FinCEN Issues Final Anti-Money Laundering Rule for Real Estate

August 29, 2024

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a 120-page final rule that requires certain people involved in real estate closings and settlements to report information to the agency about all-cash residential transactions nationwide involving legal entities and trusts.

The effective date of the rule is Dec. 1, 2025. ALTA had asked for a one-year implementation period at a minimum. ALTA shares the goal of protecting the U.S. real estate market from money laundering and intends to work collaboratively with FinCEN. ALTA’s focus is to help reduce the impact on small businesses and the cost of the regulation. 

For eight years, ALTA members have engaged productively to assist FinCEN in identifying money laundering schemes through targeted data collection and reporting efforts under Geographic Targeting Orders, which have been renewed and expanded since initially issued in 2016.

The proposed rule expands on the GTOs, which require title insurance companies to file reports identifying the beneficial owners of LLCs in all-cash real-estate transactions above certain monetary thresholds in select areas in the U.S.

  • Unlike the GTOs, reporting under the proposal is not limited geographically
  • There is no dollar threshold.
  • Under the rule, the person conducting the settlement will have to file a limited purpose suspicious activity report within 30 days of settlement.
  • FinCEN indicated it will develop a specific real estate report form for electronic filing. This will hopefully address many of the issues the industry experienced with the GTO reporting.

According to the rule, the “reporting person” is the person conducting the settlement/closing or the person who prepares the settlement statement. Reporting can’t be avoided if the buyer chooses not to purchase title insurance.

What Must Be Reported?

There is more information that must be reported under the proposal than under the GTO. According to the proposed rule, the reporting person must provide:

  • their information (name, category of reporting person and address).
  • name, address and taxpayer identification number (TIN) for the transferee and transferor.
  • beneficial owner information for the transferee and anyone signing the transfer documents (names, date of birth, addresses and TINs for those individuals).
  • name, DOB, address and TIN for all transferors on title or the beneficial owners if the seller is an entity.
  • address and legal description for the property.
  • information about the payments made by or on behalf of the transferee (this includes amount of each payment, the payor, the payment method and the name of the financial institution where the payment was drawn from).
  • Information about any hard money or other lender not subject to anti-money laundering rules that was involved in the deal.

After an initial review by ALTA, it appears FinCEN incorporated several important industry recommendations to streamline the regulation and reduce some of the burden on real estate professionals. Due to ALTA’s efforts, some of key changes in the final rule include:

  • Addition of new exceptions for estate planning trusts and transfers to a qualified intermediary under a 1031 and expanded exemption for transfers related to death, divorce or court oversight.
  • Expanded reasonable reliance standard. This addressed many of ALTA’s concerns and allows title and settlement agents to rely on information provided to them to complete reports.
  • Limited trust reporting to more basic information from trust certificates. 
  • Clarified reporting when land is vacant to only be when the buyer certifies they intend to build a house.
  • FinCEN dropped a requirement to confirm zoning and approvals. Title and settlement agents can rely on certification from buyers that they meet an exception to reporting.
  • Reduced record-keeping obligation to just the certification from buyer and any designation agreement.
  • FinCEN agreed to provide FAQs as it goes through implementation.

ALTA will develop and provide several education and training opportunities to prepare the industry for the rule’s requirements.

Resources


Contact ALTA at 202-296-3671 or [email protected].