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The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) recently requested that certain professionals involved in real estate closings and settlements report to FinCEN information regarding unfunded transfers of residential real estate to corporations or trusts. announced a proposed rule mandating the
The proposed rule aims to combat and deter money laundering by increasing transparency in the U.S. residential real estate sector. FinCEN defines this as “tailored to target the transfer of residential real estate considered to be at high risk of money laundering, while minimizing potential business burden.” The new rules do not require reporting of money sent to individuals.
Comments on the proposed rule are expected to be submitted within 60 days of publication in the Federal Register on February 16, 2024.
Key Reporting Requirements in the Proposed Rule
1. What transactions should I report?
The proposed rule would require “non-financial residential real estate transactions.”[s]” Must be reported if the transferee is a corporation or trust. This includes both sales transfers and non-sale transfers such as gifts and trust transfers. There is no minimum amount reporting threshold.
A “non-financing transfer” is defined as a transfer without an extension of credit by a financial institution that is required to both maintain an anti-money laundering (AML) program and report suspicious transactions. These are sometimes referred to as “all cash” transactions.
The proposed rule would not apply to transactions where the transferee is a natural person. This includes exceptions for transfers due to death, divorce, or bankruptcy.
2. Who must report?
The proposed rule would apply to “any person engaged in the business of providing real estate closing and settlement services in the United States.” These reporters will likely include the settlement agent, title insurance agent, escrow agent, and the attorney performing designated closing or settlement duties.
3. What information do I need to report?
For each transaction, real estate professionals must submit a real estate report that identifies:
- Reporter
- Corporation or trust to which residential real estate is transferred
- Beneficiaries of the transferee company or transferee trust
- Person transferring residential real estate
- The assets being transferred and certain transaction information regarding the transfer.
4. When is the report due?
The proposed rules would require real estate professionals to submit real estate reports to FinCEN no later than 30 days after the closing date of the transaction.
Important points
Reporting real estate professionals, referred to as “covered real estate operators” under this rule, are not required to develop AML programs like most financial institutions in the United States.
However, real estate professionals must establish policies and reporting procedures to ensure timely submission and compliance with applicable reporting requirements. These procedures require methods and document retention policies and procedures for identifying the beneficiaries of specific trusts and legal entities.
To receive information regarding the beneficial ownership of these companies and entities, real estate professionals must establish their own compliance systems to ensure that they are not facilitating transactions for illegal and/or prohibited persons or entities. It may be necessary to carry out screening procedures for This proposed rule would add to and replace FinCEN’s previous residential real estate geographic targeting mandate program for title companies with national reporting requirements.
Given the large number of payment and transaction providers and professionals involved in real estate transactions, the proposed regulations identify a “cascade” of reporting requirements. Complying with these multi-party reporting requirements requires real estate professionals to coordinate and identify the services and positions of other professionals and providers involved in the transaction to ensure reporting requirements are met. There may be cases.
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