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))

Fresh Phish: Microsoft Authenticator

Have You Heard of Lender Fraud? Email Solution Helps Title Company Prevent Theft

Paul Hofmann WTP attends ALTA’s Large Agents Conference because he gets to hear from similar-size companies about the issues they are facing. During the January event, Hofmann learned about a service that tracks outbound email and monitors for anomalies after it’s delivered.

Intrigued by the technology, Hofmann, owner of Washington-based Aegis Land Title Group, signed up with RPost. A day after implementing the solution, Aegis Land Title Group detected two of their emails were opened in Russia.

“Seeing the emails were opened in Russia was an immediate red flag,” Hofmann said. “Then we had to start investigating and making phone calls.”

That’s when things really started to get interesting.

The title company’s emails were delivered to a U.S. server and then auto-forwarded and opened on mobile devices in Russia. This activity triggered high-risk alerts back to Aegis’ security team. A quick investigation revealed the title company was involved in a transaction with a fraudulent lender.
Aegis was working with a borrower refinancing two commercial properties. The consumer found the lender online. It turns out the lender was a fake. Despite having the appearance of a legitimate website and allegedly operating in 49 states, Aegis uncovered inconsistencies. When checking the lender’s address in South Florida, a Google Street View displayed an image of a duplex apartment. Additionally, when they called the lender’s main phone number, it was disconnected.

“I’ve been in the title for 30 years and haven’t experienced this type of fraud,” Hofmann said. “The technology is pretty simple and puts a beacon in the email. The geofencing (a virtual perimeter for a real-world geographic area) and categorizing of emails based on the country where the emails are opened and then ranked by risk made the whole package worthwhile.”

Mike Rooney, vice president of enterprise sales at RPost, said the technology pings their servers every time there’s activity with an email after it’s been delivered. The solution identifies the location, network, and several other proprietary risk indicators. RPost then uses analytical AI to make risk-based decisions for customers.

“In real time, the technology can detect these anomalies and trigger high-risk alerts to customer security teams. These alerts serve as an early warning signal and prompt proactive fraud investigations, before it’s too late,” Rooney said.

RPost’s solution also checks a nefarious network list, an evolving list of networks which has been associated with fraud in the real estate industry. Title companies that work with RPost participate in this list by providing information about suspicious networks.

“The solution was built for email eavesdropping and is now detecting different types of fraud impersonations, such as this case of lender fraud which had nothing to do with eavesdropping,” Rooney said.

Hofman said his company has already caught two other fraudulent transactions, which resulted in 30 phone calls.

“The phone calls we’ve made after getting the ‘red’ alerts have been great on the sales and marketing side because our customers really feel like we are actively looking out for them,” he said.

Hofmann added he’s seeing this type of fraud spread.

“We’re also seeing construction disbursement fraud, with criminals sending fake invoices to title companies,” he said. “Having this technology in place is key because these things are evolving fast. Title agents should also look at their passwords and auto-forward settings, and implement multi-factor authentication.”

All Cash Buyers Highest Since 2014

While mortgage interest rates have risen from their all-time lows in recent years, the share of all cash buyers reached the highest level in a decade.

As of January, the share of all cash homebuyers now stands at 32% of home sales, according to a report from the National Association of Realtors (NAR). Since October 2022, all cash home buyers who did not finance their recent home purchase have been more than one-quarter of the real estate market.

The increase in all-cash transactions comes as 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. Read more about the proposed rule here.

Data from the last six months of the NAR’s Confidence Index shows these purchasers are more likely to be vacation buyers and investors. However, primary residence buyers are actively purchasing using all cash.

“Looking at primary residence buyers, all cash purchases have increased in the last two years,” said Jessica Lautz, NAR’s deputy chief economist and vice president of research. “These housing consumers owned a home, sold it, and then they could purchase their next property without a mortgage. The freedom to make this purchase was likely due to the large amount of housing equity they have earned as home prices have increased in recent years.”

ALTA Welcomes New Members

ALTA is pleased to announce new and associate members, as well as real estate attorneys, who have recently joined ALTA. Over the past month, ALTA gained 167 new members, including 107 title agencies and 41 real estate attorneys. ALTA has 5,084 member companies so far in 2024. 

Click here for a list of the latest members.

Not a member? Click here to join today. You can check out member benefits here.

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

Fresh Phish: Microsoft OneDrive Document

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.

Multilingual Marketing Materials Available to ALTA Members

No matter what language a homebuyer speaks, information is key to a real estate transaction. To help you better communicate with all of your customers, ALTA’s most popular consumer marketing materials have been translated into multiple languages.

So far, seven flyers, rack cards and blogs have been translated, and four more are in process. Languages covered include:

• Arabic
• Chinese (Cantonese and Mandarin)
• French
• German
• Haitian (Creole)
• Hindi (Urdu)
• Japanese
• Korean
• Portuguese
• Russian
• Spanish
• Vietnamese 

Courtesy of the Homebuyer Outreach Program (HOP), the multilingual suite of marketing materials is available only to ALTA members. Like their English counterparts, the translated files can be branded with an ALTA member’s logo and downloaded to print or shared digitally.

Click here to access the content.

Survey: Title Companies Report Increase in Cyberattacks But Mitigation Efforts Help

More than 90% of title insurance companies reported the volume of cybercrime attempts increased or remained the same over the past year, according to a Cybercrime & Wire Fraud Study sponsored by the ALTA Land Title Institute.

Over half of the 470 title professionals surveyed reported an increase in cybercrime attempts from 2021 to 2022, while another 40% reported similar volume of attacks. This is up from 86% that reported an increase or comparable level of incidents from 2020 to 2021.

“Fraud attempts are increasing compared to a year ago, meaning title and settlement companies must be even more vigilant,” said Diane Tomb, ALTA’s chief executive officer. “In response to the increased attacks, more companies have mitigation efforts in place, so while there is still significant concern about the issue, companies are better equipped to protect their businesses and customers.”

Companies with higher transaction volume were targeted with more frequency. According to the survey, 73% of companies with over 250 closings monthly experienced an increase in cybercrime compared to 61% of those with 76 to 250 closings and 38% with 75 closings or less.

While fraud attempts remain elevated, mitigation efforts are helping and more companies are reporting the ability to recover diverted funds. In 2022, 26% companies reported that they were able to recover the total amount of funds incorrectly transferred due to fraud compared to only 17% in 2021. Additionally, two thirds of companies reported recovering more than half of the stolen funds.

When there are losses, a company’s insurance provider typically did not cover its losses due to cybercrime in 2022. Of the businesses that experienced losses, 54% reported their insurance policy did not cover any of the amount, 10% reported that some of the losses were paid, 5% said most losses were paid. Only 7% indicated all the total amount was covered.

Most companies reported that average consumer losses were $100,000 or less, including 14% that reported losses under $1,000, 22% with $1,000 to $25,000, and 24% with $26,000 to $100,000. Two-thirds of companies reported that customers who transferred funds to the wrong account due to fraud were assisted by financial institutions to recover the funds, followed by insurers (23%) and the FBI (22%).

“It’s important that all fraud attempts get reported to authorities, however, cybercrime in the land title industry is underreported,” Tomb said. “While nearly 60% of companies report successful wire fraud attempts to the FBI via the Internet Crime Complaint Center, only a third notify the bureau about attempted fraud.”

Efforts to Reduce Fraud

Compared to last year, there has been a significant increase in the share of companies that conduct mitigation efforts. In 2023, the survey showed that 86% of companies reported to engage in mitigation activities and services compared to 63% in 2022. Two thirds of the companies surveyed reported spending up to $25,000 annually on mitigation efforts.

The survey showed nearly all companies inform customers about the risks of cybercrime targeting real estate transactions. The most common methods include standard warnings on email (85%), oral or telephone warnings (67%), written information mailed to consumers (41%) and specific warnings on the company websites (41%). Companies also often remind customers about cybercrime risks throughout the transaction process. According to the survey, 64% of companies communicated with customers frequently using written reminders, 31% provided warnings or education at the beginning of the transaction process and 30% did so at the time of closing.

“Title insurance companies protect their business and customers by conducting a range of mitigation efforts, including customer and real estate agent training, simulated phishing testing of employees and wire/payee verification software,” Tomb said. “Additionally, companies use ALTA resources, such as the Rapid Response Plan & Outgoing Wire Prep Checklist to protect against fraud. These mitigation efforts help to ease concern of future fraud. While cybercrime remains a major issue, the share of companies concerned that it would impact business over the next 12 to 18 months declined from a year ago.”