Deputized to Help Prevent Money Laundering?

FinCEN’s Proposed Rule Requires Nationwide Reporting About All-cash Residential Deals Involving Legal Entities and Trusts

Since 2016, the Financial Crimes Enforcement Network (FinCEN) has expanded and renewed Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in non-financed purchases of residential real estate above a certain price threshold in select metropolitan areas of the United States.

What started with a few areas in New York and Florida, expanded to include several counties and major U.S. metropolitan areas in California, Colorado, Connecticut, Florida, Hawaii, Illinois, Maryland, Massachusetts, Nevada, New York, Texas, Washington, Virgina and the District of Columbia.

In February, FinCEN issued a notice of proposed rulemaking that would require 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. All-cash transactions accounted for 28% of all transactions in 2023, according to the National Association of Realtors.

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. (This was a concern under the GTOs.)

FinCEN has proposed that the rule go into effect one year after the final rule is issued.

“As the title industry has done since 2016, it stands ready to help law enforcement in investigating the use of real estate for money laundering,” said Steve Gottheim, ALTA’s general counsel. “While no one is happy to spend more money on nonrevenue producing requirements, we have been heartened to hear the value of the data provided by the industry has been to law enforcement. Obviously, this value will decrease as the rule expands to the whole country and FinCEN must make sure this rule is carefully tailored to ensure the cost is equivalent to any public benefit.”