FinCEN Looks to Expand All-cash Home Purchase Reporting Requirements
December 7, 2021
The Financial Crimes Enforcement Network (FinCEN) is seeking 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 Biden administration is looking to expand reporting requirements to address bad actors’ use of the real estate market to launder money made through illegal means. The effort for new real estate market regulation comes as part of Biden’s U.S. Strategy on Countering Corruption, which highlights the money laundering risks in the U.S. real estate market, as well as the need to protect the sector from abuse from corrupt officials and illicit actors.
“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.”
FinCEN began issuing Geographic Targeting (GTOs) orders in January 2016 requiring title insurance companies to file reports and maintain records concerning all-cash purchases of residential real estate above a certain threshold in select metropolitan areas of the United States. The GTOs have been renewed and expanded over the past five years.
Currently, title insurance companies in 12 metropolitan areas are required to file reports identifying individuals who make all-cash purchases of residential real estate through shell companies, if the transaction exceeds $300,000. The potential regulation published by FinCEN would expand reporting requirements on all-cash real estate deals. In November, FinCEN renewed the existing GTOs through April 2022.
FinCEN seeks comments on several areas including:
- Nature of recordkeeping and reporting requirements
- Scope of persons subject to a reporting requirement
- Geographic scope and transaction threshold
- Purchases by certain entities
- Type of real estate
For this rulemaking process, FinCEN is considering how best to focus its regulatory attention on residential and commercial real estate transactions. The agency noted that money laundering risks involve both types of transactions and merit appropriate regulatory treatment. FinCEN invites comments regarding the approach that it should take with respect to regulatory treatment of residential and commercial real estate and the money laundering threats presented by these sectors.
FinCEN encourages the public to submit written comments, which will be accepted for 60 days following publication in the Federal Register.
ALTA's Government Affairs Committee and Anti-money Laundering Work Group will review FinCEN's questions and draft comments for ALTA. It should be noted that this an advance notice, which is the earliest step in the process when agencies ask questions to help guide the drafting of any proposed rules. ALTA believes the earliest FinCEN could possibly issue a proposed rule would be the end of 2023.
The Biden administration recognizes that any approach FinCEN takes will burden the real estate industry.
"We’re very focused on asking a number of questions around ways that any approach that we take towards this additional regulation can be used to minimize the regulatory burdens on the real estate sector, as well, in a way that’s consistent with our efforts and desire to combat corruption and to get the information that we need for law enforcement and for national security agencies to both protect our national security and to protect the integrity of the global financial system and the U.S. financial system as well," said a senior official in the Biden administration during a briefing.
According to Global Financial Integrity, an estimated $2.3 billion has been laundered through the U.S. real estate market over the past five years. The National Association of Realtors reports that 20% of all residential home sales were non-financed transactions. The Census Bureau estimated that approximately 4.4% of new home sales are non-financed transactions. Given that existing home sales comprise approximately 90% of the residential real estate market in the United States, FinCEN estimates that the all-cash purchase rate of real estate transactions in the United States is approximately 18.5%. Based on the NAR estimates of total home sales and median sale prices, this means that approximately 1.21 million residential real estate transactions, with an approximate value of $463 billion, likely proceed without any anti-money laundering (AML) reporting obligations.
Additionally, FinCEN issued a notice of proposed rulemaking (NPRM) on reporting of beneficial ownership information (BOI). The NPRM outlines the types of companies that would have to report, who is considered a beneficial owner, defines company applicants, explains what’s required when filing a BOI report and when BOIs must be reported.
ALTA expects FinCEN to issue a notice of proposed rulemaking to recommend rules as it sets up the beneficial ownership database required under the Corporate Transparency Act (CTA). FinCEN has through 2022 to finalize rules that will govern the database and the system. After the database is developed, corporate entities will have two years to file their initial records.
ALTA has advocated that the best avenue to reduce the burden of compliance with the GTOs is to ensure that the beneficial ownership database is robust. One of the most burdensome parts of the GTO is the collection of beneficial ownership information, especially because the title companies do not have another reason to collect the information and has no source for verification. Under the Corporate Transparency Act, financial institutions with customer due diligence obligations—such as under the GTOs rules—will be able to access the FinCEN data with their customers' permission.
Under the CTA, FinCEN is required to reassess its regulations and reduce burdens once the database is running. ALTA would like to see the proposed rule require FinCEN to utilize technology to validate the identification credentials for a beneficial owner at the time those businesses submit their data. The use of this technology would ensure that submitted beneficial ownership data is reliable and connected to a specific government ID.
Contact ALTA at 202-296-3671 or email@example.com.