Treasury Issues Proposed Real Estate Anti-Money Laundering Rule

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.

There is a 60-day comment period. The rule was published in the Federal Register on Feb 16, which means comments will be due by April 16. FinCEN has proposed the rule go into effect one year after the final rule is issued.

For over seven years, ALTA members have engaged productively to assist FinCEN in identifying money laundering schemes through targeted data collection and reporting efforts under Geographic Targeting Orders, which have been renewed and expanded since initially issued in 2016.

“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."

ALTA appreciates that FinCEN has publicly acknowledged the important contributions made, and cooperation by, title insurance companies and the ALTA in its efforts to protect real estate markets from abuse by illicit actors.

The proposed rule expands on the GTOs, which require title insurance companies to file reports identifying the beneficial owners of LLCs in all-cash real-estate transactions above certain monetary thresholds in select areas in the U.S.

• Unlike the GTOs, reporting under the proposal is not limited geographically
• There is no dollar threshold.
• Under the rule, the person conducting the settlement will have to file a limited purpose suspicious activity report within 30 days of settlement.
• FinCEN indicated it will develop a specific real estate report form for electronic filing. This will hopefully address many of the issues the industry experienced with the GTO reporting.

According to the rule, the “reporting person” is the person conducting the settlement/closing or the person who prepares the settlement statement. Reporting can’t be avoided if the buyer chooses not to purchase title insurance. (This was a concern under the GTOs.)

What Must Be Reported?

There is more information that must be reported under the proposal than under the GTO. According to the proposed rule, the reporting person must provide:

• their information (name, category of reporting person and address).
• 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 for the property.
• information about the payments made by or on behalf of the transferee (this includes amount of each payment, the payor, the payment method and the name of the financial institution where the payment was drawn from).
• Information about any hard money or other lender not subject to anti-money laundering rules that was involved in the deal.

A provision in the rule allows the reporting person to rely on information about beneficial ownership provided by the transferee if the transferee certifies the accuracy of the information. This will require the reporting person to obtain a beneficial ownership affidavit in every transaction involving a legal entity unless FinCEN provides the industry access to BOI data.

Training Costs

In the notice of proposed rulemaking, FinCEN estimated the rule will require approximately 800,000-850,000 filings annually. All-cash transactions accounted for 28% of all transactions in 2023, according to the National Association of Realtors.

FinCEN estimates it will cost approximately between $267.3 million and $476.2 million the first year and between approximately $245.0 million and $453.9 million annually in subsequent years.

FinCEN estimates it will take 75 minutes for initial training on the rule with an additional 30 minutes for annual refresher training. Based on this, it’s projected initial year training costs will be about $44.3 million dollars and range from $20.2 to $27.3 million in following years.

Reporting Costs

Based on the range of expected reportable transactions and the wages associated with different persons in the potential reporting cascade, FinCEN anticipates that the proposed rule’s reporting costs may be between approximately $158.2 million and $314.2 million. Depending on the type of company, the cost to file a report could range from $193 to $244.

Based on feedback from companies that must comply with the GTOs, FinCEN estimates it will take on average:

• 30 minutes per transaction to decide if it’s a reportable deal.
• 45 minutes per transaction to collect information.
• Two hours to complete the report.
• 30 minutes to review and file.

Notably, FinCEN’s analysis assumes there will be no expected technology costs because companies will be able to rely on existing technology.

ALTA Advocacy

In 2022, ALTA submitted a letter recommending FinCEN develop tailored and specific transaction reporting requirements for the all-cash real estate transactions involving corporate entities, instead of imposing a traditional anti-money laundering regime like those imposed on banks. ALTA also said FinCEN should finalize regulations for the development of a beneficial ownership database required under the Corporate Transparency Act (CTA) before taking further actions that would add additional burdens to the title insurance industry.