Know Your Role in Preventing Money Laundering in Real Estate

Industry vulnerabilities to these types of scams are under intensifying scrutiny. Federal agencies are passing new measures to combat the risks.

The Financial Crimes Enforcement Network (FinCEN) is taking extra steps to prevent the growing number of money laundering schemes involving real estate. The latest updates to antilaundering rules do not involve extra legal requirements for real estate professionals, but you can play a role in helping to mitigate risks, says Matt Troiani, senior counsel and director of legal affairs at the National Association of REALTORS®, in the latest “Window to the Law” video. “It is still important for real estate agents to know the rules in order to mitigate money laundering risk,” he adds.

NAR recently published voluntary guidelines that real estate pros can follow to help curb money laundering.

Money laundering vulnerabilities in the real estate industry have come under growing scrutiny. Many of these cases involve property purchased by people who try to conceal their identity or the source of their funds. In an anti-laundering crackdown, FinCEN has created new reporting rules for title companies aimed at lifting the veil of secrecy surrounding certain real estate transactions.

FinCEN’s Geographic Targeting Order, which expires at the end of April but is expected to be renewed, requires title companies to report the identities of owners of legal entities like LLCs and corporations that purchase residential real estate—even without external financing. Cash purchases for properties worth $300,000 or higher must be reported, though in some areas of the country, the threshold is lower.

FinCEN also recently issued the “Beneficial Ownership Rule,” which takes effect Jan. 1, 2024. Under this rule, all domestic and foreign entities formed or registered to do business in the U.S. will be required to provide FinCEN with the identities of any purchasers with 25% or more ownership interest in the property, Troiani explains. Business entities include most LLCs and corporations, although some exceptions are made for regulated entities, like banks and insurance companies.

“FinCEN’s collection of beneficial ownership information is a solution to stopping the formation of anonymous shell companies for illicit gains by enhancing transparency,” NAR President Kenny Parcell said in a February letter to the agency.

You should be well-versed in these updates and know the requirements of each rule, even though there aren’t extra reporting obligations on your end, Troiani says. For example, the beneficial ownership rule requires the collection of data like the owners’ legal or trade names, the business street address, the jurisdiction in which the company was formed or registered, and a taxpayer identification number.

Source: REALTOR® Magazine