T
he Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department, recently introduced new rules aimed at preventing money laundering and other criminal activities in real estate transactions. These rules apply to brokers, real estate attorneys, and others involved in non-financed transactions.

    Key Points:

    1. The new rules require suspicious activity reports (SARs) for cash transfers of residential real estate between holding companies and trusts.

    2. These transfers are considered high-risk for illicit financial activity, according to FinCEN.

    3. The rules go into effect on December 1, 2025.

    4. They do not apply to typical residential sales with mortgages, as these transactions are already subject to anti-money laundering (AML) and countering the financing of terrorism (CFT) requirements.

    5. The new rules are part of the Biden-Harris administration's expansion of the Corporate Transparency Act (CTA), which requires business owners to file beneficial ownership reports with the federal government by January 1, 2025.

    6. FinCEN uses real estate geographic targeting orders (GTOs) to identify individuals behind legal entities in all-cash transactions in states like California, Florida, New York, and Texas.

    7. However, GTOs do not cover 61% of transactions that would be covered by them.

    8. The new rules could create headaches for law enforcement due to the large number of entities that will have to file transparency reports as of January 1, 2025.

    9. Changes to beneficial ownership of real estate happen thousands of times per day, which may result in some illicit activity going unnoticed.

    10. The new rules could create business opportunities for entities like title insurance or closing companies responsible for filing suspicious activity reports.

    The new rules aim to curb money laundering in real estate transactions by requiring settlement agents, employees of title companies, licensed attorneys, and real estate brokers to file suspicious activity reports for non-financed transfers of residential real estate between holding companies and trusts. These transfers can create national security issues and have been deemed high-risk for illicit financial activity by the U.S. Treasury.

    The rules require anyone involved in these transactions to identify themselves, the legal entities involved, the beneficial owner, the transferee, and the property itself. However, they do not apply to typical residential sales with mortgages, as these transactions are already subject to AML/CFT requirements.

    The new rules are part of the Biden-Harris administration's expansion of the Corporate Transparency Act, which requires business owners to file beneficial ownership reports with the federal government by January 1, 2025. FinCEN uses real estate geographic targeting orders (GTOs) to identify individuals behind legal entities in all-cash transactions in states like California, Florida, New York, and Texas. However, GTOs do not cover 61% of transactions that would be covered by them.

    The new rules could create headaches for law enforcement due to the large number of entities that will have to file transparency reports as of January 1, 2025. Changes to beneficial ownership of real estate happen thousands of times per day, which may result in some illicit activity going unnoticed.

    On the other hand, the new rules could create business opportunities for entities like title insurance or closing companies responsible for filing suspicious activity reports. These entities may need to invest in systems and processes to comply with the new rules, but they could also benefit from the added responsibility.