FinCEN Proposes Nationwide Expansion of Reporting Requirements for All-Cash Real Estate Transactions to Combat Money Laundering

The Financial Crimes Enforcement Network (FinCEN), a branch of the U.S. Treasury Department dedicated to combating financial crimes, has announced a significant initiative aimed at addressing the longstanding issue of money laundering in the residential real estate market. The move comes amidst growing concerns about the vulnerability of all-cash transactions to exploitation by criminal elements seeking to launder illicit funds and gain access to the U.S. financial system.

In a recently issued notice of proposed rulemaking (NPRM), FinCEN proposed expanding its regulatory oversight to require the disclosure of beneficial ownership information for all-cash residential real estate transactions nationwide. These transactions, which involve the purchase or sale of residential properties without external financing, have historically been perceived as attractive targets for money laundering due to the lack of stringent anti-money laundering (AML) regulations that apply to transactions involving borrowed funds.

The proposed expansion of regulatory requirements represents a significant escalation of FinCEN's efforts to address this vulnerability. Since 2016, FinCEN has employed geographic targeting orders (GTOs) in select cities and counties across the country, compelling professionals involved in real estate transactions to report beneficial ownership information to the agency. Initially implemented in cities like New York City and Miami, these orders have since been expanded to encompass other major metropolitan areas.

By extending these reporting requirements to cover all-cash residential real estate transactions nationwide, FinCEN aims to close existing regulatory loopholes and strengthen its ability to combat money laundering in the real estate sector. According to Andrea Gacki, Director of FinCEN, the proposed expansion of GTOs is a crucial step in protecting the integrity of the residential real estate market and safeguarding national security interests.

Under the proposed rule, reporting obligations would specifically target transactions involving legal entities and trusts, rather than individual buyers and sellers. This targeted approach seeks to enhance transparency in high-risk transactions while minimizing undue burdens on legitimate businesses and individuals engaged in real estate transactions.

The NPRM outlines a comprehensive set of reporting requirements, including the disclosure of beneficial ownership information for both buyers and sellers, details about representatives involved in the transaction, information about the reporting entity, and relevant details about the property and any associated payments. Importantly, reporting entities would not be required to maintain a full-fledged AML program, as mandated for financial institutions under existing regulations.

Stakeholders and interested parties will have the opportunity to provide feedback on the NPRM, with a 60-day comment period following its publication in the Federal Register, slated for February 16. The proposed expansion of GTOs has received widespread support from anti-fraud nonprofit organizations, including the Financial Accountability and Corporate Transparency (FACT) Coalition and Transparency International (TI) U.S.

Ian Gary, executive director of the FACT Coalition, commended the NPRM as a decisive step towards closing off avenues for criminals seeking to exploit real estate markets for illicit gain. Similarly, Gary Kalman, executive director of TI U.S., emphasized the potential of the proposed rule to address critical loopholes in the nation's AML framework and bring it in line with international standards.

The NPRM aligns with the broader objectives of President Joe Biden's administration, which has prioritized measures to combat corruption, money laundering, and illicit financial activities. Expanding GTOs was one of the recommendations outlined in the administration's strategy on countering corruption, alongside the establishment of a beneficial ownership registry at FinCEN.

In its 2024 risk assessments on money laundering, terrorist financing, and proliferation financing, the Treasury Department underscored the persistent risks associated with the lack of transparency in certain real estate transactions. The proposed NPRM represents a proactive response to these risks, signaling FinCEN's commitment to strengthening regulatory oversight and safeguarding the integrity of the financial system.

By fLEXI tEAM