The buzz is in the air with more questions than answers.
FinCEN published its Final Anti-Money Laundering Regulations for Residential Real Estate Transfers on August 28, 2024 (“Final Rule”), throwing the entire real estate industry into a state of high anxiety. What does it all mean? How do we meet its requirements? Will the expense of compliance be a financial drain — or even put us out of business? Title agents — who most often also fill the role of settlement or closing agents and would be the first elected reporter under the Final Rule — have been asking themselves these questions. While law firms and industry associations, as well as news outlets, have discussed the black letter text requirements set out in the 120-page Final Rule, no one knows exactly how this is going to play out. Of course, our biggest fear is always the great and looming unknown.
So, what can we say and do to allay those fears? First of all, the Final Rule does not become effective until December 1, 2025. This gives the industry time to become prepared and adapt to the new requirements. Secondly, ALTA has stated in its Industry News publication of August 29, 2024, that it “will develop and provide several education and training opportunities to prepare the industry for the rule’s requirements.”
Moving forward to operationalize the Final Rule, FinCEN released the unpublished version of its draft Real Estate Report on November 12, 2024 with the formal published version to follow; thereafter the collection form is open for a 60 day comment period. Additionally, FinCEN agreed to provide FAQs as it goes through implementation. If saying “help will be on the way” doesn’t quite do it for you, then think about the things that you can do now — including strategic planning — to take control, empower, educate and prepare yourself.
What kind of strategic planning are we talking about? Here are a few ideas:
Consider setting up a workflow to help you identify reportable transactions and direct the information, documents and forms to the appropriate personnel for processing the required report; including providing a secure intake portal to accept and store documents and forms containing non-public personal information
This would include identifying any order regarding a purchase of residential real property by an entity or trust/trustee for cash (without a traditional lender that has a required AML program and who must file SARS) as the term “residential real property” is defined:
1-4 family occupancy residential units (e.g. a stand-alone, such as a single-family residence or townhouse; or even a unit within a multi-unit complex, such as a condo or shares in a coop; or even a residential unit in a mixed use building; as well as entire buildings designed for occupancy by one to four families)
Vacant land upon which the purchasing entity or trust/trustee intends to build a structure that is designed principally for occupancy by 1-4 families building such a residential real property
So, if you have an internal IT team or outsource your IT needs with a particular vendor, having a conversation with them now about how they can help you accomplish the work discussed above would not be premature.
Consider the Final Report’s required information, identifying what you already have and what you need to obtain from other sources – i.e. from the bank, from the purchaser’s representative, the seller or seller’s representative, and from the signer for the purchaser.
The Final Rule requires bank account information for the bank from which the source of funds originated. A title agent does not typically get that information on the wire confirmation or receipt that it receives from its own bank when an incoming wire or certified check is received or deposited. However, you can talk to your bank manager and inquire if the bank would be willing to provide you with that additional information on the documentation that it sends to you.
While the Final Rule only requires retention of the Purchaser’s Certification of Beneficial Ownership Information (and of any Designation Agreement that you may enter into), it is still both important and smart to retain all of the data in writing that is provided to you by others. If a question regarding your compliance should ever arise, then you would have documented evidence to show what you relied upon. This would apply to even an analysis of whether or not you have a reportable transaction under the Final Rule. For example, if the transaction is a purchase of vacant land, you may want to have the buyer’s representative state its future intent for the land in writing (because if it doesn’t intend to build a structure that is designed principally for occupancy by 1-4 families, then you don’t have a reportable transaction under the Final Rule).
Consider the cost of compliance with the Final Rule and how you can make your process be the most efficient and effective in terms of the expense — and perhaps even recoup some of the expense depending upon what your state law and regulator allow.
The biggest cost driver is going to be the administrative personnel’s time for those who will be working on collecting the data and reporting it. Here are some tips that may help:
Have two well-trained staff members whose education, experience, workload and market rate are appropriate for the time and tasks required to comply with the Final Rule. In case one staff member is unavailable to do the reporting, you will have ready coverage by having a backup person. Remember that there is a due date for compliance – which is the later of either:
(i) the final day of the month following the month in which the date of closing occurred; or
(ii) 30 calendar days after the date of closing.
In other words, if November 1st is the closing date, then December 31st would be the last day for submitting a timely report to FinCEN.
If you have very few transactions that would be subject to reporting under the Final Rule, perhaps it does not make sense for you to have your own staff members trained to take on the task. In that event, you may want to investigate your options for designating another reporter as identified in the Final Rule. In this event, you would want to do your due diligence and vetting in advance of December 1, 2025. Be aware that if you see a vendor advertising to provide this service, unless it is identified as an optional designated reporter within the Final Rule, it cannot relieve you of your reporting responsibilities.
This can’t be stressed enough: collect the data from the respective parties or people before the closing date. Our experience with FinCEN’s Geographic Targeting Orders has shown that if you wait until after closing, then you will be wasting a lot of time (and money) chasing after the needed information.
If you have repeat entity or trust customers who typically purchase residential real estate for cash, educate them in advance of the effective date of the Final Rule regarding what to expect. This may help your customers to have their information ready for data collection while at the same time building their trusted relationship with you. The Final Rule does not require confidentiality as to its contents.
Since the Final Rule does not discuss recoupment of cost, there is no federal prohibition against it. Your state laws and regulators will be the ones who ultimately determine what kind of recoupment, if any, is allowed for the expense you will incur to comply with the Final Rule. Start having conversations with your state land title association early, as they are your advocates and may be able to provide you with guidance from your state regulators.
Stay abreast of developments (e.g. any amendments to the Final Rule or FinCEN FAQs) by subscribing to FinCEN News Updates (sent to you via email or text messages). Also, keep an eye out for ALTA’s publications and resources as they become available.
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) on Feb. 7 to expand its efforts on a permanent basis to combat and deter money laundering through the residential real estate sector.
According to the FinCEN announcement, the proposed rule would require professionals involved in real estate closings and settlements to report information to FinCEN about non-financed transfers of residential real estate to legal entities and trusts.
“Illicit actors are exploiting the U.S. residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices,” said FinCEN Director Andrea Gacki. “Today marks an important step toward not only curbing abuse of the U.S. residential real estate sector but safeguarding our economic and national security.”
Expansion of GTO efforts
Since 2016, FinCEN has issued multiple Geographic Targeting Orders (GTOs) requiring title insurance companies to file reports on all-cash purchases having specific dollar thresholds in designated geographic areas. These GTOs last for six months at a time. The most recent GTO was issued in October 2023 and expanded the list of affected venues.
According to FinCEN’s proposed rule, expanded reporting requirements would apply on a permanent basis across the entire country, without limit to specific geographic locations or a dollar threshold. The agency will accept comments on the new proposed rule for a 60-day period following its publication in the Federal Register, scheduled for Feb. 16. According to the American Land Title Association’s (ALTA) blog of Feb. 8, FinCEN has proposed that the final rule become effective one year after it is issued.
“We are still reviewing the proposed rule and will work to ensure that FinCEN considers the information they are collecting under the new Beneficial Ownership rule, among other things, so as not to be unnecessarily duplicative and also provide clarity regarding the obligations of all real estate parties under the rule,” said Diane Tomb, ALTA’s chief executive officer. “We also appreciate, and intend to continue, the ongoing dialogue with FinCEN to craft a tailored approach limiting the transactions that must be reported to those of the greatest concern and providing avenues to help reduce the compliance burden on title and settlement companies.”
Proposed reporting structure
The proposed rule would require reporting on transfers of single-family houses, townhouses, condominiums, and cooperatives, as well as buildings designed for occupancy by one to four families. Going a step beyond the GTOs, it would also require reporting on transfers of vacant or unimproved land that is zoned, or for which a permit has been issued, for occupancy by one to four families. Furthermore, both purchasing entities and transferee trusts are reportable unless a specific exception is applicable.
ALTA’s Feb. 8 blog summarizes reportable information under the proposed rule to include (but is not limited to) the following:
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 of the property.
information about the payments made by or on behalf of the transferee.
Information about any hard money or other lender not subject to anti-money laundering rules. That participated in the deal.
Individuals representing the transferee entity or transferee trust.
The business filing the report.
For a more detailed summary of requirements and exceptions under the proposed rule, please see the Fact Sheet published by FinCEN. At Alliant National, we are committed to keeping you updated on legislation and regulations that affect your business. Stay tuned for more, as the comment period progresses.
This spring, the Financial Crimes Enforcement Network (FinCEN) announced its plan to release over the coming months multiple final rules and proposed regulations required by the Corporate Transparency Act (CTA) and the Anti-Money Laundering Act of 2020 (AMLA), including highly anticipated rules that would codify Geographic Targeting Order (GTO) disclosure requirements.
Congress enacted CTA and AMLA to address the growing problem of criminals and foreign actors funneling illicit funds into the U.S. financial system and, of particular concern, into the U.S. real estate market. It is estimated that more than 2 million corporations and LLCs are formed in the U.S. each year, many established by criminal elements as a cover for terrorist financing, drug dealing or human trafficking. Law makers are hoping the proposed regulations under both CTA and AMLA will make it easier for federal and state law enforcement agencies to track and unmask criminal enterprises.
Among its many obligations under these new laws, FinCEN has been tasked with creating and managing a national registry of beneficial owner information (BOI). Previously, BOI reporting was restricted to larger corporations under SEC regulations, but this has provided a very limited pool of information and was largely ineffective in identifying the true extent of the money laundering activities. Under CTA, Congress is attempting to capture a broader swath of data. FinCEN is required to issue three regulations to implement this new registry.
Under the AMLA, FinCEN is also required to issue regulations addressing whistleblower incentives, real estate transaction reports and records, counter terrorism risk assessments, and more.
Here is an overview of FinCEN’s timeline.
July 2023 – Whistleblower incentives and protections
FinCEN has created an Office of the Whistleblower and currently accepts tips while they are developing formal regulations under the Anti-Money Laundering Whistleblower Improvement Act, which was signed into law on December 29, 2022.
The agency intends to issue an NPRM in July to address provisions of the Act entitling whistleblowers to an award of between 10 and 30 percent of the value of monetary sanctions above $1 million collected as a result of an enforcement action. Provisions will include the establishment of a Financial Integrity Fund to be administered by the Treasury Department.
August 2023 – Real estate transaction reports and records
In December 2021, FinCEN issued an advance notice of proposed rulemaking (ANPRM) to solicit public comment on potential requirements under the Bank Secrecy Act (BSA) and AMLA for certain persons involved in real estate transactions to collect, report, and retain information. In August, FinCEN will release a NPRM that will address the scope of the BSA requirements, for instance the type of real estate transactions affected, i.e. residential or commercial and any monetary thresholds, as well as what persons or entities involved in the real estate transaction will be responsible for the reporting requirements.
Senator Sheldon Whitehouse (D-RI) submitted a comment to FinCEN highlighting the Geographic Targeting Orders (GTOs) program established in 2016 and asked the agency to codify and strengthen the disclosure requirements beyond the pilot program. The GTOs require title insurance companies to report identifying information about the individuals who own 25% or more of the equity interest of a corporate entity used in all-cash purchases of residential real estate in the geographic regions and monetary thresholds identified in the pilot program.
Look for the August NPRM to include elements of the GTO pilot program.
September 2023 – BOI Access and Safeguards Final Rule
A final rule entitled Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities will be issued by FinCEN in September.
The proposed regulations will establish protocols to protect the security and confidentiality of the BOI that will be reported to FinCEN pursuant to Section 6403 of the CTA and will establish the framework for authorized recipients’ access to the BOI reported. The final rule will also specify when and how reporting companies can use FinCEN identifiers to report the BOI of entities.
This rule is the second of three rulemakings FinCEN is required to issue under the CTA. The first rule, the BOI Reporting Rule, was issued on September 30, 2022, and requires most corporations, limited liability companies, and other similar entities created in or registered to do business in the United States to report information about their beneficial owners to FinCEN.
November 2023 – SARs pilot program
In November, FinCEN will issue a final rule establishing a limited-duration pilot program for sharing suspicious activity reports (SARs), in accordance with Section 6212 of AMLA.
The pilot program permits a financial institution with a SAR reporting obligation to share SARs and information related to SARs with the institution’s foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks, subject to approval and conditions set by FinCEN. The rule aims to ensure that the sharing of information is limited by the requirements of federal and state law enforcement. It addresses potential concerns of the intelligence community and is subject to appropriate standards and requirements regarding data security and the confidentiality of personally identifiable information.
December 2023 – National exam and supervision priorities
In December, FinCEN is expected to issue an NPRM implementing section 6101(b) of the AMLA that establishes national exam and supervision priorities.
The proposed rule incorporates a risk assessment requirement for financial institutions and requires financial institutions to incorporate AML/CFT Priorities into risk-based programs. Once finalized, this proposed rule will affect all financial institutions subject to regulations under the BSA and have AML/CFT program obligations.
December 2023 – Customer Due Diligence Rule
The third required rulemaking in the BOI series, the Customer Due Diligence (CDD) NPRM is expected to be issued in December. Section 6403(d) of the CTA requires FinCEN to revise its CDD requirements for financial institutions to account for the changes created by the two other rulemakings in the BOI series. This rule is significant because it will address discrepancies between how the CDD Rule and the CTA define beneficial owner and questions regarding how financial institutions can or should access BOI to comply with the CDD Rule.
Final note
Each of these rules carries unknown and potentially weighty requirements for the mortgage and real estate industries in general and in some aspects specifically for the title insurance industry. At Alliant National, we are committed to keeping you informed about regulatory requirements that could affect your operations. Stay tuned for more updates as FinCEN continues to move through the rulemaking process.
