FinCEN Issues ANPRM to Address Money Laundering Vulnerabilities in the Real Estate Sector

On December 8, 2021, the Financial Crimes Enforcement Network (FinCEN) published a notice as an initial step in addressing potential money laundering vulnerabilities associated with non-financed transactions in the US real estate market.¹ The ANPRM announces that FinCEN is considering proposing a rule that would impose nationwide recordkeeping and reporting obligations on certain persons and entities participating in all-cash real estate transactions, potentially with no dollar threshold triggering the reporting obligations. With this ANPRM, FinCEN seeks input on how best to focus its regulatory attention on the money laundering risk in this area while also minimizing burdens on business.

FinCEN’s Current Approach

FinCEN’s current regulations implementing the BSA require banks, non-bank residential mortgage lenders and originators (RMLOs), and housing-related Government Sponsored Enterprises (GSEs) to file suspicious activity reports (SARs) and establish anti-money laundering/countering the financing of terrorism (AML/CFT) programs.² However, FinCEN has not imposed similar general recordkeeping and reporting requirements on businesses involved in non-financed real estate transactions. Instead, since 2016, and most recently renewed in October 2021, FinCEN sought to address money laundering vulnerabilities in all-cash real estate transactions by imposing time-limited transaction reporting requirements on title insurance companies through Geographic Targeting Orders (GTOs).³

Why is FinCEN Focusing on the Real Estate Market?

The ANPRM is part of the Biden Administration’s effort to fight corruption and root out vulnerabilities in our financial sector. According to the recently released US Strategy on Countering Corruption, real estate transactions involving loans or other financing by regulated financial institutions, which are subject to federal AML rules, are less susceptible to money laundering because those institutions are required to report suspicious activity to FinCEN. When real estate is purchased in an all-cash transaction, however, 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, all-cash real estate transactions can be an attractive avenue for criminals to launder illegal proceeds while masking their identities. According to an August 2021 study cited by FinCEN, an estimated $2.3 billion had been laundered through the US real estate market over the previous five years, and the use of anonymous shell companies and complex corporate structures were the main money laundering typology involving real estate. With this ANPRM, FinCEN is taking an initial step toward addressing this lack of transparency that facilitates money laundering in the US real estate market.

Request for Comments

The ANPRM seeks public comment regarding the potential nationwide recordkeeping and reporting rule related to persons and entities participating in non-financed real estate transactions. The ANPRM seeks comment on over 80 specific questions, but invites all relevant comments. In addition to seeking general information about the US real estate market, the questions generally fall into the following categories:

• What are the money laundering risks in real estate transactions and what kinds of transactions and customers are highest and lowest risk?
• Which real estate transactions should FinCEN’s rule cover, including whether the rule should be limited to non-financed transactions and whether there should be reporting threshold for transactions?
• Which persons should be required to report information concerning real estate transactions to FinCEN, including which financial institutions and nonfinancial trades and businesses are in a position to ascertain and report?
• What information should FinCEN require regarding real estate transactions covered by a proposed regulation?
• What are the potential burdens or implementation costs of a potential FinCEN regulation?
• Should FinCEN promulgate general AML/CFT recordkeeping and reporting requirements for “persons involved in real estate closings and settlements” and, if so, how should that term be defined?

Comments on the ANPRM are due no later than February 7, 2022. Financial institutions and participants in the real estate market interested in this proposed reform and the impact it may have on their business may contact any of the authors of this Advisory or their usual Arnold & Porter contact. The firm's Financial Services team would be pleased to assist with any questions about the reform or BSA/AML compliance and enforcement more broadly.

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© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.