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GTOs are not enough: FinCEN issues ANPRM for the real estate sector

FinCEN Launches Regulatory Process for New Real Estate Sector Reporting Requirements to Curb Illicit Finance

Contactpress@fincen.govImmediate ReleaseDecember 06, 2021

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) announced today an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comment on a potential rule to address the vulnerability of the U.S. real estate market to money laundering and other illicit activity. The systemic money laundering vulnerabilities presented by the U.S. real estate sector, and consequently, the ability of illicit actors to launder criminal proceeds through the purchase of real estate, threatens U.S. national security and the integrity of the U.S. financial system.

FinCEN has long been concerned with the potential for corrupt officials and illicit actors to launder the proceeds of criminal activity through the purchase of real estate in the United States and has worked to increase transparency in the real estate sector. Given the relative stability of the real estate sector as store of value, the opacity of the real estate market, and gaps in industry regulation, the U.S. real estate market continues to be used as a vehicle for money laundering and can involve businesses and professions that facilitate (even if unwittingly) acquisitions of real estate in the money laundering process.

Real estate transactions involving loans or other financing by regulated financial institutions, such as banks, which are subject to federal anti-money laundering rules, are less susceptible to money laundering because those institutions are required to report suspicious activity to FinCEN. For example, when most American families buy a home with a mortgage, the bank that makes the loan is subject to rules that require it to identify the buyer and report suspicious activity. In contrast, when real estate is purchased without such financing, it can be nearly impossible to trace the beneficial owners behind shell companies that are often used to purchase the real estate. As a result, corrupt officials and criminals engaging in illicit activity can exploit the U.S. real estate sector to launder their ill-gotten wealth.

The ANPRM announced today will assist FinCEN in preparing a proposed rule that would enhance the transparency of the domestic real estate market on a nationwide basis and protect the U.S. real estate market from exploitation by criminals and corrupt officials.

“Increasing transparency in the real estate sector will curb the ability of corrupt officials and criminals to launder the proceeds of their ill-gotten gains through the U.S. real estate market,” said Himamauli Das, Acting Director of FinCEN. “Addressing this risk will strengthen U.S. national security and help protect the integrity of the U.S. financial system. We urge stakeholders to provide input to assist us in developing an approach that enhances transparency while minimizing burden on business.”

The ANPRM reflects the concerns highlighted in the newly released U.S. Government Strategy on Countering Corruption, which spotlights the money laundering risks in the U.S. real estate market, as well as the need to protect the sector from abuse by corrupt officials and other illicit actors.

FinCEN has not imposed general recordkeeping and reporting requirements authorized under the Bank Secrecy Act on persons involved in all-cash real estate transactions, but FinCEN has imposed specific transaction reporting requirements on title insurance companies in the form of Geographic Targeting Orders (GTOs). This ANPRM seeks comment on the approach FinCEN should take with respect to both the residential and commercial real estate sectors.

FinCEN recognizes the need to develop a rule that obtains information needed to assist law enforcement and prevent illicit finance in a way that strives to minimize the burden on reporting companies. The ANPRM seeks comments both on the benefits to law enforcement and the prevention of illicit finance as well as potential burdens or challenges that such a reporting requirement might present.

As part of a whole-of-government effort, the U.S. Department of the Treasury is taking a number of actions to fight corruption and prevent it from undermining trust in democratic institutions. Treasury is uniquely equipped with tools to root out corruption at home and abroad by targeting the vulnerabilities in financial systems that allow malign actors to profit from corruption and other criminal activities.

FinCEN strongly encourages the public to submit written comments in response to the ANPRM. Diverse viewpoints and substantive suggestions will help FinCEN develop a proposed regulation that appropriately balances the need to address the vulnerabilities of the real estate market with any potential costs such measures may impose.

Comments will be accepted for 60 days following publication in the Federal Register.

Links:

FinCEN Press Release

Real Estate Advance Notice of Proposed Rulemaking (ANPRM)

Categories: Advance Notice of Proposed Rulemaking (ANPRM) Anti-Money Laundering FinCEN Updates

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