U.S. Treasury raises anti-laundering pressure on real estate industry, renews orders

The U.S. Treasury Department’s anti-money laundering unit on Tuesday escalated its recruitment of the real estate industry, asking it to play an expanded role in preventing criminals from hiding their illicit gains.

Treasury’s Financial Crimes Enforcement Network (FinCEN) renewed and expanded orders requiring special reporting by some real estate businesses and asked that a variety of professionals start reporting any “suspicious” activity they see that indicates a deal involving dirty money. It vowed they would face no legal repercussions if they tipped-off authorities.

However, FinCEN stopped short of announcing plans to issue anti-money laundering (AML) rules for real-estate professionals, a step some experts had thought possible.

The president of the National Association of Realtors, a trade group, said in a written statement that while money laundering is a “clear and consistent” concern for the industry, “burdensome and duplicative regulations on real estate agents and brokers won’t fix the problem.”

“The funds transferred in a real estate transaction are handled through financial institutions that are already covered by anti-money laundering regulations. We believe these institutions are uniquely positioned and trained to meet FinCEN’s objectives and should continue to be the focus of the Treasury Department’s regulatory initiative,” William E. Brown, president of the NAR, said in a written statement emailed to Thomson Reuters Regulatory Intelligence on Tuesday evening.

New, temporary AML obligations demand wire-reporting by title insurers

FinCEN renewed special orders requiring that title insurance companies in seven urban areas across the country – from Manhattan, to Miami to Los Angeles – report on the true, or “beneficial” owners behind shell companies used to buy posh property via all-cash deals, those involving no mortgage.

FinCEN first issued so-called geographic targeting orders, or GTOs, drafting title insurance companies into the fight against money laundering in January 2016 and later renewed and expanded them to cover more cities.

FinCEN has on several occasions touted the law enforcement intelligence generated by the move, a contention confirmed by law enforcement sources.

In fact, authorities are excited about the potential to learn more about opaque, cash real estate deals now that a recent sanctions bill enhanced FinCEN’s GTO powers, allowing it to demand information about wire transfers that fund such deals.

FinCEN put that new authority to work quickly, including a wire-reporting mandate in the orders announced Tuesday. Advisory asks professionals to voluntarily tip-off authorities
FinCEN also issued an advisory outlining the money laundering risks associated with the real estate industry. From drug traffickers to corrupt politicians, real estate has long been a favorite asset of criminals.

“Through this advisory and other outreach to the private sector, FinCEN, industry, and law enforcement will be better positioned to protect the real estate markets from serving as a vehicle to launder illicit proceeds,” said FinCEN Acting Director Jamal El-Hindi.
FinCEN also called on real estate brokers, escrow agents, title insurers, and other professionals to voluntarily report any suspicious activity they see suggesting dirty money is being used to fund purchases.

“As with other financial institutions under the Bank Secrecy Act (BSA), a safe harbor from liability exists with respect to the filing of suspicious activity reports, including voluntary ones, by persons involved in real estate closings and settlements,” FinCEN’s advisory states.
It was the first time FinCEN made such a promise to the industry.

Experts have long pondered whether the BSA safe harbor would survive a legal challenge in an instance of voluntary reporting by real estate professionals. On Tuesday evening, a former FinCEN official predicted the promise of safety will not prompt much of a response, at least not initially, as professionals take a wait-and-see approach, looking to peers and professional associations for guidance.

“I think this would give real estate agents some comfort. That being said, I wouldn’t expect an avalanche of reports anytime soon,” the former FinCEN official told Thomson Reuters Regulatory Intelligence.

Real estate AML loophole seen by some

Although FinCEN has issued rules requiring non-bank mortgage originators to report deals involving suspicious activity, to date, agents and others have avoided that mandate.
In 2002, FinCEN began a rule-making process for such professionals, in part due to pressure from former Senator Carl Levin, a Michigan Democrat. FinCEN’s rule withered without public explanation and Levin remained critical of what he considered a loophole in the U.S. AML net.
The global anti-money laundering standard-setting Financial Action Task Force has similarly decried the U.S. failure to issue a rule covering real estate professionals, a step it has long recommended and which has been implemented in European countries.

Published 23-Aug-2017 by 
Brett Wolf, Regulatory Intelligence

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