FinCEN Warns of Potential Illegal Real Estate Purchases by Sanctioned Russia Elites
January 31, 2023
The Financial Crimes Enforcement Network (FinCEN) issued an alert last week regarding potential investments in the U.S. commercial real estate (CRE) sector by sanctioned Russian elites, oligarchs, their family members and the entities through which they act.
The alert provides guidance on identifying potential red flags and general scenarios related to this activity in the commercial real estate market.
FinCEN requests financial institutions reference the alert in SAR field 2 (Filing Institution Note to FinCEN) and the narrative by including the following key term: “FIN-2023-RUSSIACRE."
ALTA continues to monitor actions from FinCEN and is preparing for the agency’s intentions of a proposed rule to address money laundering threats in the U.S. real estate market later this spring.
Common typologies FinCEN has identified that may be used in money-laundering activity in CRE:
- The use of pooled investment vehicles
- Shell companies and trusts
- Involvement of third parties
- Inconspicuous investments that provide stable returns
- The use of a private investment vehicle that is based offshore to purchase CRE and that includes politically exposed persons (PEPs) or other foreign nationals (particularly family members or close associates of sanctioned Russian elites and their proxies) as investors.
- When asked questions about the ultimate beneficial owners or controllers of a legal entity or arrangement, customers decline to provide information.
- Multiple limited liability companies, corporations, partnerships or trusts are involved in a transaction with ties to sanctioned Russian elites and their proxies, and the entities have slight name variations.
- The use of legal entities or arrangements, such as trusts, to purchase CRE that involves friends, associates, family members, or others with a close connection to sanctioned Russian elites and their proxies.
- Ownership of CRE through legal entities in multiple jurisdictions (often involving a trust based outside the United States) without a clear business purpose.
- Transfers of assets from a PEP or Russian elite to a family member, business associate, or associated trust in close temporal proximity to a legal event such as an arrest or an OFAC designation.
- Implementation of legal instruments (e.g., deeds of exclusion) that are intended to transfer an interest in CRE from a PEP or Russian elite to a family member, business associate, or associated trust following a legal event such as an arrest or an OFAC designation of that person.
- Private investment funds or other companies that submit revised ownership disclosures to financial institutions showing sanctioned individuals or PEPs that previously owned more than 50% of a fund changing their ownership to less than 50%.
- There is limited discernable business value in the CRE investment or the investment is outside of the client’s normal business operations.
Contact ALTA at 202-296-3671 or firstname.lastname@example.org.