Breaking Down the FinCEN Anti-Money Laundering Rule: When Do you Have to Report a Transaction

The U.S. Treasury Department’s Financial Crimes Enforcement Network (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. You can read a summary of the proposed rule's requirements here.

ALTA will break down various parts of the proposal to help title and settlement professionals understand the impact it will have on their operation.

Here’s a look at when a transaction must be reported to FinCEN:

All-cash Transactions Must Be Reported

• Exceptions: The proposed rule does not require residential real estate transfers to be reported if the transfer involves
  1. an extension of credit to the transferee that is secured by the transferred residential real property and is extended by a financial institution (this includes most banks, credit unions and mortgage bankers) that has both an obligation to maintain an AML program and an obligation to report suspicious transactions under this chapter
  2. a grant, transfer, or revocation of an easement
  3. a transfer resulting from the death of an owner of residential real property
  4. a transfer incident to divorce or dissolution of a marriage
  5. a transfer to a bankruptcy estate
  6. a transfer that does not involve a reporting person.

Sale of Residential Property or Unit in a Cooperative

• Real property designed for 1-4 family occupancy
• Vacant or unimproved land zoned (or permitted) for construction for 1-4 family occupancy
• Shares in a cooperative housing corporation

Transaction Must Be Reported If the Buyer Is:

• A legal entity
• A trust

Transaction Must Be Reported If the Buyer Is Not a:

• Issuer of a class of securities under SEC Act
• State, local, federal, tribal government authority, agency or instrumentality
• Bank, credit union or depository holding company
• Money services business that is registered with FinCEN
• Securities broker dealers registered with the SEC
• Securities exchange or clearing agency
• Any other entity registered under the SEC act
• Investment company as defined under Investment Company and Advisors Acts
• Insurance company (insurer) supervised by a state insurance department
• State licensed insurance producer (agent)
• A public utility that provides telecommunication, electrical power, natural gas or water or sewer service
• A futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, or commodity trading advisor registered under the commodities exchange act or entity registered with the CFTC
• Financial market utility overseen by the financial stability oversight council
• A legal entity that is a wholly owned subsidiary of the above or directly controlled by above.

FinCEN said these entities would be exempt because they already have sufficient anti-money laundering and countering the financing of terrorism compliance obligations, and are already subject to more government supervision or have disclosure requirements.

Transactions That Don’t Need Reported

• Grant, revocation, transfer or movement of an easement
• Transfer resulting from probate or death of the owner
• Transfer incident to divorce
• Transfer to a bankruptcy estate
• Transfer where there is no reporting person