On December 6, 2021, the Financial Crimes Enforcement Network (FinCEN) published 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. FinCEN said 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.
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.
The ANPRM 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.
Comments will be accepted for 60 days following Federal Register publication.