Window to the Law: Updates to Anti-Money Laundering Rules

Window to the Law: Updates to Anti-Money Laundering Rules - Transcript

In this Window to the Law, we will provide two updates to efforts by the Financial Crimes Enforcement Network, or FinCEN, to combat money laundering schemes in real estate. The good news is that these efforts do not impose any legal obligations on real estate agents. However, NAR has published Voluntary Guidelines to help real estate professionals identify potential money laundering activities, take appropriate steps to mitigate money laundering risk, and, if necessary, alert the proper authorities to help deter and mitigate the use of real estate in money laundering schemes.

Since our last Window to the Law on money laundering, FinCEN has made several updates to its Geographic Targeting Order, or GTO. While the current GTO is in effect through April 24, 2023, FinCEN has consistently renewed the order, so real estate professionals should keep current on FinCEN’s requirements. The GTO requires title companies to report to FinCEN the identities of the owners of legal entities like LLCs and corporations that purchase residential real estate without external financing.

The most recent GTOs have expanded coverage to include the counties around Houston and Laredo, Texas; Fairfield County, Connecticut; most of Hawaii; Washington, DC and the nearby suburban counties of Maryland and Virginia; as well as Baltimore City and County, Maryland. Cash purchases of property in these areas must be reported when the purchase price is $300,000 or higher, except in Baltimore City and County, where purchases of $50,000 or more must be reported.

FinCEN has also issued the Beneficial Ownership Rule, as required by the Corporate Transparency Act, to help prevent and combat money laundering, terrorism financing, corruption, tax fraud and other illicit activity.

Starting January 1, 2024, all domestic and foreign business entities formed or registering to do business in the US must provide FinCEN with the identities of persons with 25% or more ownership interest in the entity, known as Beneficial Owners. Business entities include most LLCs and corporations, with some exemptions for regulated entities like banks and insurance companies.

Like the GTO, the Beneficial Ownership Rule does not impose any obligations on real estate agents, unless they are a Beneficial Owner of a reporting company. However, it is still important for real estate agents to know the Rules’ requirements in order to mitigate money laundering risk. The Rule requires each company to provide:

• its legal name, any trade name or DBA,
• business street address,
• the jurisdiction in which the company was formed or registered, and
• a taxpayer identification number.

The Rule further requires each Beneficial Owner and the individual filing the application to form the entity to provide:

• their legal name,
• date of birth,
• current street address,
• and the image of an acceptable government ID like a driver’s license or passport.

Companies formed after January 1, 2024 must register with FinCEN within 30 days. Companies formed before January 1, 2024 have until January 1, 2025 to provide the required information to FinCEN.

Check out nar.realtor for more information on Geographic Targeting Orders and the Beneficial Ownership Rule, as well as other resources to help real estate professionals recognize and combat money laundering schemes in real estate.