Window to the Law: AML Advisory for Real Estate

Window to the Law: AML Advisory for Real Estate

Dec 5, 2017
4:52
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FinCEN's recent advisory urges real estate professionals to voluntarily help combat, and report, money laundering concerns in the real estate market. Learn how to spot red flags, and learn more about recent FinCEN's recent efforts to fight money laundering.

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Window to the Law: AML Advisory for Real Estate: Transcript

The U.S. Department of Treasury's Financial Crime Enforcement Network, or “FinCEN”, has issued an Advisory to Financial Institutions and Real Estate Professionals regarding the use of real estate transactions to illegally launder money. This Advisory, in addition to the Geographic Targeting Orders that FinCEN has imposed over the past couple years, demonstrates the government's continued focus on the real estate market's vulnerability as a money laundering vehicle.

This makes now an opportune time to review the role real estate professionals can serve to voluntarily help combat money laundering in real estate.

First, real estate transactions are an attractive means for laundering money because they involve high-value assets that can shield ill-gotten gains from market instability and exchange rate fluctuations.

The good news is that approximately 75% of real estate transactions are financed. In these financed transactions, money laundering risk is mitigated by virtue of the extensive anti-money laundering laws that financial institutions must comply with.

Helpful for financed real estate transactions, but what about “all-cash” transactions?

Legal entities are sometimes used to buy and sell real estate. Companies are not currently required to reveal the identities of the company's beneficial owners, which is why they are sometimes referred to as “shell companies”. The use of shell companies in all-cash real estate purchases is an attractive tactic for criminals seeking to conceal their identities, and launder large sums of money -- ALL while escaping scrutiny of the traditional anti-money laundering protections in place in financed real estate transactions.

The use of shell companies by criminals to make all-cash real estate purchases served as the impetus for FinCEN's Geographic Targeting Orders that require certain U.S. title insurance companies to report beneficial ownership information on legal entities used to purchase certain high-end residential real estate. The GTOs now cover properties in the New York City and Miami metropolitan areas as well as Bexar County, Texas, Honolulu, Hawaii, and five counties in California, including Los Angeles, San Francisco, and San Diego. FinCEN also recently expanded the GTOs to cover a broader range of transactions by including transactions that involve a wire transfer.

So what does this mean for the real estate professional? Under current U.S. law, real estate professionals do not have any affirmative anti-money laundering obligations, and to be clear, the GTOs did not impose any new obligations on real estate professionals.

However, FinCEN recognizes that real estate professionals are well-positioned to spot money-laundering red flags, and may have access to information critical to enforcement efforts.

In its August 2017 Advisory FinCEN encourages real estate professionals to be familiar with money laundering red flags and to voluntarily report any suspicious activity.

These red flags include:

  • transactions that lack economic sense or have no apparent lawful business purpose;
  • buyers seeking to purchase a property without regard for its condition, location, assessed value or sales price;
  • transactions that appear to be far beyond a purchaser's wealth;
  • funding that comes from an unknown source, or funding that is from or goes to an unrelated individual or company;
  • purchasers attempting to purchase property under the name of an unrelated individual or company;
  • OR purchasers asking for records to be altered.

In all cases, real estate professionals should be sure to assess the facts and circumstances of each individual transaction, and where one or more red flags exists, consider voluntarily filing a “Suspicious Activity Report” through FinCEN's BSA E-Filing System.

FinCEN's Advisory even indicates that real estate professionals are covered by the Bank Secrecy Act's safe harbor protection from liability related to the filing of a suspicious activity report.

NAR strongly supports efforts to combat the use of real estate in money laundering schemes, and encourages all members to be knowledgeable about money laundering threats.

To guide members, NAR adopted the “Anti-Money Laundering Guidelines for Real Estate Professionals”, which were created by NAR in collaboration with the U.S. Treasury Department.

These guidelines, as well as additional resources on how to real estate professionals can help protect the real estate market from money laundering activity are available on nar.realtor.

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