turnover in the stock of existing homes. Additionally, FinCEN reviewed 
recent studies and data from the academic literature estimating housing 
supply elasticities on previously developed versus newly developed 
land.
    FinCEN also considered recent survey results of the residential 
real estate holdings of high-net-worth individuals and the proportion 
of survey respondents who self-reported the intent to purchase 
additional residential real estate in the coming year. Further, FinCEN 
reviewed studies of trends in the financing and certain distributional 
characteristics of shared equity housing, which includes co-operatives 
that will be affected by the rule.
iii. Current Market Practices
Settlement and Closing
    FinCEN assessed the role of various persons in the real estate 
settlement and closing process to determine a quantifiable estimate of 
each profession or industry's overall participation in that process. 
Accordingly, FinCEN conducted research based on publicly available 
sources to assess the general participation rate of the different types 
of reporting persons in the rule's reporting cascade. As part of its 
analysis, FinCEN noted a recent blog post citing data from the American 
Land Title Association (ALTA) that 80 percent of homeowners purchase 
title insurance when buying a home.\75\
---------------------------------------------------------------------------

    \75\ See American Land Title Association, Home Closing 101, 
``Why 20% of Homeowners May Not Sleep Tonight,'' (June 3, 
2020),available at https://www.homeclosing101.org/why-20-percent-of-homeowners-may-not-sleep-tonight/.
---------------------------------------------------------------------------

    To better understand the distribution of the other types of persons 
providing residential real property transfer services to the transfers 
that are affected by the rule, FinCEN utilized county deed database 
records to approximate a randomly selected and representative sample of 
residential real estate transfers across the United States. FinCEN made 
efforts to collect deed data that reflected a representative, nation-
wide sample, both in terms of the number and geographic dispersion of 
deeds, but acknowledges selection was nevertheless constrained in part 
by the feasibility to search by deed type, among other factors. FinCEN 
invited public feedback on the extent to which the same analysis would 
yield substantively different results if performed over a larger sample 
(with either more geographic locations, more

[[Page 70284]]

observations per location, or both), but did not receive any responsive 
data or the results of analysis based on such data.
    The final analysis included 100 deeds, of which 97 involved at 
least one of the following potential reporting persons: (i) Title 
Abstract and Settlement Offices, (ii) Direct Title Insurance Carriers, 
or (iii) Offices of Lawyers. A candidate reporting person was deemed to 
be involved with the creation of the deed if either (i) a company or 
firm performing one of these functions was included on the deed or (ii) 
an individual performing or employed by a company or firm performing 
one of these functions was included on the deed. FinCEN assessed the 
distribution of alternative entities identified on the remaining deeds, 
categorizing by reporting person type. Based on this qualitative 
analysis, FinCEN tentatively anticipates that approximately three 
percent of reportable transfers might have a reporting person or 
reporting cascade that begins with someone other than a settlement 
agent, title insurer, or attorney.
Records Search
    Currently, law enforcement searches a variety of State and 
commercial databases (that may or may not include beneficial ownership 
information), individual county record offices, and/or use subpoena 
authority to trace the suspected use of criminal proceeds in the non-
financed transfer of residential real estate. Even after a significant 
investment of resources, the identities of the beneficial owners may 
not be readily ascertainable. This fragmented and limited approach can 
slow down and decrease the overall efficacy of investigations into 
money laundering through real estate. This was one reason that FinCEN 
introduced the Residential Real Estate GTOs, which law enforcement has 
reported have significantly expanded their ability to investigate this 
money laundering typology. At the same time, the Residential Real 
Estate GTOs have certain restrictions that limited its usefulness 
nationwide. This rule builds on and is intended to replace the 
Residential Real Estate GTO framework and creates reporting and 
recordkeeping requirements for specific residential real estate 
transfers nationwide.
3. Description of Final Rule Requirements
a. Reportable Transfers
    The final rule requires certain persons involved in real estate 
closings and settlements to submit reports and keep records on 
identified non-financed transfers of residential real property to 
specified legal entities and trusts on a nationwide basis. The rule 
does not require transfers to be reported if the transfer is financed, 
meaning that the transfer involves an extension of credit to all 
transferees that is secured by the transferred residential real 
property and is extended by a financial institution that has both an 
obligation to maintain an AML program and an obligation to report 
suspicious transactions under this chapter. It also does not require 
reporting of: (i) a grant, transfer, or revocation of an easement; (ii) 
a transfer resulting from the death of an owner of residential real 
property; (iii) a transfer incident to divorce or dissolution of a 
marriage or civil union; (iv) a transfer to a bankruptcy estate; (v) a 
transfer supervised by a court in the United States; (vi) a transfer 
for no consideration made by an individual, either alone or with the 
individual's spouse, to a trust of which that individual, that 
individual's spouse, or both of them, are the settlor(s) or grantor(s); 
(vii) a transfer to a qualified intermediary for purposes of a 1031 
Exchange; or (viii) a transfer that does not involve a reporting 
person. A report would also not need to be filed if the transferee is 
an exempt legal entity or trust, which are generally highly-regulated.
b. Reporting Persons
    The final rule requires a reporting person, as determined by either 
the reporting cascade or as pursuant to a designation agreement, to 
complete and electronically file a Real Estate Report. The reporting 
person may generally obtain, and reasonably rely upon, information 
needed to complete the Real Estate Report from any other person. This 
reasonable reliance standard is more limited for purposes of obtaining 
the transferee's beneficial ownership information. In those situations, 
the reasonable reliance standard applies only to information provided 
by the transferee or the transferee's representative and only if the 
person providing the information certifies the accuracy of the 
information in writing to the best of their knowledge. The reporting 
person must file the report by the final day of the following month 
after which a closing took place, or 30 days after the date of the 
closing, whichever is later.
c. Required Information
    The final rule requires the reporting person to report to FinCEN 
certain information about a reportable transfer of residential real 
property. This includes information on the reporting person, the 
transferee and its beneficial owners, the transferor, the property 
being transferred, and certain payment information. The collected 
information will be maintained by FinCEN in an existing database 
accessible to authorized users. Some commenters' remarks suggest that 
certain expectations of the rule's potential effects may flow from a 
misunderstanding about who may access Real Estate Report data once 
filed and how it may be used. FinCEN is therefore reiterating that both 
access and use of Real Estate Report data will be subject to the same 
restrictions as other BSA reports, including traditional SARs.
4. Expected Economic Effects
    This section describes the main, quantifiable economic effects 
FinCEN anticipates the various affected parties identified above may 
experience. Because the primary expected value of the rule is in the 
extent to which it is able to address or ameliorate the economic 
problems discussed under the RIA's broad economic considerations, which 
(while substantial) is generally inestimable, no attempt is made to 
quantify the net benefit of the rule. Instead, the remainder of this 
section focuses primarily on the estimates of reasonably anticipated, 
calculable costs to affected parties. While FinCEN continues to 
principally anticipate aggregate cost estimates between approximately 
$267.3 million and $476.2 million in the first compliance year and 
current dollar value of the aggregate costs in subsequent years between 
approximately $245.0 million and $453.9 million annually, it has 
provided revised estimates throughout the remaining analysis, 
responsive to public comments, that reflect more conservative 
expectations about the cost of labor. Under these assumptions, the 
anticipated costs of the rule would be between approximately $428.4 and 
$690.4 million (midpoint $559.4 million) in the first compliance year 
and between approximately $401.2 and $663.2 million (midpoint $532.2 
million) (current dollar value) in subsequent years. These quantified 
costs are a pro forma accounting cost estimate only and are not 
expected to represent either the full economic costs of the rule nor 
the net cost of the rule as measured against the components of expected 
benefits that may become quantifiable. As previously stated, the 
ability to successfully detect, prosecute, and deter crimes--or other 
illicit activities that rely on money laundering to be

[[Page 70285]]

profitable--is not readily translatable to dollar figures.\76\ However, 
it might be inferred that a tacit expectation underlying this 
rulemaking is that the rule will generate intangible benefits worth 
over $500 million per year.\77\
---------------------------------------------------------------------------

    \76\ See FinCEN, NPRM, ``Anti-Money Laundering Regulations for 
Residential Real Estate Transfers,'' 89 FR 12424, 12446-12447 (Feb. 
16, 2024).
    \77\ Based on the observation that the midpoint values of first 
year ($559.4 million), subsequent year ($532.2 million), and the 
midpoint of the midpoint values between first and subsequent years 
($545.8 million) are all approximately $500 million. See also infra 
Section VI.B for a discussion of annualized cost.
---------------------------------------------------------------------------

a. Costs to Entities in the Reporting Cascade
i. Training
    To estimate expected training costs, FinCEN adopted a parsimonious 
model similar, in certain respects, to the methodology used by FinCEN 
when publishing the RIA for the 2016 CDD Rule (CDD Rule RIA). Taking 
into consideration, however, that, unlike covered financial 
institutions under the CDD Rule, only one group of affected reporting 
persons has direct pre-existing experience with other FinCEN reporting 
and compliance requirements, the estimates of anticipated training time 
here are revised upward from the CDD Rule RIA to 75 minutes for initial 
training and 30 minutes for annual refresher training. FinCEN's method 
of estimation assumes that an employee who has received initial 
training once will then subsequently take the annual refresher training 
each following year. This assumption contemplates that more than half 
of the original training would not be firm-specific and remains useful 
to the employee regardless of whether they remain with their initial 
employer or change jobs within the same industry. As in the CDD Rule 
RIA high estimate model, FinCEN estimates that two-thirds of untrained 
employees receive the initial (lengthier) training each year. However, 
because the initial training is assumed to provide transferrable human 
capital in this setting, turnover is not relevant to the assignment to 
initial training in periods following Year 1. Thus, in the revised 
model, FinCEN calculated annual training costs as the combination of 
the expected costs of providing two-thirds of the previously untrained 
workforce per industry with initial (lengthier) training and all 
previously trained employees with the refresher (shorter) training. 
Time costs are proxied by an industry-specific fully loaded wage rate 
at the 90th percentile per industry.

                                             Table 2--Training Costs
----------------------------------------------------------------------------------------------------------------
       Estimated per person training costs               Initial training               Refresher (year 2+)
----------------------------------------------------------------------------------------------------------------
                                   Fully loaded                                                        Total
   Primary business categories      hourly wage    Time (hours)        Total       Time (hours)    (unadjusted)
----------------------------------------------------------------------------------------------------------------
Title Abstract and Settlement             $79.35            1.25          $99.18             0.5          $39.67
 Offices........................
Direct Title Insurance Carriers.          106.49            1.25          133.11             0.5           53.24
Other Activities Related to Real           81.74            1.25          102.17             0.5           40.87
 Estate.........................
Offices of Lawyers..............          153.84            1.25          192.30             0.5           76.92
Offices of Real Estate Agents              81.74            1.25          102.17             0.5           40.87
 and Brokers....................
----------------------------------------------------------------------------------------------------------------

    To model industry-specific hiring inflows in periods following Year 
1, FinCEN converted the Bureau of Labor Statistics (BLS) projected 10-
year cumulative employment growth rates for 2022-2032 for the NAICS 
code mostly closely associated with a given industry available. 
Additionally, inflation data from the Federal Reserve Bank of St. Louis 
was utilized to estimate annual wage growth given the opportunity cost 
of training is assumed to be equivalent to the wage of employees. 
Utilizing these inputs, and summing costs across all industries 
expected to be affected, FinCEN estimates that the aggregate initial 
year training costs would be approximately $51.0 million dollars and 
the undiscounted aggregate training costs in each of the subsequent 
years would range between approximately $23.2 and $31.5 million.
    FinCEN notes that fewer than five percent of unique comments 
received made specific reference to the training costs that the rule 
would necessitate and fewer still provided comments pertaining to the 
RIA estimates of training costs. While one commenter suggested that the 
uniformity of the rule would reduce the burden of preparing training 
materials relative to the current variety of Residential Real Estate 
GTO thresholds and applications, the majority of training cost-related 
comments simply noted that training costs would impose a burden and 
might separately lead to higher labor costs if new personnel require 
compensation for additional reporting compliance related subject-matter 
expertise. There were, however, some commenters who expressed a belief 
that the amount of time needed for--and frequency of--training needed 
to adequately prepare staff for compliance would be higher. While 
FinCEN is declining to responsively adjust its estimates of training-
related time costs for reasons, among others, that are further 
discussed below, FinCEN is responsive to certain other commenters who 
expressed a perceived value to having a greater range of potential 
burden estimates to compare: had FinCEN adopted the suggested 
alternative training time costs, the aggregate annual training burden 
would have been either $81.5 million in year 1 \78\ or $101.9 million 
\79\ in year 1, or between $63.5 and $130.8 million in a given 
year.\80\
---------------------------------------------------------------------------

    \78\ Based on a comment that the initial training should be 120 
minutes (2 hours).
    \79\ Based on a comment that the initial training should be 
double what FinCEN estimated (150 minutes, or 2.5 hours).
    \80\ Based on a comment that training would take 60 minutes (1 
hour) per transfer, where FinCEN applies the lowest wage rate to the 
lower bound estimate of total annual reportable transfers to obtain 
the lower bound and applies the highest wage rate to the upper bound 
estimate of total annual reportable transfers to obtain the upper 
bound.
---------------------------------------------------------------------------

    In its NPRM analysis, FinCEN recognized that the rule would impose 
certain costs on businesses positioned to provide services to non-
financed transfers of residential real property even in the absence of 
direct participation in a specific reportable transfer, including the 
costs of preparing informational material and training personnel about 
the proposed rule generally as well as certain firm-specific policies 
and procedures related to reporting, complying, and documenting 
compliance. Because this training burden was applied uniformly across 
all potentially affected occupational categories represented in the 
reporting cascade, which is already a conservative assumption given 
that some cascade tiers are, in practice, more likely to become the 
reporting person than others, FinCEN considered time burden

[[Page 70286]]

values (75 minutes for initial, 30 minutes for refresher) that would 
average across the expected variation in training by occupational 
category a reasonable approach. Furthermore, these training costs, as 
estimated in the NPRM, pertain only to those contemplated activities 
identified (developing general understanding of the rule and firm-
specific compliance policies and procedures) and were not intended to 
reflect additional reporting-technology and form-specific training 
costs. Costs of training that are specific to the Real Estate Report 
will be separately estimated as a function of the RIA in the NPRM for 
the Real Estate Report; therefore, it would not have been appropriate 
to have included those training costs in the current final rule 
estimates as that would result in accounting for the same expense 
twice.
ii. Reporting
    The total costs associated with reporting a given reportable 
transfer will likely vary with the specific facts and circumstances of 
the transfer. For instance, the cost of the time needed to prepare and 
file a report could differ depending on which party in the cascade is 
the reporting person, because parties receive different compensating 
wages. The costs associated with the time to determine who is the 
reporting person will also vary by the number of potential parties who 
may assume the role and thus might be parties to a designation 
agreement. Additionally, the time required to prepare a report will 
likely vary with the complexity of the beneficial ownership of the 
transferee and, for example, the level of the transferee entity's 
preexisting familiarity with the concepts of beneficial ownership 
information as defined for FinCEN purposes.
    FinCEN continues to estimate an average per-party cost to determine 
the reporting person of 30 (15) minutes for the party that assumes the 
role if a designation agreement is (not) required and 15 minutes each 
for all non-reporting parties (assuming each tier in the cascade 
corresponds to one reporting person). Therefore, the range of potential 
time costs associated with determining the reporting person is expected 
to be between 15 to 90 minutes. Recently, FinCEN received updated 
information from parties currently reporting under the Residential Real 
Estate GTOs indicating that the previously estimated time cost of 20 
minutes for that reporting requirement was less than half the average 
time expended per report in practice. Based on this feedback, the 
filing time burden FinCEN anticipates for the rule accordingly 
incorporates a 45-minute estimate for the collection and reporting of 
the subset of Real Estate Report required information that is similar 
to information in reports filed under the Residential Real Estate GTOs, 
although FinCEN recognizes that certain transfers may require 
significantly more time. Mindful of these outliers, FinCEN estimates an 
average 2 hour per reportable transfer time cost to collect and review 
transferee and transfer-specific reportable information and related 
documents, and an average 30 minute additional time cost to reporting.

                                                                Table 3--Reporting Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
        Estimated per transaction reporting costs               Non-reporting party                               Reporting party
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Designation                 Designation-related           Designation-independent
       Primary business categories         Fully loaded  -----------------------------------------------------------------------------------------------
                                            hourly wage    Time (hours)        Total       Time (hours)        Total       Time (hours)        Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Title Abstract and Settlement Offices...          $79.35            0.25          $19.84            0.25          $19.84            2.75         $218.21
Direct Title Insurance Carriers.........          106.49            0.25           26.62            0.25           26.62            2.75          292.85
Other Activities Related to Real Estate.           81.74            0.25           20.43            0.25           20.43            2.75          224.78
Offices of Lawyers......................          153.84            0.25           38.46            0.25           38.46            2.75          423.07
Offices of Real Estate Agents and                  81.74            0.25           20.43            0.25           20.43            2.75          224.78
 Brokers................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Based on the range of expected reportable transfers and the wages 
associated with different persons in the potential reporting cascade, 
FinCEN anticipates that the rule's reporting costs may be between 
approximately $174.6 million and $466.5 million.
    In its original NPRM analysis, FinCEN stated an expectation that 
reporting persons would generally be able to rely on technology 
previously purchased and already deployed in the ordinary course of 
business (namely, computers and access to the internet) to comply with 
the proposed reporting requirements, and therefore no line item of 
incremental expected IT costs was ascribed to reporting. Certain 
commenters expressed that this expectation would be unrealistic because 
their current business practices rely on software for tracking and 
internal controls processes, for example, that would need to be updated 
in light of the rule's reporting requirements. However, FinCEN did not 
receive any comments that would enable it to quantify the expected 
burden associated with these software upgrades that commenters 
described. In the absence of readily generalizable cost estimates, it 
is therefore not feasible to update reporting costs responsively, 
though FinCEN acknowledges that, as a consequence, its aggregate burden 
estimates can, at best, function as a lower-bound expectation of the 
total costs of the rule.
iii. Recordkeeping
    FinCEN continues to expect that the rule would impose recordkeeping 
requirements on reporting persons as well as, in certain cases, members 
of a given reportable transfer's cascade that are not the reporting 
person. The primary variation in expected recordkeeping costs would 
flow from the conditions under which the reporting person has assumed 
their role. Additional variation in costs may result from differences 
in the dollar value assigned to the reporting person's time costs as a 
function of their primary occupation.
    If the reporting person assumes that role as a function of their 
position in the reporting cascade, this would imply that no 
meaningfully distinct person involved in the transfer provided the 
preceding service(s). In this case, the reporting person's 
recordkeeping requirements would be limited to the retention of 
compliance documents (i.e., a copy of the transferee's certification of 
beneficial ownership information) for a period of five years in a 
manner that preserves ready availability for inspection as authorized 
by law. Recordkeeping costs would therefore include those associated 
with creating and/or collecting the necessary documents, storing the 
records in an accessible format, and securely disposing of the records 
after the required retention period has elapsed. FinCEN anticipates 
that over the full recordkeeping lifecycle, each reportable

[[Page 70287]]

transfer would, on average, require one hour of the reporting person's 
time, as well as a record processing and maintenance cost of ten cents. 
Because FinCEN expects that records will primarily be produced and 
recorded electronically and estimates its own processing and 
maintenance costs at ten cents per record, it has applied the same 
expected cost per reportable transfer to reporting persons. In 
aggregate, this would result in recordkeeping costs between 
approximately $63.6 million and $130.8 million associated with one 
year's reportable transfers.

                                                         Table 4--Estimated Recordkeeping Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
      Estimated per transaction recordkeeping costs             Non-reporting party                               Reporting party
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Designation-related             Designation-related           Designation-independent
                                           Fully loaded  -----------------------------------------------------------------------------------------------
       Primary business categories          hourly wage                                                                                       Total *
                                                          Time (minutes)      Total *     Time (minutes)      Total *      Time (hours)    (unadjusted)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Title Abstract and Settlement Offices...          $79.35               5           $6.71               5           $6.71               1          $79.45
Direct Title Insurance Carriers.........          106.49               5            8.97               5            8.97               1          106.59
Other Activities Related to Real Estate.           81.74               5            6.91               5            6.91               1           81.84
Offices of Lawyers......................          153.84               5           12.92               5           12.92               1          153.94
Offices of Real Estate Agents and                  81.74               5            6.91               5            6.91               1           81.84
 Brokers................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Total Recordkeeping cost estimates include both labor (wages) and technology costs ($0.10).

    If the reporting person has instead assumed that role as the result 
of a designation agreement, the rule would impose additional 
recordkeeping requirements on both the reporting person and at least 
one other member of the reporting cascade. This is because the 
existence of a designation agreement implies the existence of one or 
more distinct alternative parties to the reportable transfer that 
provided a preceding service or services as described in the cascade. 
While the final rule only stipulates that ``all parties to a 
designation agreement'' would also be anticipated to incur 
recordkeeping costs, FinCEN expects the minimum number of additional 
parties required to retain a readily accessible copy of the designation 
agreement for a five-year period would, in practice, depend on the 
number of alternative reporting parties servicing the transfer in a 
capacity that precedes the designated reporting person in the cascade, 
as it would otherwise be difficult to demonstrate the prerequisite 
sequence of conditions were met to establish the ``but for'' of the 
requirement. Conservatively assuming that each service in the cascade 
is provided by a separate party, this would impose an incremental 
recordkeeping cost on at least two parties per transfer and at most 
five. Because FinCEN estimates of reporting costs already assign the 
costs of preparing a designation agreement to the reporting person 
(when a transfer includes a designation agreement), the incremental 
recordkeeping costs it estimates here pertain solely to the electronic 
dissemination, signing, and storage of the agreement. This is assigned 
an average time cost of five minutes per signing party to read and sign 
the designation agreement, as well as a ten-cent record processing and 
maintenance cost per transfer. Thus, designation agreement-specific 
recordkeeping costs are expected to include a time cost of 10-50 
minutes (assuming one party signing per tier of the cascade) and $0.20-
$0.50 per reportable transfer that involves a designation. This 
corresponds to expected annual aggregate costs ranging from 
approximately $10.9 million to $36.1 million. FinCEN notes that it 
assumes that rational parties to a reportable transfer would not enter 
into a designation agreement if the expected cost of doing so, 
including compliance with the recordkeeping requirements, were not 
elsewhere compensated in the form of efficiency gains or other 
offsetting cost savings associated with other components of compliance 
with the rule, such as training or reporting costs. As such, the 
estimates provided here should only be taken to reflect a pro forma 
accounting cost.
iv. Other Costs
    Several commenters expressed concern that in addition to the 
technological costs associated with new or upgraded software, they 
would face certain non-monetary costs in the form of increased 
technology and cybersecurity related risk. Because FinCEN is not 
requiring reporting persons to retain copies of filed Real Estate 
Reports, it is not clear how the incremental data that would be 
retained (i.e., a copy of the beneficial ownership information 
certification and, if one exists, a copy of the designation agreement) 
could be meaningfully distinguished from other records a reporting 
person might retain in connection with the same reportable transfer for 
purposes of estimating a standalone burden of increased risk.
b. Government Costs
    To implement the rule, FinCEN expects to incur certain operating 
costs that would include approximately $8.5 million in the first year 
and approximately $7 million each year thereafter. These estimates 
include anticipated novel expenses related to technological 
implementation,\81\ stakeholder outreach and informational support, 
compliance monitoring, and potential enforcement activities, as well as 
certain incremental increases to pre-existing administrative and 
logistical expenses.
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    \81\ Technological implementation for a new reporting form 
contemplates expenses related to development, operations, and 
maintenance of system infrastructure, including design, deployment, 
and support, such as a help desk. It includes an anticipated 
processing cost of $0.10 per submitted Real Estate Report.
---------------------------------------------------------------------------

    While such operating costs are not typically considered part of the 
general economic cost of a rule, FinCEN acknowledges that this 
treatment implicitly assumes that resources commensurate with the novel 
operating costs exist. If this assumption does not hold, then operating 
costs associated with a rule may impose certain economic costs on the 
public in the form of opportunity costs from the agency's forgone 
alternative activities and those activities' attendant benefits. 
Putting that into the context of this rule, and benchmarking against 
FinCEN's actual appropriated budget for fiscal year 2023 ($190.2 
million),\82\ the corresponding opportunity cost would resemble 
forgoing approximately 4.5 percent of current activities annually.
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    \82\ FinCEN, ``Congressional Budget Justification and Annual 
Performance Plan and Report FY 2024'' (2023), available at https://home.treasury.gov/system/files/266/15.-FinCEN-FY-2024-CJ.pdf.
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5. Economic Consideration of Policy Alternatives
    In the NPRM, FinCEN analyzed the expected impact of three policy 
alternatives to the proposed rule and invited public comment regarding 
the

[[Page 70288]]

viability and preferability of these alternatives.
    First, instead of the designation option included in the proposed 
rule, FinCEN could have required the reporting person to be determined 
strictly by the reporting cascade, leaving it to the parties to a 
covered transfer to determine which service provider would meet the 
highest tier of the cascade and consequently be required to report 
without any option to select whichever party in the reporting cascade 
is best-positioned to file the report. FinCEN expects that rational 
parties would prefer to assign the reporting obligation to the party 
who can complete the report most cost-effectively. An alternative 
reporting structure that does not allow the parties to designate a 
reporting person responsible for the report would therefore be less 
cost-effective than the approach proposed in the NPRM, unless the 
reporting cascade would always assign the reporting requirement to the 
party with the lowest associated compliance costs. Because FinCEN 
expects that parties to the covered transfer may be better situated to 
determine which party can complete the required report in the most 
cost-effective manner, FinCEN declined to propose a standalone 
reporting cascade. FinCEN did not receive any comments indicating that 
it was mistaken in its assumptions, nor did it receive any comments 
indicating a preference for the designation option to be removed.
    As a second alternative, FinCEN could have proposed to impose the 
full traditional SAR filing obligations and AML/CFT program 
requirements on the various real estate professionals included in the 
proposed reporting cascade instead of the narrower requirement that 
only one participant party would be required to file a Real Estate 
Report. While imposing full AML/CFT program requirements on all real 
estate professionals would have almost certainly served to mitigate the 
illicit finance risks in the residential real estate sector, FinCEN 
considered that the costs accompanying this alternative would be 
commensurately more significant and would likely disproportionately 
burden small businesses. Such weighting of costs towards smaller 
entities was expected to increase transaction costs associated with 
residential real property transfers both directly via program-related 
operational costs and indirectly via the potential anticompetitive 
effects of program costs and was therefore considered a less viable 
alternative than the streamlined reporting obligation proposed. FinCEN 
did not receive any comments indicating that it was mistaken in its 
expectations about the economic impact of this alternative or its 
lesser desirability.
    Finally, as a third alternative, FinCEN could have required the 
reporting person to certify the transferee's beneficial ownership 
information instead of allowing them to rely upon the transferee entity 
or trust to certify to the reporting person that the beneficial 
ownership information they have provided is accurate to the best of 
their knowledge. FinCEN anticipated that this alternative would likely 
be accompanied by a number of increased costs, including a potential 
need for longer, more detailed compliance training; lengthier time 
necessary to collect and review documents supporting the reported 
transferee beneficial ownership information required; and increased 
recordkeeping costs. FinCEN also considered that there might also be 
costs associated with transfers that would not occur if, for example, a 
reporting person was unwilling or unable to certify the transferee's 
information. Furthermore, FinCEN was concerned about the potential 
anticompetitive effects that might arise if certain reporting persons 
are better positioned to absorb the risks associated with certifying 
transferee beneficial ownership information, as it was foreseeable that 
smaller businesses could be at a disadvantage. FinCEN did not receive 
any comments indicating that it was mistaken in its expectations about 
the economic impact of this alternative or comments from potentially 
affected transferees that they would prefer the reporting person to 
provide certification instead.

B. EOs 12866, 13563, and 14094

    E.O. 12866 and its amendments direct agencies to assess the costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, and public health and 
safety effects; distributive impacts; and equity).\83\ E.O. 13563 
emphasizes the importance of quantifying both costs and benefits, 
reducing costs, harmonizing rules, and promoting flexibility. E.O. 
13563 also recognizes that some benefits are difficult to quantify and 
provides that, where appropriate and permitted by law, agencies may 
consider and discuss qualitatively values that are difficult or 
impossible to quantify.\84\
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    \83\ E.O. 14094 sets the threshold that triggers regulatory 
impact analytical requirements at $200 million in expected annual 
burden.
    \84\ E.O. 13563, 76 FR 3821 (Jan. 21, 2011), Sec.  1(c) (``Where 
appropriate and permitted by law, each agency may consider (and 
discuss qualitatively) values that are difficult or impossible to 
quantify, including equity . . . and distributive impacts.'')
---------------------------------------------------------------------------

    Because annual residential real estate transaction volume can vary 
significantly from year to year and is sensitive to a host of 
macroeconomic factors (some of which cannot easily be modeled with 
reasonable accuracy), estimates that rely on average values of current 
data projected over extended periods of time into the future may be of 
limited informational value. Nevertheless, FinCEN has prepared certain 
annualized cost estimates as recommended in OMB circular A-4.\85\ Using 
the midpoint of the estimated range of expected costs in year one of 
compliance \86\ and in subsequent years,\87\ FinCEN estimates that the 
net present value of costs associated with a five-year time horizon is 
$2.21 billion ($2.46 billion) using a 7 precent (3 percent) discount 
rate, respectively. This equates to annualized costs of $538.4 million 
($538.0 million) using the same discount rates.
---------------------------------------------------------------------------

    \85\ See Office of Management and Budget, ``Circular A-4--
Subject: Regulatory Analysis,'' (Sept. 17, 2003), available at 
https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/.
    \86\ The midpoint value of estimated first year costs is $559.4 
million; see supra note 76.
    \87\ The midpoint value of estimated subsequent year costs is 
$532.2 million; see supra note 76.
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    This rule has been designated a ``significant regulatory action;'' 
accordingly, it has been reviewed by the Office of Management and 
Budget (OMB).

C. Regulatory Flexibility Act

    When an agency issues a rulemaking proposal, the RFA \88\ requires 
the agency either to provide an initial regulatory flexibility analysis 
(IRFA) with a proposed rule or to certify that the proposed rule would 
not have a significant economic impact on a substantial number of small 
entities. In its NPRM, FinCEN asserted that, although the rule might 
apply to a substantial number of small entities,\89\ it

[[Page 70289]]

was not expected to have a significant economic impact on a substantial 
number of them.\90\ The preliminary basis for this expectation, at that 
stage, included FinCEN's attempts to minimize the burden on reporting 
persons by streamlining the reporting requirements and providing for an 
option to designate the reporting obligation. Accordingly, FinCEN 
certified that the proposed rule would not have a significant economic 
impact on a substantial number of small entities.\91\
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    \88\ 5 U.S.C. 601 et seq.
    \89\ See FinCEN, NPRM, ``Anti-Money Laundering Regulations for 
Residential Real Estate Transfers,'' 89 FR 12424, 12458 (Feb. 16, 
2024) (finding that ``an upper bound of potentially affected small 
entities includes approximately 160,800 firms (by the following 
primary business classifications: approximately 6,300 Title and 
Settlement Agents, 800 Direct Title Insurance Carriers, 18,000 
persons performing Other Activities Related to Real Estate, 15,700 
Offices of Lawyers, and 120,000 Offices of Real Estate Agents and 
Brokers),'' though ``the point estimates differ non-trivially by how 
`small' is operationally defined, and do not do so unidirectionally 
across methodologies and data sources'').
    \90\ Id. at 12452.
    \91\ See U.S. Small Business Administration, ``How to Comply 
with the Regulatory Flexibility Act,'' p.44, n.144 (Aug. 2017), 
available at https://advocacy.sba.gov/wp-content/uploads/2019/07/How-to-Comply-with-the-RFA-WEB.pdf (stating that ``The Office of 
Advocacy believes that, given the emphasis in the law on public 
notice, the certification should also appear in the final rule even 
though there may have already been a certification in the proposed 
rule. Doing so will help demonstrate the continued validity of the 
certification after receipt of public comments'').
---------------------------------------------------------------------------

    Having considered the various possible outcomes for small entities 
under the reporting requirements at the proposal stage \92\ and having 
taken the public comments received in response to the NPRM into 
consideration, FinCEN continues to believe that the rule will not have 
a significant economic impact on a substantial number of small 
entities,\93\ and therefore that certification remains appropriate and 
a Final Regulatory Flexibility Analysis (FRFA) is not required. Changes 
made from the NPRM to the final rule reinforce this conclusion. The 
final rule contains additional exceptions for low-risk transfers and 
otherwise clarifies the scope of transactions to which the rule will 
apply, and also adopts a reasonable reliance standard with respect to 
information provided to reporting persons. As a result, FinCEN expects 
that the final rule will result in a more narrowly scoped burden in 
general than the proposed rule that was certified at the NPRM 
stage.\94\ FinCEN expects that small entities affected by the final 
rule would experience a proportionate share of this reduction in burden 
when compared to the proposed rule, resulting in a more limited burden 
for small entities under the final rule when compared to the proposed 
rule, noting again that the proposed rule was itself certified as not 
having a significant economic impact on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \92\ When certifying at the NPRM stage, FinCEN discussed the 
basis on which its expectations were formed by considering the 
spectrum of potential burdens and costs a small business might incur 
as a result of the rule. This included considering the outcomes on 
businesses that would either incur no change in burden, a partial 
increase in burden, or the full increase in burden contemplated by 
the rule. In this analysis, FinCEN estimated that the incremental 
burden of complying with the rule would equate to an approximately 
0%, 0.2%, or 0.5% increase in the average annual payroll expense of 
one employee, respectively, and was therefore unlikely to be 
significant.
    \93\ See supra note 91.
    \94\ While FinCEN has raised its estimate of the maximum 
anticipated cost per transaction (from $363.17 to $628.39 for 
reporting persons and from an aggregate of $103.43 to $116.84 for 
the maximally inclusive number of non-reporting persons per 
transfer), the number of transactions to which the burden would 
apply (and could thereby become a transfer a small business would be 
required to report should it not enter into a designation agreement) 
is reduced.
---------------------------------------------------------------------------

    Nevertheless, while further steps to accommodate or discuss small 
entity concerns may not be a strict requirement, FinCEN is mindful of 
the small-business-oriented views and concerns voiced during the public 
comment period and has not precluded taking additional steps, as 
feasible, to facilitate implementation of the final rule in a manner 
that minimizes the perceived or realized competitive disadvantages a 
small business or other affected small entity may face. This includes, 
but may not be limited to, targeted outreach and production of training 
materials such as FAQs or a Small Entity Compliance Guide, in addition 
to the more broadly available support services as previously discussed 
in Section III.A and Section VI.A.iv.b.
Certification
    Having considered the various possible outcomes for small entities 
under the reporting requirements at the proposal stage and having taken 
the public comments received in response to the NPRM into consideration 
for the final rule, FinCEN continues to certify that the rule will not 
have a significant economic impact on a substantial number of small 
entities.

D. Unfunded Mandates Reform Act

    Section 202 of the UMRA \95\ requires that an agency prepare a 
statement before promulgating a rule that may result in expenditure by 
state, local, and Tribal governments, or the private sector, in the 
aggregate, of $184 million or more in any one year.\96\ Section 202 of 
the UMRA also requires an agency to identify and consider a reasonable 
number of regulatory alternatives before promulgating a rule. FinCEN 
believes that the preceding assessment of impact \97\ satisfies the 
UMRA's analytical requirements.
---------------------------------------------------------------------------

    \95\ See 2 U.S.C. 1532(a).
    \96\ The U.S. Bureau of Economic Analysis reported the annual 
value of the gross domestic product (GDP) deflator in 1995 (the year 
in which UMRA was enacted) as 66.939; and in 2023 as 123.273. See 
U.S. Bureau of Economic Analysis, ``Table 1.1.9. Implicit Price 
Deflators for Gross Domestic Product'' (accessed June 5, 2024). 
Thus, the inflation adjusted estimate for $100 million is 123.273 
divided by 66.939 and then multiplied by 100, or $184.157 million.
    \97\ See generally Section VI.A.
---------------------------------------------------------------------------

E. Paperwork Reduction Act

    The new information collection requirements contained in this rule 
(31 CFR 1031.320) have been approved by OMB in accordance with the 
Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., under 
control number 1506-0080. The PRA imposes certain requirements on 
Federal agencies in connection with their conducting or sponsoring any 
collection of information as defined by the PRA. Under the PRA, an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a valid OMB 
control number. The rule includes three information collection 
requirements: Real Estate Reports, which will be submitted to FinCEN, 
and, depending on the circumstances of the transfer, a designation 
agreement and/or a certification form for beneficial ownership 
information, neither of which will be submitted to FinCEN but which 
must be retained for five years.
    Reporting and Recordkeeping Requirements: The provisions in this 
rule pertaining to the collection of information can be found in 
paragraph (a) of 31 CFR 1031.320. The information required to be 
reported by the rule will be used by the U.S. Government to monitor and 
investigate money laundering in the U.S. residential real estate 
sector. The information required to be maintained will be used by 
Federal agencies to verify compliance by reporting persons with the 
provisions of the rule. The collection of information is mandatory.

OMB Control Number: 1506-0080
Frequency: As required
Description of Affected Public: Residential Real Estate Settlement 
Agents, Title Insurance Carriers, Escrow Service Providers, Other Real 
Estate Professionals
Estimated Number of Responses: 850,000 \98\
---------------------------------------------------------------------------

    \98\ This estimate represents the upper bound estimate of 
reportable transfers per year as described in greater detail above 
in Section VI.A.2.
---------------------------------------------------------------------------

Estimated Total Annual Reporting and Recordkeeping Burden: 4,604,167 
burden hours \99\
---------------------------------------------------------------------------

    \99\ This estimate includes the upper bound estimates of the 
time burden of compliance, as described in greater detail above, 
with the reporting and recordkeeping requirements. See Section 
VI.A.4.ii and Section VI.A.4.iii.

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[[Page 70290]]

Estimated Total Annual Reporting and Recordkeeping Cost: 
$630,976,662.47 \100\
---------------------------------------------------------------------------

    \100\ This estimate includes the upper bound estimates of the 
wage and technology costs of compliance, as described in greater 
detail above, with the reporting and recordkeeping requirements. See 
Section VI.A.4.ii and Section VI.A.4.iii.
---------------------------------------------------------------------------

F. Congressional Review Act

    OMB's Office of Information and Regulatory Affairs has designated 
this rule as meeting the criteria under 5 U.S.C. 804(2) for purposes of 
Subtitle E of the Small Business Regulatory Enforcement and Fairness 
Act of 1996 (also known as the Congressional Review Act or CRA).\101\ 
Under the CRA, such rules generally may take effect no earlier than 60 
days after the rule is published in the Federal Register.\102\
---------------------------------------------------------------------------

    \101\ 5 U.S.C. 804(2) et seq.
    \102\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------

List of Subjects in 31 CFR Part 1031

    Administrative practice and procedure, Aliens, Authority 
delegations (Government agencies), Bankruptcy, Banks and banking, 
Brokers, Buildings and facilities, Business and industry, Condominiums, 
Cooperatives, Courts, Currency, Citizenship and naturalization, Crime, 
Electronic filing, Estates, Fair housing, Federal home loan banks, 
Federal savings associations, Federal-States relations, Foreign 
investments in U.S., Foreign persons, Foundations, Holding companies, 
Home improvement, Homesteads, Housing, Indian--law, Indians, Indians--
tribal government, Insurance companies, Investment advisers, Investment 
companies, Investigations, Lawyers, Legal services, Law enforcement, 
Low and moderate income housing, Money laundering, Mortgage insurances, 
Mortgages, Penalties, Privacy, Real property acquisition, Record 
retention, Reporting and recordkeeping requirements, Small businesses, 
Securities, Taxes, Terrorism, Trusts and trustees, U.S. territories.

Authority and Issuance

0
For the reasons set forth in the preamble, chapter X of title 31 of the 
Code of Federal Regulations is amended by adding part 1031 to read as 
follows:

PART 1031--RULES FOR PERSONS INVOLVED IN REAL ESTATE CLOSINGS AND 
SETTLEMENTS

Sec.
Subparts A and B [Reserved]
Subpart C--Reports Required to be Made by Persons Involved in Real 
Estate Closings and Settlements
1031.320 Reports of residential real property transfers.
1031.321 [Reserved]

    Authority:  12 U.S.C. 1829b, 1951-1959; 31 U.S.C. 5311-5314, 
5316-5336; title III, sec. 314 Pub. L. 107-56, 115 Stat. 307; sec. 
701 Pub. L. 114-74, 129 Stat. 599; sec. 6403, Pub. L. 116-283, 134 
Stat. 3388.

Subparts A and B [Reserved]

Subpart C--Reports Required to be Made by Persons Involved in Real 
Estate Closings and Settlements


Sec.  1031.320  Reports of residential real property transfers.

    (a) General. A reportable transfer as defined in paragraph (b) of 
this section shall be reported to FinCEN by the reporting person 
identified in paragraph (c) of this section. The report shall include 
the information described in paragraphs (d) through (i) of this 
section. The reporting person may reasonably rely on information 
collected from others under the conditions described in paragraph (j). 
The report required by this section shall be filed in the form and 
manner, and at the time, specified in paragraph (k) of this section. 
Records shall be retained as specified in paragraph (l) of this 
section. Reports required under this section and any other information 
that would reveal that a reportable transfer has been reported are not 
confidential as specified in paragraph (m) of this section. Terms not 
defined in this section are defined in 31 CFR 1010.100.
    (b) Reportable transfer. (1) Except as set forth in paragraph 
(b)(2) of this section, a reportable transfer is a non-financed 
transfer to a transferee entity or transferee trust of an ownership 
interest in residential real property. For the purposes of this 
section, residential real property means:
    (i) Real property located in the United States containing a 
structure designed principally for occupancy by one to four families;
    (ii) Land located in the United States on which the transferee 
intends to build a structure designed principally for occupancy by one 
to four families;
    (iii) A unit designed principally for occupancy by one to four 
families within a structure on land located in the United States; or
    (iv) Shares in a cooperative housing corporation for which the 
underlying property is located in the United States.
    (2) A reportable transfer does not include a:
    (i) Grant, transfer, or revocation of an easement;
    (ii) Transfer resulting from the death of an individual, whether 
pursuant to the terms of a decedent's will or the terms of a trust, the 
operation of law, or by contractual provision;
    (iii) Transfer incident to divorce or dissolution of a marriage or 
civil union;
    (iv) Transfer to a bankruptcy estate;
    (v) Transfer supervised by a court in the United States;
    (vi) Transfer for no consideration made by an individual, either 
alone or with the individual's spouse, to a trust of which that 
individual, that individual's spouse, or both of them, are the 
settlor(s) or grantor(s);
    (vii) Transfer to a qualified intermediary for purposes of 26 CFR 
1.1031(k)-1; or
    (viii) Transfer for which there is no reporting person.
    (c) Determination of reporting person. (1) Except as set forth in 
paragraphs (c)(2), (3) and (4) of this section, the reporting person 
for a reportable transfer is the person engaged within the United 
States as a business in the provision of real estate closing and 
settlement services that is:
    (i) The person listed as the closing or settlement agent on the 
closing or settlement statement for the transfer;
    (ii) If no person described in paragraph (c)(1)(i) of this section 
is involved in the transfer, then the person that prepares the closing 
or settlement statement for the transfer;
    (iii) If no person described in paragraph (c)(1)(i) or (ii) of this 
section is involved in the transfer, then the person that files with 
the recordation office the deed or other instrument that transfers 
ownership of the residential real property;
    (iv) If no person described in paragraphs (c)(1)(i) through (iii) 
of this section is involved in the transfer, then the person that 
underwrites an owner's title insurance policy for the transferee with 
respect to the transferred residential real property, such as a title 
insurance company;
    (v) If no person described in paragraphs (c)(1)(i) through (iv) of 
this section is involved in the transfer, then the person that 
disburses in any form, including from an escrow account, trust account, 
or lawyers' trust account, the greatest amount of funds in connection 
with the residential real property transfer;
    (vi) If no person described in paragraphs (c)(1)(i) through (v) of 
this section is involved in the transfer, then the person that provides 
an evaluation of the status of the title; or

[[Page 70291]]

    (vii) If no person described in paragraphs (c)(1)(i) through (vi) 
of this section is involved in the transfer, then the person that 
prepares the deed or, if no deed is involved, any other legal 
instrument that transfers ownership of the residential real property, 
including, with respect to shares in a cooperative housing corporation, 
the person who prepares the stock certificate.
    (2) Employees, agents, and partners. If an employee, agent, or 
partner acting within the scope of such individual's employment, 
agency, or partnership would be the reporting person as determined in 
paragraph (c)(1) of this section, then the individual's employer, 
principal, or partnership is deemed to be the reporting person.
    (3) Financial institutions. A financial institution that has an 
obligation to maintain an anti-money laundering program under this 
chapter is not a reporting person for purposes of this section.
    (4) Designation agreement. (i) The reporting person described in 
paragraph (c)(1) of this section may enter into an agreement with any 
other person described in paragraph (c)(1) of this section to designate 
such other person as the reporting person with respect to the 
reportable transfer. The person designated by such agreement shall be 
treated as the reporting person with respect to the transfer. If 
reporting persons decide to use designation agreements, a separate 
agreement is required for each reportable transfer.
    (ii) A designation agreement shall be in writing, and shall 
include:
    (A) The date of the agreement;
    (B) The name and address of the transferor;
    (C) The name and address of the transferee entity or transferee 
trust;
    (D) Information described in in paragraph (g) identifying 
transferred residential real property;
    (E) The name and address of the person designated through the 
agreement as the reporting person with respect to the transfer; and
    (F) The name and address of all other parties to the agreement.
    (d) Information concerning the reporting person. The reporting 
person shall report:
    (1) The full legal name of the reporting person;
    (2) The category of reporting person, as determined in paragraph 
(c) of this section; and
    (3) The street address that is the reporting person's principal 
place of business in the United States.
    (e) Information concerning the transferee--(1) Transferee entities. 
For each transferee entity involved in a reportable transfer, the 
reporting person shall report:
    (i) The following information for the transferee entity:
    (A) Full legal name;
    (B) Trade name or ``doing business as'' name, if any;
    (C) Complete current address consisting of:
    (1) The street address that is the transferee entity's principal 
place of business; and
    (2) If such principal place of business is not in the United 
States, the street address of the primary location in the United States 
where the transferee entity conducts business, if any; and
    (D) Unique identifying number, if any, consisting of:
    (1) The Internal Revenue Service Taxpayer Identification Number 
(IRS TIN) of the transferee entity;
    (2) If the transferee entity has not been issued an IRS TIN, a tax 
identification number for the transferee entity that was issued by a 
foreign jurisdiction and the name of such jurisdiction; or
    (3) If the transferee entity has not been issued an IRS TIN or a 
foreign tax identification number, an entity registration number issued 
by a foreign jurisdiction and the name of such jurisdiction;
    (ii) The following information for each beneficial owner of the 
transferee entity:
    (A) Full legal name;
    (B) Date of birth;
    (C) Complete current residential street address;
    (D) Citizenship; and
    (E) Unique identifying number consisting of:
    (1) An IRS TIN; or
    (2) Where an IRS TIN has not been issued:
    (i) A tax identification number issued by a foreign jurisdiction 
and the name of such jurisdiction; or
    (ii) The unique identifying number and the issuing jurisdiction 
from a non-expired passport issued by a foreign government; and
    (iii) The following information for each signing individual, if 
any:
    (A) Full legal name;
    (B) Date of birth;
    (C) Complete current residential street address;
    (D) Unique identifying number consisting of:
    (1) An IRS TIN; or
    (2) Where an IRS TIN has not been issued:
    (i) A tax identification number issued by a foreign jurisdiction 
and the name of such jurisdiction; or
    (ii) The unique identifying number and the issuing jurisdiction 
from a non-expired passport issued by a foreign government to the 
individual;
    (E) Description of the capacity in which the individual is 
authorized to act as the signing individual; and
    (F) If the signing individual is acting in that capacity as an 
employee, agent, or partner, the name of the individual's employer, 
principal, or partnership.
    (2) Transferee trusts. For each transferee trust in a reportable 
transfer, the reporting person shall report:
    (i) The following information for the transferee trust:
    (A) Full legal name, such as the full title of the agreement 
establishing the transferee trust;
    (B) Date the trust instrument was executed;
    (C) Unique identifying number, if any, consisting of:
    (1) IRS TIN; or
    (2) Where an IRS TIN has not been issued, a tax identification 
number issued by a foreign jurisdiction and the name of such 
jurisdiction; and
    (D) Whether the transferee trust is revocable;
    (ii) The following information for each trustee that is a legal 
entity:
    (A) Full legal name;
    (B) Trade name or ``doing business as'' name, if any;
    (C) Complete current address consisting of:
    (1) The street address that is the trustee's principal place of 
business; and
    (2) If such principal place of business is not in the United 
States, the street address of the primary location in the United States 
where the trustee conducts business, if any; and
    (D) Unique identifying number, if any, consisting of:
    (1) The IRS TIN of the trustee;
    (2) In the case that a trustee has not been issued an IRS TIN, a 
tax identification number issued by a foreign jurisdiction and the name 
of such jurisdiction; or
    (3) In the case that a trustee has not been issued an IRS TIN or a 
foreign tax identification number, an entity registration number issued 
by a foreign jurisdiction and the name of such jurisdiction;
    (E) For purposes of this section, an individual trustee of the 
transferee trust is considered to be a beneficial owner of the trust. 
As such, information on individual trustees must be reported in 
accordance with the requirements set forth in paragraph (e)(2)(iii) of 
this section;
    (iii) The following information for each beneficial owner of the 
transferee trust:
    (A) Full legal name;

[[Page 70292]]

    (B) Date of birth;
    (C) Complete current residential street address;
    (D) Citizenship;
    (E) Unique identifying number consisting of:
    (1) An IRS TIN; or
    (2) Where an IRS TIN has not been issued:
    (i) A tax identification number issued by a foreign jurisdiction 
and the name of such jurisdiction; or
    (ii) The unique identifying number and the issuing jurisdiction 
from a non-expired passport issued by a foreign government; and
    (F) The category of beneficial owner, as determined in paragraph 
(j)(1)(ii) of this section; and
    (iv) The following information for each signing individual, if any:
    (A) Full legal name;
    (B) Date of birth;
    (C) Complete current residential street address;
    (D) Unique identifying number consisting of:
    (1) An IRS TIN; or
    (2) Where an IRS TIN has not been issued:
    (i) A tax identification number issued by a foreign jurisdiction 
and the name of such jurisdiction; or
    (ii) The unique identifying number and the issuing jurisdiction 
from a non-expired passport issued by a foreign government to the 
individual;
    (E) Description of the capacity in which the individual is 
authorized to act as the signing individual; and
    (F) If the signing individual is acting in that capacity as an 
employee, agent, or partner, the name of the individual's employer, 
principal, or partnership.
    (f) Information concerning the transferor. For each transferor 
involved in a reportable transfer, the reporting person shall report:
    (1) The following information for a transferor who is an 
individual:
    (i) Full legal name;
    (ii) Date of birth;
    (iii) Complete current residential street address; and
    (iv) Unique identifying number consisting of:
    (A) An IRS TIN; or
    (B) Where an IRS TIN has not been issued:
    (1) A tax identification number issued by a foreign jurisdiction 
and the name of such jurisdiction; or
    (2) The unique identifying number and the issuing jurisdiction from 
a non-expired passport issued by a foreign government to the 
individual;
    (2) The following information for a transferor that is a legal 
entity:
    (i) Full legal name;
    (ii) Trade name or ``doing business as'' name, if any;
    (iii) Complete current address consisting of:
    (A) The street address that is the legal entity's principal place 
of business; and
    (B) If the principal place of business is not in the United States, 
the street address of the primary location in the United States where 
the legal entity conducts business, if any; and
    (iv) Unique identifying number, if any, consisting of:
    (A) An IRS TIN;
    (B) In the case that the legal entity has not been issued an IRS 
TIN, a tax identification number issued by a foreign jurisdiction and 
the name of such jurisdiction; or
    (C) In the case that the legal entity has not been issued an IRS 
TIN or a foreign tax identification number, an entity registration 
number issued by a foreign jurisdiction and the name of such 
jurisdiction; and
    (3) The following information for a transferor that is a trust:
    (i) Full legal name, such as the full title of the agreement 
establishing the trust;
    (ii) Date the trust instrument was executed;
    (iii) Unique identifying number, if any, consisting of:
    (A) IRS TIN; or
    (B) Where an IRS TIN has not been issued, a tax identification 
number issued by a foreign jurisdiction and the name of such 
jurisdiction;
    (iv) For each individual who is a trustee of the trust:
    (A) Full legal name;
    (B) Current residential street address; and
    (C) Unique identifying number consisting of:
    (1) An IRS TIN; or
    (2) Where an IRS TIN has not been issued:
    (i) A tax identification number issued by a foreign jurisdiction 
and the name of such jurisdiction; or
    (ii) The unique identifying number and the issuing jurisdiction 
from a non-expired passport issued by a foreign government; and
    (v) For each legal entity that is a trustee of the trust:
    (A) Full legal name;
    (B) Trade name or ``doing business as'' name, if any;
    (C) Complete current address consisting of:
    (1) The street address that is the legal entity's principal place 
of business; and
    (2) If the principal place of business is not in the United States, 
the street address of the primary location in the United States where 
the legal entity conducts business, if any; and
    (D) Unique identifying number, if any, consisting of:
    (1) An IRS TIN;
    (2) In the case that the legal entity has not been issued an IRS 
TIN, a tax identification number issued by a foreign jurisdiction and 
the name of such jurisdiction; or
    (3) In the case that the legal entity has not been issued an IRS 
TIN or a foreign tax identification number, an entity registration 
number issued by a foreign jurisdiction and the name of such 
jurisdiction.
    (g) Information concerning the residential real property. For each 
residential real property that is the subject of the reportable 
transfer, the reporting person shall report:
    (1) The street address, if any;
    (2) The legal description, such as the section, lot, and block; and
    (3) The date of closing.
    (h) Information concerning payments. (1) The reporting person shall 
report the following information concerning each payment, other than a 
payment disbursed from an escrow or trust account held by a transferee 
entity or transferee trust, that is made by or on behalf of the 
transferee entity or transferee trust regarding a reportable transfer:
    (i) The amount of the payment;
    (ii) The method by which the payment was made;
    (iii) If the payment was paid from an account held at a financial 
institution, the name of the financial institution and the account 
number; and
    (iv) The name of the payor on any wire, check, or other type of 
payment if the payor is not the transferee entity or transferee trust.
    (2) The reporting person shall report the total consideration paid 
or to be paid by the transferee entity or transferee trust regarding 
the reportable transfer, as well as the total consideration paid by or 
to be paid by all transferees regarding the reportable transfer.
    (i) Information concerning hard money, private, and other similar 
loans. The reporting person shall report whether the reportable 
transfer involved credit extended by a person that is not a financial 
institution with an obligation to maintain an anti-money laundering 
program and an obligation to report suspicious transactions under this 
chapter.
    (j) Reasonable reliance--(1) General. Except as described in 
paragraph (j)(2) of this section, the reporting person may rely upon 
information provided by other persons, absent knowledge of facts that 
would reasonably call into question the

[[Page 70293]]

reliability of the information provided to the reporting person.
    (2) Certification when reporting beneficial ownership information. 
For purposes of reporting information described in paragraphs 
(e)(1)(ii) and (e)(2)(iii) of this section, the reporting person may 
rely upon information provided by the transferee or a person 
representing the transferee in the reportable transfer, absent 
knowledge of facts that would reasonably call into question the 
reliability of the information provided to the reporting person, if the 
person providing the information certifies the accuracy of the 
information in writing to the best of the person's knowledge.
    (k) Filing procedures--(1) What to file. A reportable transfer 
shall be reported by completing a Real Estate Report.
    (2) Where to file. The Real Estate Report shall be filed 
electronically with FinCEN, as indicated in the instructions to the 
report.
    (3) When to file. A reporting person is required to file a Real 
Estate Report by the later of either:
    (i) the final day of the month following the month in which the 
date of closing occurred; or
    (ii) 30 calendar days after the date of closing.
    (l) Retention of records. A reporting person shall maintain a copy 
of any certification described in paragraph (j)(2) of this section. In 
addition, all parties to a designation agreement described in paragraph 
(c)(4) of this section shall maintain a copy of such designation 
agreement.
    (m) Exemptions--(1) Confidentiality. Reporting persons, and any 
director, officer, employee, or agent of such persons, and Federal, 
State, local, or Tribal government authorities, are exempt from the 
confidentiality provision in 31 U.S.C. 5318(g)(2) that prohibits the 
disclosure to any person involved in a suspicious transaction that the 
transaction has been reported or any information that otherwise would 
reveal that the transaction has been reported.
    (2) Anti-money laundering program. A reporting person under this 
section is exempt from the requirement to establish an anti-money 
laundering program, in accordance with 31 CFR 1010.205(b)(1)(v).
    (n) Definitions. For purposes of this section, the following terms 
have the following meanings.
    (1) Beneficial owner--(i) Beneficial owners of transferee entities. 
(A) The beneficial owners of a transferee entity are the individuals 
who would be the beneficial owners of the transferee entity on the date 
of closing if the transferee entity were a reporting company under 31 
CFR 1010.380(d) on the date of closing.
    (B) The beneficial owners of a transferee entity that is 
established as a non-profit corporation or similar entity, regardless 
of jurisdiction of formation, are limited to individuals who exercise 
substantial control over the entity, as defined in 31 CFR 
1010.380(d)(1) on the date of closing.
    (ii) Beneficial owners of transferee trusts. The beneficial owners 
of a transferee trust are the individuals who fall into one or more of 
the following categories on the date of closing:
    (A) A trustee of the transferee trust.
    (B) An individual other than a trustee with the authority to 
dispose of transferee trust assets.
    (C) A beneficiary who is the sole permissible recipient of income 
and principal from the transferee trust or who has the right to demand 
a distribution of, or withdraw, substantially all of the assets from 
the transferee trust.
    (D) A grantor or settlor who has the right to revoke the transferee 
trust or otherwise withdraw the assets of the transferee trust.
    (E) A beneficial owner of any legal entity that holds at least one 
of the positions in the transferee trust described in paragraphs 
(n)(1)(ii)(A) through (D) of this section, except when the legal entity 
meets the criteria set forth in paragraphs (n)(10)(ii)(A) through (P) 
of this section. Beneficial ownership of any such legal entity is 
determined under 31 CFR 1010.380(d), utilizing the criteria for 
beneficial owners of a reporting company.
    (F) A beneficial owner of any trust that holds at least one of the 
positions in the transferee trust described in paragraphs (n)(1)(ii)(A) 
through (D) of this section, except when the trust meets the criteria 
set forth in paragraphs (n)(11)(ii)(A) through (D). Beneficial 
ownership of any such trust is determined under this paragraph 
(n)(1)(ii), utilizing the criteria for beneficial owners of a 
transferee trust.
    (2) Closing or settlement agent. The term ``closing or settlement 
agent'' means any person, whether or not acting as an agent for a title 
agent or company, a licensed attorney, real estate broker, or real 
estate salesperson, who for another and with or without a commission, 
fee, or other valuable consideration and with or without the intention 
or expectation of receiving a commission, fee, or other valuable 
consideration, directly or indirectly, provides closing or settlement 
services incident to the transfer of residential real property.
    (3) Closing or settlement statement. The term ``closing or 
settlement statement'' means the statement of receipts and 
disbursements prepared for the transferee for a transfer of residential 
real property.
    (4) Date of closing. The term ``date of closing'' means the date on 
which the transferee entity or transferee trust receives an ownership 
interest in residential real property.
    (5) Non-financed transfer. The term ``non-financed transfer'' means 
a transfer that does not involve an extension of credit to all 
transferees that is:
    (i) Secured by the transferred residential real property; and
    (ii) Extended by a financial institution that has both an 
obligation to maintain an anti-money laundering program and an 
obligation to report suspicious transactions under this chapter.
    (6) Ownership interest. The term ``ownership interest'' means the 
rights held in residential real property that are demonstrated:
    (i) Through a deed, for a reportable transfer described in 
paragraph (b)(1)(i), (ii), or (iii) of this section; or
    (ii) Through stock, shares, membership, certificate, or other 
contractual agreement evidencing ownership, for a reportable transfer 
described in paragraph (b)(1)(iv) of this section.
    (7) Recordation office. The term ``recordation office'' means any 
State, local, Territory and Insular Possession, or Tribal office for 
the recording of reportable transfers as a matter of public record.
    (8) Signing individual. The term ``signing individual'' means each 
individual who signed documents on behalf of the transferee as part of 
the reportable transfer. However, it does not include any individual 
who signed documents as part of their employment with a financial 
institution that has both an obligation to maintain an anti-money 
laundering program and an obligation to report suspicious transactions 
under this chapter.
    (9) Statutory trust. The term ``statutory trust'' means any trust 
created or authorized under the Uniform Statutory Trust Entity Act or 
as enacted by a State. For the purposes of this subpart, statutory 
trusts are transferee entities.
    (10) Transferee entity. (i) Except as set forth in paragraph 
(n)(10)(ii) of this section, the term ``transferee entity'' means any 
person other than a transferee trust or an individual.
    (ii) A transferee entity does not include:
    (A) A securities reporting issuer defined in 31 CFR 
1010.380(c)(2)(i);

[[Page 70294]]

    (B) A governmental authority defined in 31 CFR 1010.380(c)(2)(ii);
    (C) A bank defined in 31 CFR 1010.380(c)(2)(iii);
    (D) A credit union defined in 31 CFR 1010.380(c)(2)(iv);
    (E) A depository institution holding company defined in 31 CFR 
1010.380(c)(2)(v);
    (F) A money service business defined in 31 CFR 1010.380(c)(2)(vi);
    (G) A broker or dealer in securities defined in 31 CFR 
1010.380(c)(2)(vii);
    (H) A securities exchange or clearing agency defined in 31 CFR 
1010.380(c)(2)(viii);
    (I) Any other Exchange Act registered entity defined in 31 CFR 
1010.380(c)(2)(ix);
    (J) An insurance company defined in 31 CFR 1010.380(c)(2)(xii);
    (K) A State-licensed insurance producer defined in 31 CFR 
1010.380(c)(2)(xiii);
    (L) A Commodity Exchange Act registered entity defined in 31 CFR 
1010.380(c)(2)(xiv);
    (M) A public utility defined in 31 CFR 1010.380(c)(2)(xvi);
    (N) A financial market utility defined in 31 CFR 
1010.380(c)(2)(xvii);
    (O) An investment company as defined in section 3(a) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3(a)) that is registered 
with the Securities and Exchange Commission under section 8 of the 
Investment Company Act (15 U.S.C. 80a-8); and
    (P) Any legal entity controlled or wholly owned, directly or 
indirectly, by an entity described in paragraphs (n)(10)(ii)(A) through 
(O) of this section.
    (11) Transferee trust. (i) Except as set forth in paragraph 
(n)(11)(ii) of this section, the term ``transferee trust'' means any 
legal arrangement created when a person (generally known as a grantor 
or settlor) places assets under the control of a trustee for the 
benefit of one or more persons (each generally known as a beneficiary) 
or for a specified purpose, as well as any legal arrangement similar in 
structure or function to the above, whether formed under the laws of 
the United States or a foreign jurisdiction. A trust is deemed to be a 
transferee trust regardless of whether residential real property is 
titled in the name of the trust itself or in the name of the trustee in 
the trustee's capacity as the trustee of the trust.
    (ii) A transferee trust does not include:
    (A) A trust that is a securities reporting issuer defined in 31 CFR 
1010.380(c)(2)(i);
    (B) A trust in which the trustee is a securities reporting issuer 
defined in 31 CFR 1010.380(c)(2)(i);
    (C) A statutory trust; or
    (D) An entity wholly owned by a trust described in paragraphs 
(n)(11)(ii)(A) through (C) of this section.


Sec.  1031.321   [Reserved]

Andrea M. Gacki,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2024-19198 Filed 8-28-24; 8:45 am]
BILLING CODE 4810-02-P

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