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Breaking Down the FinCEN Anti-Money Laundering Rule: Who is in Charge of Reporting?

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 analyzes 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 who must report the information to FinCEN:

In general, the settlement agent—whether an attorney, escrow agent or title agent—will have responsibility for reporting a transaction under the rule. However, what happens if there is no traditional settlement agent? In that case, FinCEN’s rule provides a waterfall (FinCEN refers to this as a waterfall and a cascade) of who can and should report information from a transaction.

The Reporting Waterfall

According to the rule, a real estate professional would be a reporting person required to file a report and keep records for a given transfer if the person performs a function described in the waterfall and no other person performs a function described higher in the waterfall.

For example, if no person is involved in the transfer as described in the first tier of potential reporting

persons, the reporting obligation would fall to the person involved in the transfer as described in

the second tier of potential reporting persons, if any, and so on. For any reportable transfer, a potential reporting person would need to determine whether there is another potential reporting person involved in the transfer who sits higher in the cascade.

  • First choice: The person who is listed as the settlement agent on a settlement statement
  • Second choice: The person that prepares the settlement statement
  • Third choice: The person that files the deed for recordation
  • Fourth choice: The person that issues the owner's title insurance policy
  • Fifth choice: The person that dispenses the greatest amount of funds
  • Sixth choice: The person that did a title examination
  • Final choice: The person that prepares the deed

FinCEN also notes that companies or individuals within the waterfall can collectively agree to designate others in the waterfall to be the reporting person. How these agreements will work and whether other parties will be willing to take on this role is a major unknown.

Relevant part of the rule: (section c (1)) and (section c (3))


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