FinCEN Issues Proposed Rule Requiring Real Estate Professionals to Report Transfers of U.S. Residential Real Property
The Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) has issued a proposed rule under the Bank Secrecy Act (“BSA”) requiring that real estate professionals report certain information regarding transfers of residential real property to legal entities or trusts.
Reasons for Proposed Rule
When issuing the proposed rule, FinCEN expressed concern that “[t]he United States’ stable real estate market and strong property rights protections make U.S. residential real estate attractive to illicit actors looking to launder the proceeds of crime and corruption.”[1] The use of legal entities to obfuscate ownership and non-financed transfers, which “are currently outside the purview of the due diligence requirements imposed on regulated financial institutions pursuant to the [Bank Secrecy Act]”, only furthered the perceived potential for abuse.[2]
The Proposed Rule
The proposed rule would require a “reporting person” to report certain information in connection with a “reportable transfer.”[3]
A “reportable transfer” generally would include a transfer to a “transferee entity” or “transferee trust” of an ownership interest in:
- Residential real property in the United States;
- Vacant or unimproved land in the United States zoned for residential use; or
- “Shares in a cooperative housing corporation where such transfer does not involve an extension of credit to all transferees that is . . . [s]ecured by the transferred real property; and . . . [e]xtended by a financial institution that has both an obligation to maintain an anti-money laundering program and an obligation to report suspicious transactions under [BSA regulations].”[4]
A “transferee entity” would mean any person other than a transferee trust or an individual but would not include certain entities regulated under other law.[5] A “transferee trust” would be defined as “any legal arrangement created when a person . . . places assets under the control of a trustee for the benefit of one or more persons . . . or for a specified purpose, as well as any legal arrangement similar in structure or function to the above, whether formed under the laws of the United States or a foreign jurisdiction.”[6]
The “reporting person” for a particular reportable transfer generally would be determined based on a “cascading” categorization of persons who are in the business of providing real estate closing and settlement services.[7] Specifically, the “reportable person” would be:
- The closing or settlement agent for the transfer;
- If no one above is involved in the transfer, the person that prepares the closing or settlement statement for the transfer;
- If no one above is involved in the transfer, the person that files the deed or other instrument that transfers ownership in connection with the transfer;
- If no one above is involved in the transfer, the person that underwrites an owner’s title insurance policy for the transferee in connection with the transfer;
- If no one above is involved in the transfer, then the person that disburses in any form, including from an escrow account, trust account, or lawyers’ trust account, the greatest amount of funds in connection with the transfer;
- If no one above is involved in the transfer, then the person that provides an evaluation of the status of the title; or
- If no one above is involved in the transfer, then the person that prepares the deed or other legal instrument that transfers ownership.[8]
Alternatively, potential reporting persons involved in a transfer also would be able to designate the reporting person through a designation agreement.[9]
The type of information that a reporting person would have to provide FinCEN would include identifying information regarding:
- The transferee entity or trust;
- The beneficial owners of the transferee entity or trust;
- Each person signing on behalf of the transferee entity or trust;
- The trustees of the transferee trust;
- The trust officer of the transferee trust;
- The transferor;
- The property being transferred; and
- The amount and method of payment.[10]
This information would have to be reported to FinCEN within 30 days of closing.[11]
Final Thoughts
This is just a proposed rule and may be changed or scrapped altogether depending on comments that FinCEN receives. We’ll keep you posted on further developments.
[1] 89 Fed. Reg. 12425 (Feb. 16, 2024).
[2] Id. at 12425.
[3] Id. at 12466.
[4] Id.
[5] Id. at 12469.
[6] Id.
[7] Id. at 12466.
[8] Id. at 12466-67.
[9] Id. at 12467.
[10] Id. at 12467-69.
[11] Id. at 12469.
