alerts & publications
Meet Your New Neighbor: FinCEN Is Moving In3月 21, 2023
Federal regulations targeting real estate transactions are on the way, and if real estate industry leaders would like to help shape them, they are going to need to weigh in … and soon. The proposed anti-money laundering (AML) rules are the product of greater scrutiny of the real estate industry by government agencies, including law enforcement, Congress, and international authorities. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN)—which receives financial transaction data to combat money laundering, terrorist financing, and other financial crimes—plans to issue the proposed rules this spring. FinCEN administers the US AML regime under the Bank Secrecy Act (BSA), which, among other things, requires financial institutions to maintain AML programs, keep detailed records, and file reports with FinCEN. The proposed regulation would sweep the real estate industry, to one degree or another, into the BSA.
Draft rules—a Notice of Proposed Rulemaking (NPRM)—are expected as early as next month. With a likely 60-day comment period, interested parties should prepare now to express any concerns they might have about potential unintended, burdensome, or disproportionate impacts of the proposed rule. FinCEN has already telegraphed the wide range of potential AML requirements that it is considering. Its Advance Notice of Proposed Rulemaking (ANPRM), published in December 2021, sought comments on, among other things, the people and types of transactions that should be covered, what should be required to be reported, and the monetary threshold that would trigger reporting obligations. The ANPRM acknowledges that real estate transactions are exceedingly varied and that what information is relevant to law enforcement in one may not be relevant in another.
With the NPRM pending, the ANPRM indicates that many options remain on the table. Here are some of the more onerous proposals:
- Requiring that covered real estate professionals file Suspicious Activity Reports and develop an internal AML compliance program similar to those maintained by banks and other financial institutions (including, for example, designating an AML compliance officer, establishing a training program for appropriate employees, and independently testing the program to ensure compliance);
- Imposing reporting requirements—possibly without a monetary threshold—on a wide range of real estate professionals, including title or escrow companies, real estate agents and brokers, real estate attorneys and law firms, settlement and closing agents, real estate development and investment companies, property management companies, auction houses, investment advisers, lenders, and money-service businesses connected with covered real estate transactions;
- Applying the new requirements to both residential and commercial real estate, and to purchases by trusts and natural persons.
Many professionals in the real estate industry may be unfamiliar with the far-reaching implications and stringent requirements of being subject to the BSA. The NPRM is a deep plunge by FinCEN into real estate, so comments from the industry are critical to ensure that any final rule accounts for the nuances and complexities of real estate transactions.
This is not FinCEN’s first foray into real estate. For years, FinCEN has continued to renew and expand Geographic Targeting Orders requiring US title insurance companies in major metropolitan areas to identify the natural persons behind non-financed purchases of residential real estate. Earlier this year, FinCEN issued an alert on potential investments in US commercial real estate by sanctioned Russian elites and oligarchs, their family members, and related entities. And Treasury’s 2022 National Strategy for Combating Terrorist and Other Illicit Finance specifically calls for a rulemaking to bring greater transparency to real estate transactions.
The forthcoming NPRM is also consistent with FinCEN’s ongoing efforts to combat money laundering and to reach industries and entities that previously have not been subject to its scrutiny. For example, under the Corporate Transparency Act passed by Congress in 2021, FinCEN recently finalized new regulations requiring the mandatory reporting of beneficial ownership information by domestic and foreign companies (see our prior alerts on this rule here and here as well as our quick reference guide). They will go into effect on January 1, 2024. As many of you are probably aware, these new beneficial ownership rules are raising new sensitivities and forcing many companies to assess their compliance obligations. Congress also recently supersized the BSA’s existing whistleblower program—which would likely also cover the new rules under consideration—and created a US$300 million Financial Integrity Fund that will allow Treasury to reward whistleblowers who come forward with information about potential violations of the BSA or US economic sanctions laws (see our prior alert analyzing the new AML whistleblower program). This expansion includes a new 10% award floor intended to incentivize reporting, putting the program on a par with other well-established government whistleblower programs.
The proposed real estate rules warrant close attention from the industry before they are finalized, and our team is here to help. O’Melveny has extensive experience preparing comments to the rulemaking process, and our professionals advise regularly on FinCEN regulations, BSA/AML compliance, mitigating whistleblower risk, and the new beneficial ownership reporting regime. Please reach out to any of the contacts included here, or any member of our Financial Services, Real Estate, or Regulatory & Government Affairs groups.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. AnnaLou Tirol, an O'Melveny partner licensed to practice law in California, Jonathan Yang, an O'Melveny associate licensed to practice law in California, and Juan Antonio Solis, an O'Melveny associate licensed to practice law in Texas, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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