FinCEN issued notice of proposed rulemaking to amend 31 CFR Chapter X and combat money laundering in US residential real estate industry via transparency, reporting.
In addition, the agency issued a fact sheet highlighting key aspects of the proposal.
The proposal, if adopted, would build on the success of the Residential real estate GTO program, see #67288, and replace it with nationwide reporting requirements.
Proposal Overview
Requirements on certain professionals involved in real estate closings and settlements.
Including to report information to FinCEN about non-financed transfers of residential real estate to legal entities or trusts, as such transfers are considered high-risk.
No reporting would be required where transfer of property made to individual persons.
The proposed rule describes the circumstances in which a report would be filed.
Describes who is required to file a report; and information that needs to be provided.
Including information about the beneficial owners of the legal entities and trusts.
Data from the reports would assist US Treasury and its law enforcement partners, and help in addressing vulnerabilities in the sector that exposes it to abuse by illicit actors.
Under the proposed rule, persons involved in real estate closings and settlements would continue to be exempt from the AML compliance program requirements of BSA.
Reportable Transactions
Applies to non-financed residential real estate transfers to certain legal entities, trusts.
Residential real estate means single family houses, townhouses, condominiums, and cooperatives, as well as apartment buildings designed for one to four families.
Such properties are covered even if there is also commercial element to the property, including a single-family residence that is located above a commercial enterprise.
Proposal would also include certain types of land on which a residence is not yet built.
Criteria for Property Reporting
Criteria of whether property falls within parameters of the rule is met in one of 3 ways.
First, it includes a structure designed principally for occupancy by one to four families.
It is land that is vacant or unimproved and zoned or permit has been issued for occupancy by one to four families; or it is a share in a cooperative housing corporation
Reportable real estate transfers are not limited by the dollar value of the transaction.
Based on this, gifts and other similar transfers of property may be reportable.
Exemptions apply, for e.g., financed transfers for extension of credit to transferee.
But only if the credit is secured by the transferred residential real property, and is extended by a financial institution that has obligation to maintain AML program.
There is no exemption for transfers financed by a private lender or the seller, neither of which are likely to have AML/CFT compliance programs and SAR filing obligations.
Information Required
Reportable information includes the transferee legal entity or trust, beneficial owners of transferee entity or trust, individuals signing documents on behalf of entity/trust.
Additional required information includes identifying the reporting person, the transferor, the real estate transferred, as well as certain payment information.
Reporting person may not have the information on beneficial owners of transferee entity or trust, so proposal includes guidelines for how to collect this information.
Reporting Persons
Reporting persons are those that are involved in real estate closings and settlements.
Only one reporting person would be designated for any given reportable transfer.
The reporting person would be identified in one of two ways: by way of a cascading reporting order or by way of a written agreement between the real estate professionals
The cascade first designates as a reporting person the person listed as the closing or settlement agent on closing statement, which is common to most residential transfers.
Second, person that underwrites an owner’s title insurance policy for the transferee.
Third, person that disburses greatest amount of funds related to reportable transfer.
Fourth, person that prepares evaluation of title status; Fifth, the preparer of the deed.
New Real Estate Report
Proposed rule would require certain persons involved in residential real estate closings and settlements, to file and to maintain a record of a Real Estate Report (RER).
Real Estate Report is a streamlined version of the Suspicious Activity Report (SAR).
Filing Procedure
The streamlined filing requirement, unlike the requirements for filing a traditional SAR, would entail no risk-based judgment about when to file and no narrative assessment.
Proposed RED would not require reporting persons to make discretionary decisions.
Reporting person must electronically file the report with FinCEN following instructions.
RER must be filed no later than 30 calendar days after date on which the transferee entity or transferee trust receives ownership interest in the residential real property.
Recordkeeping Requirement
Reporting person would be required maintain a copy of RER, along with a certification by the transferee’s representative as to the identities of the beneficial owner(s).
The required documentation must be maintained accessible for a period of five years.
Confidentiality Not Required
The proposed rule would exempt reporting persons from the confidentiality provisions that the BSA applies to suspicious activity reporting under 31 USC 5318(g)(2).
These confidentiality provisions typically serve to ensure that banks and other such financial institutions, do not alert SAR subjects to the fact that a SAR is being filed.
All parties to a reportable transfers would already be aware that a report will be filed.
AML Program Exemption of Sector
FinCEN originally issued an exemption in 2002 that relieved persons involved in real estate closings and settlements from obligation to maintain AML program under BSA.
The exemption under 31 USC 5318(h)(1) remains, as FinCEN believes the streamlined reporting requirement as proposed, without an AML/CFT program, is still appropriate.
Consultation
Comments will be accepted for 60 days following publication in the federal register.
Feb. 16, 2024 FinCEN Fed Reg Proposal
On Feb. 16, 2024, FinCEN issued proposal in federal register, comments Apr. 16, 2024.
In Apr. 2024, AZ AG, coalition of State AGs filed comment in support, see #208691.
Aug. 2024 FinCEN Final Rule
On Aug. 28, 2024, FinCEN published final rule, fact sheet to safeguard residential real estate from illicit finance; to combat, deter money laundering, increasing transparency.
In response to comments, adopted reasonable reliance standard with respect to information provided by others; may rely on information provided by any other person.
Only if reporting person does not have knowledge of facts calling in question reliability.
Standard slightly more limited for beneficial ownership of transferee entities/trusts.
In these situations, standard applies only to information provided by the transferee/ their representative, only if provider certifies accuracy in writing to best of knowledge.
Updated cascade system for determining which professional has primary filing duty.
Gave flexible option for industry professionals to designate compliance responsibilities.
Final rule effective Dec. 1, 2025; FinCEN will provide a separate opportunity for the public to comment on the form of the report mandated by the rule at a later date.
Aug. 2024 Fed Reg Final Rule
On Aug. 29, 2024, FinCEN published final rule on illicit real estate in federal register.
