Tag: FinCEN

Treasury Collection of Beneficial Ownership Information is Ruled Unconstitutional by Federal District Court Judge

Posted on by Scott Sherwood
The U.S. District Court for the Northern District of Alabama

Beneficial ownership regulations that took effect Jan. 1 under the Corporate Transparency Act (CTA) were ruled unconstitutional on March 1 by a federal District Court judge, who sided with claims by the National Small Business Association against the U.S. Treasury Department. The Roundtable has strongly supported NSBA’s legal challenge. (NSBA v. Janet Yellen ruling and NSBA’s website on the CTA | Industry coalition support of NSBA law suit, Dec. 7, 2022)

Impact of Ruling

  • Alabama Judge Liles Burke’s ruling applies only to the NSBA and its members, although the court’s decision likely paves the way for further challenges to the CTA.
  • FinCEN issued a statement on March 4 that it will “comply with the court’s order for as long as it remains in effect” and will not enforce the CTA against the named plaintiffs in the case. What goes unsaid is that FinCEN intends to continue enforcement of the CTA against non-parties while the case works its way through the federal court system. As a result, firms should continue to comply with the CTA absent further developments. (See FinCEN’s current requirements) 
  • NSBA President and CEO Todd McCracken on March 5 stated, “FinCEN should immediately reverse course and suspend enforcement of the CTA for all until these issues are finally resolved.” Appeals of the NASB ruling could take months or years. (BGov, March 5) 

CTA’s Onerous Requirements

Treasury Department's FinCEN logo
  • The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about “beneficial owners” who own at least 25% of an entity or indirectly exercise “substantial control” over it. (Roundtable Weekly, Sept. 15, 2023)
  • The CTA authorized the Treasury’s Financial Crimes Enforcement Network (FinCEN) to collect and disclose beneficial ownership information to authorized government authorities and financial institutions. The statute also mandated the submission of regular reports by the end of 2024 that includea litany of sensitive personal identifiers of the owners, senior employees, and/or advisors of covered entities. (FinCEN’s current requirements)   
  • The law directly impacts more than 32 million existing entities and an additional 5 million newly created entities every year. These companies and other legal entities face increased paperwork, privacy risks, and potentially devastating fines and prison terms. (New York Times, March 4)
  • The CTA rules subject many real estate businesses to a heavier compliance burden at a time when the industry faces economic challenges from decreasing office usage and diminishing credit capacity. 

Roundtable Opposition

  • The Roundtable has consistently opposed the beneficial ownership rules. In Nov. 2023, The Roundtable and a broad coalition of approximately 70 business groups urged Congress to pass a one-year delay in implementing the burdensome reporting requirements. (Coalition letter and PoliticoPro, Nov. 16)
  • In Feb. 2022, The Roundtable joined nine other national real estate industry organizations in detailed comments to FinCEN about the negative impact of the proposed beneficial ownership regulations on real estate transactions.  

The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to monitor developments related to beneficial ownership requirements and legal outcomes.

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Treasury Testifies on New Rules for Investment Advisors to Combat Illicit Finance

Posted on by Scott Sherwood
Treasury Department's FinCEN logo

The director of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) appeared before the House Financial Services Committee this week to address recent regulatory proposals for investment advisors to combat illicit finance activity and money laundering in U.S. residential real estate. Director Andrea Gacki testified, “We are also considering next steps with regard to addressing the illicit finance risks associated with the U.S. commercial real estate sector.” (Committee hearing and Gacki’s statement, Feb. 14)

FinCEN’s Business Regulatory Proposals

  • The hearing on Wednesday followed a new FinCEN proposal that would require investment advisors to report suspected money laundering to the U.S. government. (Wall Street Journal, Feb. 13)
  • A fact sheet on the proposal explains that although FinCEN is not proposing an obligation for investment advisers to collect beneficial ownership information at this time, it anticipates it will do so in the future. (FinCEN Proposal and Fact Sheet, Feb. 13 | Treasury’s 2024 Investment Adviser Risk Assessment)
  • Last week, FinCEN proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals.  (Roundtable Weekly, Feb. 9 | Reuters and AP, Feb. 7)
  • Another set of regulations that took effect on Jan. 1, 2024 is expected to collect personal information from owners of at least 32 million U.S. businesses into a beneficial ownership registry managed by the government.  A beneficial owner is described as individual who owns at least 25 percent of a company or enough to exert significant control over it. (Final Rule | Fact Sheet | RER background on beneficial ownership)
  • FinCEN Director Gacki told the House Committee that more than 430,000 businesses have submitted reports to the registry so far. (PoliticoPro, Feb. 14)

Concerns About Beneficial Ownership Registry

  • In his opening statement, Committee Chairman Patrick McHenry (R-NC), above, was critical of Treasury’s ongoing proposals and its beneficial ownership regulations affecting small businesses. McHenry added, “Until FinCEN can show Congress it can do its current job and appropriately use its existing authorities, I’m skeptical of providing greater authorities and resources.” (FinCEN’s background information and FAQs on beneficial ownership reporting)
  • McHenry added, “The administration has transformed what was a simple and direct program into Frankenstein’s monster of complexity. We now have a new, overly complex and less secure access regime.”

On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of the burdensome reporting requirements. (Coalition letter | Roundtable Weekly, Oct. 20 and Sept. 30)

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Roundtable and Broad Coalition Support Legislation to Delay CTA Reporting Requirements

Posted on by Scott Sherwood

The Roundtable and a broad coalition representing millions of businesses throughout the country wrote to House Financial Services Committee Chairman Patrick McHenry (R-NC), above, this week in strong support of his legislation—the Protecting Small Business Information Act of 2023 (H.R. 4035). McHenry’s bill would delay the date when the Corporate Transparency Act’s (CTA) beneficial ownership reporting requirements go into effect, currently scheduled for Jan. 1, 2024. (Coalition letter, Sept 12 and McHenry news release, June 12)

CRE Impact

  • There is significant concern about the CTA’s far-reaching scope and its impact on many commercial residential real estate businesses that use the LLC structure for conducting business. The coalition’s letter states that Chairman McHenry’s bill “legislation offers a commonsense solution to this pending regulatory trainwreck.”
  • The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about “beneficial owners” who own at least 25% of an entity or indirectly exercise “substantial control” over it.
  • The CTA authorizes the Treasury’s Financial Crimes Enforcement Network (FinCEN) to collect and disclose beneficial ownership information to authorized government authorities and financial institutions, subject to effective safeguards and controls. The statute requires the submission of regular reports to the federal government that include a litany of sensitive personal identifiers of the owners, senior employees, and/or advisors of covered entities.

CTA Rule Burdens

FinCEN logo
  • The coalition notes that the rule will cover over 32 million existing entities and an additional 5 million newly-created entities every year. These companies and other legal entities could be subjected to increased paperwork, privacy risks, and potentially devastating fines and prison terms.
  • The CTA also applies only to businesses with under $5 million in annual revenues and fewer than 20 employees, thus ensuring that the very companies who can least afford the costs associated with compliance are the ones targeted.
  • Additionally, the coalition emphasizes that despite a looming effective date of January 1, 2023, FinCEN regulators have not finalized the “Access Rule,” which specifies who can access the database and for what purposes, nor an updated “Customer Due Diligence Rule” that applies to financial institutions. Regulators have not laid out a clear plan for engaging millions of affected businesses to convey upcoming responsibilities.
  • In April, bipartisan groups of House and Senate policymakers urged FinCEN to amend the proposed beneficial ownership reporting and access rules, contending certain provisions do not follow congressional intent. (Reuters, April 5)
  • Rep. McHenry, Sen. Sheldon Whitehouse (D-RI), and a bipartisan, bicameral group of congressional lawmakers requested that FinCEN amend the proposed beneficial ownership rule to adhere to congressional intent and ensure reporting companies cannot avoid transparency. (Congressional letter, April 3)

The Roundtable is also part of a broad coalition of business trade groups that supports a National Small Business Association legal challenge (NSBA v. Janet Yellen) on the constitutionality of the Corporate Transparency Act (CTA), which became law in Jan. 2021. (Coalition statement of support, Dec. 7, 2022 and NSBA’s website on the CTA)

Policymakers Urge Treasury to Amend Proposed Beneficial Ownership Rule

Posted on by Trey Jackson
Capitol building

Bipartisan groups of House and Senate policymakers recently sent letters urging Treasury’s Financial Crimes Enforcement Network (FinCEN) to amend proposed beneficial ownership reporting and access rules, contending certain provisions do not follow congressional intent. (BGov, April 4 and Reuters, April 5)

House “Escape Hatch” Modification

  • Rep. Patrick McHenry (R-NC), chairman of the House Financial Services Committee, Sen. Sheldon Whitehouse (D-RI), and a bipartisan, bicameral group of congressional  lawmakers sent a letter on April 3 to Treasury Secretary Janet Yellen and FinCEN Acting Director Himamauli Das about the Treasury Department’s Notice of Proposed Rulemaking (NPRM) on beneficial ownership information reporting requirements. (Roundtable Weekly, May 7, 2021)

  • The lawmakers requested that FinCEN amend the proposed rule to adhere to congressional intent and ensure reporting companies cannot avoid transparency.

  • The bipartisan letter states that the NPRM has an “escape hatch” that must be modified. Specifically, the policymakers requested that language allowing reporting parties to enter “Unable to identify…unable to obtain” or “Unknown…not able to obtain” be struck from the proposed rule.

  • “Allowing these options in any final rule will degrade the benefits of the registry to law enforcement and to financial institutions and provide an opportunity for bad actors to obscure the identity of the company applicant or beneficial owner,” according to the letter.

Senate Requests

  • A group of six bipartisan Senators also submitted a letter to FinCEN’s Das on March 15 requesting revisions to the beneficial ownership rule. The policymakers requested that the rule (1) track closer to the text of the congressional statute; (2) enhance the utility of a beneficial ownership information (BOI) directory for financial institutions; and (3) remove excessive barriers to accessing the directory by authorized recipients.

  • The Senators’ letter states, “Once the database is live, financial institutions across the country will immediately begin requesting access to BOI for the 32 million reporting companies in the country. It is essential that FinCEN establish an automated process (ideally one that integrates with existing compliance systems at financial institutions) for fielding and responding to these requests.” (Reuters, April 5)

Proposed FinCEN Rules

FINCEN website
  • The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies).

  • The Roundtable and three other national real estate organizations also submitted detailed comments to FinCEN on May 5, 2021 addressing several implementation concerns related to the beneficial ownership registry. (Roundtable Weekly, May 7, 2021)

  • The coalition document addressed several specific implementation issues, including how small companies targeted by the CTA will face compliance burdens—and the time-consuming and challenging process of gathering required information on all beneficial owners of a reporting company that may have been created years ago.

FinCEN’s BOI directory is scheduled to be operational on January 1, 2024. All guidance material will be made available on FinCEN’s beneficial ownership webpage.

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Treasury Issues Alert on Potential Russian Attempts to Evade Sanctions Through U.S. CRE Investments

Posted on by Trey Jackson

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) warned financial institutions this week about how Russian elites and their proxies may attempt to evade sanctions by exploiting vulnerabilities in the U.S. commercial real estate market. (FinCEN Alert | Bloomberg and Wall Street Journal, Jan. 25) 

Russian Exploitation 

  • Treasury has imposed wide-ranging sanctions on certain Russian elites, their proxies, and others who have provided support for Russia’s brutal war against Ukraine. (Treasury’s Sanctions List Updates)
     
  • FinCEN Acting Director Himamauli Das said, “Today we are identifying red flags and typologies in commercial real estate transactions that financial institutions can use to remain vigilant in monitoring, detecting, and reporting suspicious activity that may be indicative of sanctions evasion by sanctioned Russia elites, oligarchs and their proxies.” (Treasury news release, Jan. 25)
     
  • FinCEN’s 11-page alert warns that sanctioned Russian elites and their proxies may pose as CRE investors seeking to evade sanctions by using shell companies, trusts, and pooled investment vehicles, including offshore funds, in order to avoid customer due diligence obligations and beneficial ownership protocols established by financial institutions.
  • The alert also reminds financial institutions involved in loan syndication—including banks, life insurers, and other types of companies regulated by the Bank Secrecy Act—that Section 314(b) of the USA PATRIOT Act provides a safe harbor that offers protections from liability for financial institutions who share information with one another on suspected money laundering or terrorist activities.
     
  • Questions or comments regarding the alert should be sent to the FinCEN Regulatory Support Section at frc@fincen.gov. 

The Treasury Department issued a final rule last Sept. that will require millions of companies to report information about their “beneficial owners”—persons who own at least 25% of a company or exert significant authority over it—to FinCEN. (Roundtable Weekly, Sept. 30, 2022 | Final Treasury Rule | Fact Sheet | Wall Street Journal and Bloomberg Law, Sept. 29) 

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Treasury Issues Proposed Beneficial Ownership Regulations on Info Retention and Disclosure

Posted on by Trey Jackson
Treasury Building bright blue sky

The Treasury Department issued a set of proposed rules this month that address how government officials could access information about the “beneficial owners” of most corporations, limited liability companies, and other entities created in or registered to do business in the United States. (Fact Sheet, Dec. 15 and Federal Register, Dec. 16)

Proposed FinCEN Rules

  • The Dec. 15 Notice of Proposed Rulemaking (NPRM) issued by Treasury’s Financial Crimes Enforcement Network (FinCEN) follows a final beneficial ownership rule issued on Sept. 30. The previous rule requires millions of companies to report information about their beneficial owners—persons who own at least 25% of a company or exert significant authority over it—to FinCEN. (Final Rule | Fact Sheet | Roundtable Weekly, Sept. 30)
  • The Roundtable and three other national real estate organizations submitted detailed comments to FinCEN on May 5, 2021 addressing several implementation concerns related to the beneficial ownership registry. (Roundtable Weekly, May 7)
  • FinCEN Acting Director Himamauli Das said, “The beneficial ownership information reporting rule finalized earlier this year is a major step forward in unmasking shell companies and protecting the U.S. financial system from abuse by money launderers, drug traffickers, sanctioned oligarchs, and other criminals.”
  • “In this next step, the proposed rule would provide the highest standards of security and confidentiality while ensuring that the new beneficial ownership database is highly useful to law enforcement agencies in its efforts to combat financial crime.” Das added, “As we drive toward full implementation of the Corporate Transparency Act, we move closer to exposing criminals, corrupt actors, and anyone trying to hide ill-gotten gains in the United States.” (Treasury news release and FinCEN Fact Sheet, Dec. 15)

House Republican Opposition

Rep. Patrick McHenry
  • The Chairman-elect of the House Financial Services Committee, Patrick McHenry (R-NC), above, raised concerns about the proposed regulations, stating that protecting Americans’ financial privacy will be a top priority of Committee Republicans’ oversight and legislative initiatives next Congress. (McHenry news release, Dec. 15)
  • “Today’s Notice of Proposed Rulemaking issued by FinCEN does not prioritize Americans’ financial privacy in the way Congress intended,” McHenry said. “FinCEN must include the appropriate protections to prevent unauthorized access and use of the sensitive information collected under this new regime. Until we see a real effort to protect this confidential information, Republicans remain concerned about FinCEN’s commitment to privacy and civil liberties.”

Corporate Transparency Act

  • This month’s proposed set of rules addresses provisions of the Corporate Transparency Act (CTA), which became law in Jan. 2021, and target tax fraud, terrorism financing, and money laundering. (Tax Notes, Dec. 16)
  • The Roundtable is part of a broad coalition of business trade groups that supports a legal challenge by the National Small Business Association (NSBA v. Janet Yellen), which challenges the constitutionality of the CTA. (Coalition statement of support, Dec. 7 and NSBA’s website on the CTA)
  • The coalition stated, “It is clear whatever marginal benefit the CTA affords law enforcement will be far outweighed by the costs borne by small businesses and their owners.”
  • The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to work with industry partners to address the implications of FinCEN’s proposed rules and the impact it could have on capital formation and the commercial real estate industry. Written comments on the NPRM are due by Feb. 14, 2023.

RECPAC will meet on Jan. 24, 2023 in conjunction with The Roundtable’s State of the Industry Meeting in Washington.

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Treasury Issues Final Rule Requiring Disclosure of “Beneficial Owners”

Posted on by Trey Jackson
FinCEN logo

The Treasury Department issued a final rule yesterday that will require millions of companies to report information about their “beneficial owners”—persons who own at least 25% of a company or exert significant authority over it—to the Financial Crimes Enforcement Network (FinCEN). (Final Rule | Fact Sheet | Wall Street Journal and Bloomberg Law, Sept. 29) 

Who Reports? 

  • Treasury Secretary Janet Yellen said, “This rule … will help strengthen our national security by making it more difficult for oligarchs, terrorists, and other global threats to use complex legal structures to launder money, traffic humans and drugs, and commit other crimes that threaten harm to the American people.” (Treasury statement, Sept. 29)
  • The rule will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to disclose beneficial ownership information.
  • FinCEN notes that the definition of reporting company applies only to legal entities that have 20 or fewer employees and less than $5 million in gross receipts or sales as reflected in the previous year’s federal tax returns. These entities also must not otherwise benefit from the exemptions described in the regulations.
  • Reporting companies created or registered before Jan. 1, 2024, will have one year (until Jan. 1, 2025) to file their initial reports. Those entities created or registered after Jan. 1, 2024, will have 30 days to file their initial reports.

Data Required

FINCEN website
  • The required data about individuals who own, control or create firms will include the name, birthdate, address, and a unique identification number from driver’s licenses or passports—as well as images of the documents. (AP, Sept. 29)
  • Treasury states the database will be available only to law enforcement and government agencies under the CTA’s beneficial ownership information reporting provisions. (Treasury Department, “Beneficial Ownership Information Reporting”) 

Roundtable Concerns 

RECPAC meeting Annual 2022
  • The Real Estate Roundtable submitted comments with other industry organizations earlier this year about CTA’s anti-money laundering regulations affecting real estate transactions. (Industry comment letter and Roundtable Weekly, Feb. 25 | (Coalition letter to FINCEN, Feb. 4)
  • The Roundtable and three other national real estate organizations submitted detailed comments to FinCEN on May 5, 2021 addressing several implementation concerns related to the beneficial ownership registry. (Roundtable Weekly, May 7)
  • Separately, a broad business coalition that includes The Real Estate Roundtable submitted comments yesterday to congressional leaders in opposition to the Establishing New Authorities for Business Laundering and Enabling Risks to Security (ENABLERS) Act.
     
  • The ENABLERS Act would dramatically expand CTA reporting requirements and subject the owners, board members, and senior executives of most businesses and charities to audits. (Coalition letter, Sept. 29) 

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to work with industry partners to address the implications of FinCEN’s 330-page rule and the impact it could have on capital formation and the commercial real estate industry. RECPAC meets on Nov. 2 in New York City. 

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House and Senate to Consider Legislation Targeting Beneficial Ownership of Real Estate Assets

Posted on by Trey Jackson

House Financial Services Chair Maxine Waters (D-CA)

Legislation to strengthen anti-money laundering laws affecting real estate will be introduced soon by House Financial Services Chair Maxine Waters (D-CA), above, following a bipartisan bill targeting U.S. assets of Russian oligarchs that was introduced last week in the Senate. (Politico, April 11 and Senate news release, April 8) 

Beneficial Ownership 

  • In the Senate, the bipartisan “Kleptocrat Liability for Excessive Property Transactions and Ownership (KLEPTO) Act” was introduced by Sens. Sheldon Whitehouse (D-RI), Bill Cassidy (R-LA), Elizabeth Warren (D-MA), and Roger Wicker (R-MS). The bill (S.4075) includes:
    • Requirements for the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to mandate disclosure of beneficial ownership information (the identity of the real person behind an entity) for all real estate transactions through legal entities;

    • Requirements for FinCEN to extend anti-money laundering safeguards to the real estate sector;

    • Clarification that any foreign entity that buys or holds real estate in the U.S. should be considered a “reporting company” under the Corporate Transparency Act (CTA). 

FinCEN Efforts 

FinCEN logo

  • The congressional push to address anti-money-laundering measures in real estate follows FinCEN’s work on anti-money laundering regulations that were proposed long before Russia invaded Ukraine.
  • FinCEN solicited comments on a wide range of questions related to its implementation of the CTA – enacted on January 1, 2021 – that effectively bans the registration of anonymously owned shell companies in the United States. (JD Supra, April 26 and Lexology, April 28) 
  • Ten national real estate industry organizations, including The Roundtable, on Feb. 21 submitted detailed comments to FinCEN on proposed anti-money laundering regulations affecting real estate transactions. (Roundtable Weekly, Feb. 25)  

Industry Concerns  

  • The Feb. 21 industry letter supports the broad goal of preventing the use of LLCs or any form of real estate to finance illicit acts, money laundering, or terrorism – yet emphasizes that FinCEN should proceed cautiously to not harm legitimate real estate capital flows in the process.

  • The coalition also stated that anti-money laundering rules and requirements should focus on mitigating criminal activity while not burdening legitimate actors with unnecessary or duplicative compliance, which will only increase costs without meaningfully combating money laundering.
  1. Study the commercial and multifamily real estate markets to tailor future regulation to how those markets function;
  2. Leverage the CTA and the beneficial ownership database to reduce the necessary scope of further action; and
  3. Distinguish nonbank commercial real estate lenders from true all-cash transactions.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to work with industry partners to respond to FinCEN’s proposals. The industry will also continue to support a balanced approach that inhibits illicit money laundering activity while not restricting capital formation or increasing the regulatory burden on real estate. 

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Roundtable, Real Estate Coalition Comment on Proposed Anti-Money Laundering Regulations

Posted on by Trey Jackson

FinCEN logo

Ten national real estate industry organizations, including The Roundtable, on Feb. 21 submitted detailed comments to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) on proposed anti-money laundering regulations affecting real estate transactions.

Industry Concerns

  • The industry letter supports the broad goal of preventing the use of LLCs or any form of real estate to finance illicit acts, money laundering, or terrorism – yet emphasizes that FinCEN should proceed cautiously to not harm legitimate real estate capital flows in the process.
  • The coalition also states that anti-money laundering rules and requirements should focus on risk while not burdening legitimate actors with unnecessary or duplicative compliance, which will only increase costs without meaningfully combating money laundering.
  • The coalition letter emphasizes three main recommendations for FinCEN:

    I.)   Study the commercial and multifamily real estate markets to tailor future regulation to how those markets function;

    II.)   Leverage the Corporate Transparency Act (CTA) and the beneficial ownership database to reduce the necessary scope of further action; and

    III.)  Distinguish nonbank commercial real estate lenders from true all-cash transactions.

  • The Feb. 21 letter notes that the real estate industry supports efforts to provide the law enforcement community with the tools necessary to stop money laundering, terrorism financing, or other crimes. However, the coalition urges that any compliance regime should be structured in a manner that does not discourage CRE capital formation and investment.

FinCEN Comments

Compliance graphic

  • Earlier this month, a coalition of five real estate organizations, including The Roundtable, submitted concerns to FinCEN on a proposed federal registry with beneficial ownership information that would include rules on who must file, when, and what specific information must be provided.  (Coalition letter to FINCEN, Feb. 4)
  • The letter stated the industry supports efforts to eliminate terrorism financing and money laundering and appreciate efforts to protect the U.S. financial system from illicit actors and business entities. However, the coalition also raised concerns about the cost and compliance burden of imposing excessive, unnecessary and/or confusing beneficial ownership reporting requirements on real estate businesses.
  • The Roundtable and three other national real estate organizations also submitted detailed comments to FinCEN on May 5, 2021 addressing several implementation concerns related to the proposed registry. (Roundtable Weekly, May 7)
  • FinCEN has solicited comments on a wide range of questions related to its implementation of the CTA – enacted on January 1, 2021 – that effectively bans the registration of anonymously owned shell companies in the United States. (JD Supra, April 26 and Lexology, April 28)

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to work with industry partners to respond to FinCEN’s proposals. The industry will also continue to support a balanced approach that inhibits illicit money laundering activity while not restricting capital formation or increasing the regulatory burden on real estate.

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Biden Administration’s Proposal to Combat Money Laundering May Require New Real Estate Reporting Requirements

Posted on by Trey Jackson

FinCEN logo

The Biden Administration on Dec. 6 announced it is seeking public comment about a proposed anti-money laundering rule that may result in increased reporting requirements about certain commercial real estate transactions. (Bloomberg, Dec. 6 and GlobeSt, Dec. 7)

Impact on Real Estate 

  • The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued its Advance Notice of Proposed Rulemaking (ANPRM) this week to seek input on how to craft the new rule. “Broadly speaking, FinCEN has serious concerns with the money laundering risks associated with the commercial real estate sector,” according to the ANPRM. (FINCEN Fact Sheet: Beneficial Ownership Information Reporting, Dec. 7)
  • Two senior administration officials discussed the proposed rulemaking and its potential impact on the real estate industry during a media call on Dec. 6. One official stated, “We’re very focused on asking a number of questions around ways that any approach that we take towards this additional regulation can be used to minimize the regulatory burdens on the real estate sector.” (White House Background Press Call, Dec. 6)
  • The FINCEN initiative is part of a government-wide effort announced by the White House on Monday called the United States Strategy on Countering Corruption. (Washington Post, Dec. 7) 

FINCEN Concerns 

Anti Money-Laundering visual

  • Real estate transactions involving bank loans or other financing are less susceptible to money laundering because regulated financial institutions are required to report suspicious activity to FinCEN. When real estate is purchased with all cash, it can be nearly impossible to trace the beneficial owners behind shell companies often used in the transaction.
  • Currently, title insurance companies are required to report to FINCEN the identities of persons behind shell companies used in all-cash purchases of residential real estate costing over $300,000 that are located in one of a dozen metropolitan areas. (Bloomberg, Dec. 6)
  • Biden administration officials this week said the new rule could expand that reporting requirement beyond existing geographic areas to cover the entire U.S. – and potentially apply a new regulation to commercial real estate. (White House Background Press Call, Dec. 6). 

CRE Industry Response 

  • The Real Estate Roundtable and three other national real estate organizations on May 5, 2021 submitted detailed comments to FINCEN on several implementation concerns related to a proposed federal registry with beneficial ownership information. (Roundtable Weekly, Dec. 9)

The new ANPRM is open for comment until February 7, 2022. A response to FINCEN will be one of the topics discussed on Jan. 25 during The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) meeting in Washington, DC. 

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