Rule2024-19198
Anti-Money Laundering Regulations for Residential Real Estate Transfers
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 29, 2024
Effective
December 1, 2025
Issuing agencies
Treasury DepartmentFinancial Crimes Enforcement Network
Abstract
FinCEN is issuing a final rule to require certain persons involved in real estate closings and settlements to submit reports and keep records on certain non-financed transfers of residential real property to specified legal entities and trusts on a nationwide basis. Transfers made directly to an individual are not covered by this rule. This rule describes the circumstances in which a report must be filed, who must file a report, what information must be provided, and when a report is due. These reports are expected to assist the U.S. Department of the Treasury, law enforcement, and national security agencies in addressing illicit finance vulnerabilities in the U.S. residential real estate sector, and to curtail the ability of illicit actors to anonymously launder illicit proceeds through transfers of residential real property, which threatens U.S. economic and national security.
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[Federal Register Volume 89, Number 168 (Thursday, August 29, 2024)]
[Rules and Regulations]
[Pages 70258-70294]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-19198]
[[Page 70257]]
Vol. 89
Thursday,
No. 168
August 29, 2024
Part II
Department of the Treasury
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Financial Crimes Enforcement Network
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31 CFR Chapter X
Anti-Money Laundering Regulations for Residential Real Estate
Transfers; Final Rule
Federal Register / Vol. 89, No. 168 / Thursday, August 29, 2024 /
Rules and Regulations
[[Page 70258]]
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DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Chapter X
RIN 1506-AB54
Anti-Money Laundering Regulations for Residential Real Estate
Transfers
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Final rule.
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SUMMARY: FinCEN is issuing a final rule to require certain persons
involved in real estate closings and settlements to submit reports and
keep records on certain non-financed transfers of residential real
property to specified legal entities and trusts on a nationwide basis.
Transfers made directly to an individual are not covered by this rule.
This rule describes the circumstances in which a report must be filed,
who must file a report, what information must be provided, and when a
report is due. These reports are expected to assist the U.S. Department
of the Treasury, law enforcement, and national security agencies in
addressing illicit finance vulnerabilities in the U.S. residential real
estate sector, and to curtail the ability of illicit actors to
anonymously launder illicit proceeds through transfers of residential
real property, which threatens U.S. economic and national security.
DATES: Effective December 1, 2025.
ADDRESSES: The FinCEN Regulatory Support Section at 1-800-767-2825 or
electronically at <a href="/cdn-cgi/l/email-protection#0c6a7e6f4c6a65626f6962226b637a"><span class="__cf_email__" data-cfemail="2c4a5e4f6c4a45424f4942024b435a">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
Among the persons required by the Bank Secrecy Act (BSA) to
maintain anti-money laundering and countering the financing of
terrorism (AML/CFT) \1\ programs are ``persons involved in real estate
closings and settlements.'' \2\ For many years, FinCEN has exempted
such persons from comprehensive regulation under the BSA. However,
information received in response to FinCEN's geographic targeting
orders relating to non-financed transfers of residential real estate
(Residential Real Estate GTOs) has demonstrated the need for increased
transparency and further regulation of this sector. Furthermore, the
U.S. Department of the Treasury (Treasury) has long recognized the
illicit finance risks posed by criminals and corrupt officials who
abuse opaque legal entities and trusts to launder ill-gotten gains
through transfers of residential real estate. This illicit use of the
residential real estate market threatens U.S. economic and national
security and can disadvantage individuals and small businesses that
seek to compete fairly in the U.S. economy.
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\1\ Section 6101 of the AML Act, codified at 31 U.S.C. 5318(h),
amended the BSA's requirement that financial institutions implement
AML programs to also combat terrorist financing. This rule refers to
``AML/CFT program'' in reference to the current obligation contained
in the BSA.
\2\ 31 U.S.C. 5312(a)(2)(U).
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Earlier this year, pursuant to the BSA's authority to impose AML
regulations on persons involved in real estate closings and
settlements, FinCEN proposed a new reporting requirement. Under the
proposed rule, certain persons involved in real estate closings and
settlements would be required to report on certain transfers that
Treasury deems high risk for illicit financial activity--namely, non-
financed transfers of residential real property to legal entities and
trusts.
FinCEN is now issuing a final rule that adopts the proposed rule
with some modifications. The final rule imposes a streamlined
suspicious activity report (SAR) filing requirement under which
reporting persons, as defined, are required to file a ``Real Estate
Report'' on certain non-financed transfers of residential real property
to legal entities and trusts. Transfers to individuals, as well as
certain transfers commonly used in estate planning, do not have to be
reported. The reporting person for any transfer is one of a small
number of persons who play specified roles in the real estate closing
and settlement, with the specific individual determined through a
cascading approach, unless superseded by an agreement among persons in
the reporting cascade. The reporting person is required to identify
herself, the legal entity or trust to which the residential real
property is transferred, the beneficial owner(s) of that transferee
entity or transferee trust, the person(s) transferring the residential
real property, and the property being transferred, along with certain
transactional information about the transfer.
The final rule adopts a reasonable reliance standard, allowing
reporting persons to rely on information obtained from other persons,
absent knowledge of facts that would reasonably call into question the
reliability of that information. For purposes of reporting beneficial
ownership information in particular, a reporting person may reasonably
rely on information obtained from a transferee or the transferee's
representative if the accuracy of the information is certified in
writing to the best of the information provider's own knowledge.
FinCEN has sought to minimize burdens on reporting persons to the
extent practicable without diminishing the utility of the Real Estate
Report to law enforcement and believes the final rule appropriately
balances the collection of information that is highly useful to
Treasury, law enforcement, and national security agencies against the
burdens associated with collecting that information, particularly on
small businesses.
II. Background
A. Addressing High-Risk Transfers of Residential Real Estate
1. Authority To Require Reports From Persons Involved in Real Estate
Closings and Settlements
The BSA is intended to combat money laundering, the financing of
terrorism, and other illicit financial activity.\3\ The purposes of the
BSA include requiring financial institutions to keep records and file
reports that ``are highly useful in criminal, tax, or regulatory
investigations or proceedings'' or in the conduct of ``intelligence or
counterintelligence activities, including analysis, to protect against
international terrorism.'' \4\ The Secretary of the Treasury
(Secretary) has delegated the authority to implement, administer, and
enforce compliance with the BSA and its implementing regulations to the
Director of FinCEN.\5\
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\3\ See 31 U.S.C. 5311. Section 6003(1) of the Anti-Money
Laundering Act of 2020 defines the BSA as section 21 of the Federal
Deposit Insurance Act (12 U.S.C. 1829b), Chapter 2 of Title I of
Public Law 91-508 (12 U.S.C. 1951 et seq.), and 31 U.S.C. chapter
53, subchapter II. AML Act, Public Law 116-283, Division F, section
6003(1) (Jan. 1, 2021). Under this definition, the BSA is codified
at 12 U.S.C. 1829b and 1951-1960, and 31 U.S.C. 5311-5314 and 5316-
5336, including notes thereto. Its implementing regulations are
found at 31 CFR Chapter X.
\4\ 31 U.S.C. 5311(1).
\5\ Treasury Order 180-01, Paragraph 3(a) (Jan. 14, 2020),
available at <a href="https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01">https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01</a>.
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The BSA requires ``financial institutions'' to establish an AML/CFT
program, which must include, at a minimum, ``(A) the development of
internal policies, procedures, and controls; (B) the designation of a
compliance officer; (C) an ongoing employee training program; and (D)
an independent audit function to test programs.'' \6\ The BSA also
authorizes the Secretary to require financial institutions to report
any suspicious transaction relevant to a possible violation of law or
regulation.\7\ Among the financial institutions subject to these
[[Page 70259]]
requirements are ``persons involved in real estate closings and
settlements.'' \8\
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\6\ 31 U.S.C. 5318(h)(1)(A)-(D).
\7\ 31 U.S.C. 5318(g).
\8\ 31 U.S.C. 5312(a)(2)(U).
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In particular, section 5318(g) of the BSA authorizes the Secretary
to require financial institutions to report, via SARs, any ``suspicious
transactions relevant to a possible violation of law or regulation.''
\9\ However, the BSA affords the Secretary flexibility in implementing
that requirement, and indeed directs the Secretary to consider ``the
means by or form in which the Secretary shall receive such reporting,''
including the relevant ``burdens imposed by such means or form of
reporting,'' ``the efficiency of the means or form,'' and the
``benefits derived by the means or form of reporting.'' \10\ A
provision added to the BSA by section 6202 of the Anti-Money Laundering
Act of 2020 (AML Act) further directs FinCEN to ``establish streamlined
. . . processes to, as appropriate, permit the filing of noncomplex
categories of reports of suspicious activity.'' In assessing whether
streamlined filing is appropriate, FinCEN must determine, among other
things, that such reports would ``reduce burdens imposed on persons
required to report[,]'' while at the same time ``not diminish[ing] the
usefulness of the reporting to Federal law enforcement agencies,
national security officials, and the intelligence community in
combating financial crime, including the financing of terrorism[.]''
\11\
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\9\ 31 U.S.C. 5318(g)(1)(A).
\10\ 31 U.S.C. 5318(g)(5)(B)(i)-(iii).
\11\ See AML Act, section 6202 (codified at 31 U.S.C.
5318(g)(D)(i)(1)). Section 6102(c) of the AML Act also amended 31
U.S.C. 5318(a)(2) to give the Secretary the authority to ``require a
class of domestic financial institutions or nonfinancial trades or
businesses to maintain appropriate procedures, including the
collection and reporting of certain information as the Secretary of
the Treasury may prescribe by regulation, to . . . guard against
money laundering, the financing of terrorism, or other forms of
illicit finance.'' FinCEN believes this authority also provides an
additional basis for the reporting requirement adopted in this final
rule.
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2. Reporting High-Risk Transfers of Residential Real Estate
Most transfers of residential real estate are associated with a
mortgage loan or other financing provided by financial institutions
subject to AML/CFT program requirements. As non-financed transfers do
not involve such financial institutions, such transfers can be and have
been exploited by illicit actors of all varieties, including those that
pose domestic threats, such as persons engaged in fraud or organized
crime, and foreign threats, such as international drug cartels, human
traffickers, and corrupt political or business figures. Non-financed
transfers to legal entities and trusts heighten the risk that such
transfers will be used for illicit purposes. Numerous public law
enforcement actions illustrate this point.\12\ As such, FinCEN believes
that the reporting of non-financed transfers to legal entities and
trusts will benefit national security by facilitating law enforcement
investigations into, and strategic analysis of, the use of residential
real estate transfers having these particular characteristics to
facilitate money laundering.\13\
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\12\ As the Financial Action Task Force (FATF) noted in July
2022, ``[d]isparities with rules surrounding legal structures across
countries means property can often be acquired abroad by shell
companies or trusts based in secrecy jurisdictions, exacerbating the
risk of money laundering.'' International bodies, such as the FATF
have found that ``[s]uccessful AML/CFT supervision of the real
estate sector must contend with the obfuscation of true ownership
provided by legal entities or arrangements[.]'' FATF, ``Guidance for
a Risk Based Approach: Real Estate Sector'' (July 2022), p. 17,
available at <a href="https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/RBA-Real-Estate-Sector.pdf.coredownload.pdf">https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/RBA-Real-Estate-Sector.pdf.coredownload.pdf</a>; see, e.g.,
U.S. v. Delgado, 653 F.3d 729 (8th Cir. 2011) (drug trafficking,
money laundering); U.S. v. Fernandez, 559 F.3d 303 (5th Cir. 2009)
(drug trafficking, money laundering); Complaint for Forfeiture, U.S.
v. All the Lot or Parcel of Land Located at 19 Duck Pond Lane
Southampton, New York 11968, Case No. 1:23-cv-01545 (S.D.N.Y. Feb.
24, 2023) (sanctions evasion); Indictment and Forfeiture, U.S. v.
Maikel Jose Moreno Perez, Case No. 1:23-cr-20035-RNS (S.D. Fla. Jan.
26, 2023) (bribery, money laundering, conspiracy); Motion for
Preliminary Order of Forfeiture and Preliminary Order of Forfeiture,
U.S. v. Colon, Case No. 1:17-cr-47-SB (D. Del. Nov. 18, 2022) (drug
trafficking, money laundering); U.S. v. Andrii Derkach, 1:2022-cr-
00432 (E.D.N.Y. Sept. 26, 2022) (sanctions evasion, money
laundering, bank fraud); Doc. No. 10 at p. 1, U.S. vs. Ralph
Steinmann and Luis Fernando Vuiz, 1:2022-cr-20306 (S.D. Fla. July
12, 2022) (bribery, money laundering); U.S. v. Jimenez, Case No.
1:18-cr-00879, 2022 U.S. Dist. LEXIS 77685, 2022 WL 1261738
(S.D.N.Y. Apr. 28, 2022) (false claim fraud, wire fraud, money
laundering, identity theft); Complaint for Forfeiture, U.S. v. Real
Property Located in Potomac, Maryland, Commonly Known as 9908
Bentcross Drive, Potomac, MD 20854, 8:2020-cv-02071 (D. Md. July 15,
2020) (public corruption, money laundering); Final Order of
Forfeiture, U.S. v. Raul Torres, Case No. 1:19-cr-390 (N.D. Ohio
Mar. 30, 2020) (operating an animal fighting venture, operating an
unlicensed money services business, money laundering); U.S. v.
Bradley, Case No. 3:15-cr-00037-2, 2019 U.S. Dist. LEXIS 141157,
2019 WL 3934684 (M.D. Tenn. Aug. 20, 2019) (drug trafficking, money
laundering); Indictment, U.S. v. Patrick Ifediba, et al., Case No.
2:18-cr-00103-RDP-JEO, Doc. 1 (N.D. Ala. Mar. 29, 2018) (health care
fraud); Redacted Indictment, U.S. v. Paul Manafort, Case 1:18-cr-
00083-TSE (E.D. Va. Feb. 26, 2018) (money laundering, acting as an
unregistered foreign agent); U.S. v. Miller, 295 F. Supp. 3d 690
(E.D. Va. 2018) (wire fraud); U.S. v. Coffman, 859 F. Supp. 2d 871
(E.D. Ky. 2012) (mail, wire, and securities fraud); U.S. v. 10.10
Acres Located on Squires Rd., 386 F. Supp. 2d 613 (M.D.N.C. 2005)
(drug trafficking); Atty. Griev. Comm'n of Md. v. Blair, 188 A.3d
1009 (Md. Ct. App. 2018) (money laundering drug trafficking
proceeds); State v. Harris, 861 A.2d 165 (NJ Super. Ct. App. Div.
2004) (money laundering, theft); U.S. Department of Justice, Press
Release, ``Associate of Sanctioned Oligarch Indicted for Sanctions
Evasion and Money Laundering: Fugitive Vladimir Vorontchenko Aided
in Concealing Luxury Real Estate Owned by Viktor Vekselberg'' (Feb.
7, 2023), available at <a href="https://www.justice.gov/usao-sdny/pr/associate-sanctioned-oligarch-indicted-sanctions-evasion-and-money-laundering">https://www.justice.gov/usao-sdny/pr/associate-sanctioned-oligarch-indicted-sanctions-evasion-and-money-laundering</a>; U.S. Department of Justice, Press Release, United States
Reaches Settlement to Recover More Than $700 Million in Assets
Allegedly Traceable to Corruption Involving Malaysian Sovereign
Wealth Fund (Oct. 30, 2019), available at <a href="https://www.justice.gov/opa/pr/united-states-reaches-settlement-recover-more-700-million-assets-allegedly-traceable">https://www.justice.gov/opa/pr/united-states-reaches-settlement-recover-more-700-million-assets-allegedly-traceable</a>; U.S. Department of Justice, Press
Release, ``Acting Manhattan U.S. Attorney Announces $5.9 Million
Settlement of Civil Money Laundering And Forfeiture Claims Against
Real Estate Corporations Alleged to Have Laundered Proceeds of
Russian Tax Fraud'' (May 12, 2017), available at <a href="https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-59-million-settlement-civil-money-laundering-and">https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-59-million-settlement-civil-money-laundering-and</a>.
\13\ As explained in the notice of proposed rulemaking (NPRM)
issued on February 16, 2024, while other investigative methods and
databases may be available to law enforcement seeking information
concerning persons involved in non-financed transfers of residential
real property, the information obtained through such investigative
methods or the databases themselves are often incomplete,
unreliable, and diffuse, resulting in misalignment between those
methods or sources and the potential risks posed by the transfers.
For example, the non-uniformity of the title transfer processes
across states and the fact that the recording of title information
is largely done at the local level complicates and hinders
investigative efforts. To presently verify how many non-financed
purchases of residential real property a known illicit actor has
made, law enforcement may have to issue subpoenas and travel to
multiple jurisdictions--assuming that they are known--to obtain the
relevant information. Law enforcement is also likely to experience
difficulty in finding beneficial ownership information for legal
entities or trusts not registered in the United States which have
engaged in non-financed transfers of residential real estate.
Furthermore, existing commercial databases do not collect much of
the information that is the focus of this rule, such as that
involving funds transfers. In these respects, a search of Real
Estate Reports would be a far more efficient and complete mechanism.
See FinCEN, NPRM, ``Anti-Money Laundering Regulations for
Residential Real Estate Transfers,'' 89 FR 12424, 12430 (Feb. 16,
2024).
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Indeed, since 2016, FinCEN has used a targeted reporting
requirement--the Residential Real Estate GTOs--to collect information
on a subset of transfers of residential real estate that FinCEN
considers to present a high risk for money laundering.\14\
Specifically, the Residential Real Estate GTOs have required certain
title insurance companies to file reports and maintain records
concerning non-financed
[[Page 70260]]
purchases of residential real estate above a specific price threshold
by certain legal entities in select metropolitan areas of the United
States. In combination with the numerous public law enforcement actions
illustrating the heightened risks posed by non-financed transfers to
legal entities and trusts, information obtained from the Residential
Real Estate GTOs, as well as other studies conducted by Treasury and
FinCEN, FinCEN has confirmed the need for a more permanent regulatory
solution that would require consistent reporting of information about
certain high-risk real estate transfers.
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\14\ See 31 U.S.C. 5326; 31 CFR 1010.370; Treasury Order 180-01
(Jan. 14, 2020), available at <a href="https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01">https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01</a>. In
general, a GTO is an order administered by FinCEN which, for a
finite period of time, imposes additional recordkeeping or reporting
requirements on domestic financial institutions or other businesses
in a given geographic area, based on a finding that the additional
requirements are necessary to carry out the purposes of, or to
prevent evasion of, the BSA. The statutory maximum duration of a GTO
is 180 days, though it may be renewed.
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a. Benefits of Reporting
The Residential Real Estate GTOs have been effective in identifying
the risks of non-financed purchases of residential real estate by
providing relevant information about such transfers to law enforcement
within specified geographic areas. Indeed, FinCEN regularly receives
feedback from law enforcement partners that they use the information to
generate new investigative leads, identify new and related subjects in
ongoing cases, and support prosecution and asset forfeiture efforts.
Law enforcement has also made requests to FinCEN to expand the
Residential Real Estate GTOs to new geographic areas, which FinCEN has
done multiple times, adding both additional metropolitan areas and
methods of payment. This has provided law enforcement with additional
insight into the risks in both the luxury and non-luxury residential
real estate markets.
The Residential Real Estate GTOs have also proven the benefit of
having reports identifying high risk residential real estate transfers
housed in the same database as other BSA reports, such as traditional
SARs and currency transaction reports (CTRs). For example, housing
reports filed under the Residential Real Estate GTOs in the same
database as other BSA reports enables FinCEN to cross-reference
identifying information across reports, and having done so, FinCEN has
been able to determine that a substantial proportion of purchases
reported under the Residential Real Estate GTOs have been conducted by
persons also engaged in other activity that financial institutions have
characterized as suspicious. Specifically, FinCEN has found that from
2017 to early 2024, approximately 42 percent of non-financed real
estate transfers captured by the Residential Real Estate GTOs were
conducted by individuals or legal entities on which a SAR has been
filed. In other words, individuals engaging in a type of transaction
known to be used to further illicit financial activity--the non-
financed purchase of residential real estate through a legal entity--
are also engaging in other identified forms of suspicious activities.
The ability to connect these activities across reports allows law
enforcement to efficiently identify potential illicit actors for
investigation and build out current investigations.
b. Necessity of a Permanent Nationwide Reporting Requirement
The Residential Real Estate GTOs, while effective within the
covered geographic areas, do not address the illicit finance risks
posed by certain real estate transfers on a nationwide basis--a
significant shortcoming. For instance, a study of money laundering
through real estate in several countries by Global Financial Integrity,
a non-profit that studies illicit financial flows, money laundering,
and corruption, found that, of Federal money laundering cases involving
real estate between 2016 and 2021, nearly 61 percent involved at least
one transfer in a county not covered by the Residential Real Estate
GTOs. FinCEN believes that money laundering through real estate is
indeed a nationwide problem that jurisdictionally limited reporting
requirements are insufficient to address.\15\ Furthermore, the
Residential Real Estate GTOs were also intended to be a temporary
information collection measure. Thus, FinCEN believes that a more
comprehensive and permanent regulatory approach is needed.
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\15\ Global Financial Integrity, ``Acres of Money Laundering:
Why U.S. Real Estate is a Kleptocrat's Dream'' (Aug. 2021), p. 26,
available at <a href="https://gfintegrity.org/report/acres-of-money-laundering-why-u-s-real-estate-is-a-kleptocrats-dream/">https://gfintegrity.org/report/acres-of-money-laundering-why-u-s-real-estate-is-a-kleptocrats-dream/</a>. According to
its website, Global Financial Integrity is ``a Washington, DC-based
think tank focused on illicit financial flows, corruption, illicit
trade and money laundering.'' See Global Financial Integrity,
``About,'' available at <a href="https://gfintegrity.org/about/">https://gfintegrity.org/about/</a>.
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B. The Notice of Proposed Rulemaking
On February 16, 2024, FinCEN published a notice of proposed
rulemaking (NPRM) proposing a reporting requirement to address the
risks related to non-financed transfers of residential real estate to
either a legal entity or trust on a nationwide basis.\16\ The proposal
targeted the transfers that posed a high risk for illicit finance and
was built on lessons learned from the Residential Real Estate GTOs and
from public comments received in response to an Advance Notice of
Proposed Rulemaking.\17\ Importantly, the NPRM was narrowly focused and
did not propose a reporting requirement for most transfers of
residential real estate--for example, it excluded purchases that
involve a mortgage or other financing from a covered financial
institution, as well as any transfer, including all-cash transfers, to
an individual.
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\16\ See supra note 13.
\17\ See FinCEN, Advance Notice of Proposed Rulemaking, ``Anti-
Money Laundering Regulations for Real Estate Transactions,'' 86 FR
69589 (Dec. 8, 2021).
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In the NPRM, FinCEN proposed that certain persons involved in
residential real estate closings and settlements file a version of a
SAR--referred to as a ``Real Estate Report''--focused exclusively on
certain transfers of residential real property. The persons subject to
this reporting requirement were deemed reporting persons for purposes
of the proposed rule. Under the proposed rule, a reporting person would
be determined through a ``cascading'' approach based on the function
performed by the person in the real estate closing and settlement. The
proposed cascade was designed to minimize burdens on persons involved
in real estate closings and settlements, while leaving no reporting
gaps and creating no incentives for evasion.\18\ To provide some
flexibility in this reporting cascade, FinCEN's proposal included the
option to designate (by agreement) a reporting person from among those
in the cascade.
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\18\ Through the proposed reporting cascade hierarchy, a real
estate professional would be a reporting person required to file a
report and keep records for a given transfer if the person performs
a function described in the cascade and no other person performs a
function described higher in the cascade. For example, if no person
is involved in the transfer as described in the first tier of
potential reporting persons, the reporting obligation would fall to
the person involved in the transfer as described in the second tier
of potential reporting persons, if any, and so on. The reporting
cascade includes only persons engaged as a business in the provision
of real estate closing and settlement services within the United
States.
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As proposed, information to be reported in the Real Estate Report
would identify the reporting person, the legal entity or trust
(including any legal arrangement similar in structure or function to a
trust) to which the residential real property was transferred, the
beneficial owners of that transferee entity or transferee trust, the
person that transferred the residential real property, and the property
being transferred, along with certain transactional information about
the transfer. Regarding beneficial ownership information that a
reporting person would be required to report, the rule proposed that a
reporting person could collect such information directly from a
[[Page 70261]]
transferee or a representative of the transferee, so long as the person
certified that the information was correct to the best of their
knowledge. On the timing of the reports, the proposed rule stated that
the reporting person was required to file the Real Estate Report no
later than 30 days after the date of closing.
C. Comments Received
In response to the NPRM, FinCEN received 621 comments, 164 of which
were unique. Submissions came from a broad array of individuals,
businesses, and organizations, including trade associations,
transparency groups, law enforcement representatives, and other
interested groups and individuals.
General support for the rule was expressed by law enforcement
officials, transparency groups, certain industry associations, and
individuals. For instance, attorneys general of 25 states and
territories jointly submitted a comment stating that the proposed
regulations would permit Federal, State, and local law enforcement to
access information about suspicious real estate transfers more
efficiently because that information would all be available from a
single source, and that the information would aid them in identifying
suspicious residential real estate transfers on a nationwide basis that
might otherwise remain undetected. These attorneys general and one
industry association applauded FinCEN's choice to use a transaction-
specific reporting mechanism rather than imposing an AML/CFT program
requirement on persons involved in real estate closings and
settlements. One non-profit commenter expressed support for FinCEN's
recognition of the wide-ranging impacts that money laundering through
real estate can have on tenants, homebuyers, and the affordability and
stability of regional housing markets and believed the rule will
improve housing access. Two industry associations expressed strong
support for the proposed rule, with one commenter expressing the view
that it reflected a pragmatic approach. One industry association and an
individual commenter stated that a permanent and nationwide rule would
provide greater predictability and certainty to industry than
Residential Real Estate GTOs.
Other commenters expressed opposition to the proposed rule. Some
expressed concern about FinCEN's legal authority to impose a reporting
requirement in the manner set forth in the proposed rule. Other
commenters argued that the proposed reporting requirement would be
ineffective, burdensome, or would require reporting of information that
is reported to the government through other avenues. The majority of
private sector commenters--primarily small businesses, individuals
employed in the real estate industry, and certain trade associations--
asserted that the proposed reporting requirements are too broad and
complex and would be burdensome to implement. They further assert that
this would result in increased costs for businesses and, ultimately,
consumers, potentially delaying closings and causing consumers to
decline to seek their services. Many of these commenters expressed
concerns that the proposed regulations, if finalized without
significant change, would impose numerous and costly reporting and
recordkeeping requirements on small businesses. Some commenters
suggested the proposed rule would put large businesses at a competitive
disadvantage while others suggested the same about small businesses.
These commenters also suggested that the proposed regulation would
create privacy and security concerns with respect to personally
identifiable information. A number of these commenters suggested that
FinCEN either not issue a final regulation or adopt a narrower
approach, requiring reporting of less information on fewer transfers.
Several commenters suggested that attorneys that fulfill any of the
functional roles set out in the reporting cascade should not be
required to report, primarily due to concerns about attorney-client
privilege and confidentiality requirements.
Furthermore, many commenters suggested a range of modifications to
the proposed regulations to: enhance clarity; reduce the potential
burdens to industry; include or exclude certain professions from
reporting requirements; refine the impact to certain segments of the
industry; and enhance the usefulness of the resulting reports. Several
commenters also asked hypothetical questions that sought clarification
on the application of the proposed rule to certain situations.
FinCEN carefully reviewed and considered each comment submitted,
and a more detailed discussion of comments appears in Section III.
FinCEN believes that the regulatory requirements set out in this final
rule reflect the appropriate balance between ensuring that reports
filed under the rule have a high degree of usefulness to law
enforcement and minimizing the compliance burden incurred by
businesses, including small businesses. As detailed in Section III,
FinCEN has made several amendments to the proposed rule that are
responsive to commenters and that may also reduce certain anticipated
burdens.
III. Discussion of Final Rule
A. Overview
FinCEN is issuing a final rule that generally adopts the framework
set out in the proposed rule but makes certain modifications and
clarifications that are responsive to comments. The final rule imposes
a reporting requirement on ``reporting persons'' that are involved in
certain kinds of transfers of residential real property. In response to
comments, the rule adopts a reasonable reliance standard, allowing
reporting persons to, in general, reasonably rely on information
obtained from other persons. FinCEN has also made other amendments in
the final rule that are intended to clarify and simplify the reporting
requirements, such as clarifying the definition of residential real
property. Additionally, the rule excludes several additional transfers
from needing to be reported, including one designed to exempt certain
transfers commonly executed for estate and tax planning purposes.
FinCEN also limited the requirement to retain certain records. We
discuss these and other specific issues, comments, modifications, and
clarifications in this section, beginning with issues that cut across
the entire rule and continuing with a section-by-section analysis of
changes and clarifications to the regulatory text, including sections
for which FinCEN received no feedback from commenters.
FinCEN notes that it will consider issuing frequently asked
questions (FAQs) and other guidance, as appropriate, to further clarify
the application of the rule to specific circumstances. FinCEN also
intends to continue to engage with stakeholders, for example through
public outreach events, to assist with ensuring that the rule's
requirements are understood by affected members of the public,
including small businesses.
B. Comments Addressing the Rule Broadly
FinCEN received several comments that cut across various provisions
of the rule or were otherwise broadly applicable. The subjects
addressed by these comments include: FinCEN's authority to issue the
rule; alternatives to the reporting and recordkeeping requirements;
attorneys as reporting persons; the extent to which a reporting person
can rely on information received from other persons; penalties for
noncompliance; and the collection of unique identifying numbers. FinCEN
[[Page 70262]]
has carefully considered these comments and addresses them below.
1. Authority
Proposed Rule. The NPRM set out the legal authority that authorized
the agency's issuance of the rule. Specifically, the NPRM cited the BSA
provisions set forth at 31 U.S.C. 5312(a)(2), which defines a financial
institution to include ``persons involved in real estate closings and
settlements,'' and at 31 U.S.C. 5318(g), authorizing FinCEN to impose a
requirement on financial institutions to report suspicious activity
reports, and to establish streamlined processes regarding the filing of
such reports.
Comments Received. Several commenters questioned the legal
authority underpinning the rule and the BSA reporting regime more
generally, with one commenter stating that ``the Constitutionality of
this regime is not an entirely closed question.'' These commenters
argued that the rule potentially infringes on certain constitutional
rights and that it is inconsistent with certain statutes and Executive
Orders (EOs), citing primarily to Gramm-Leach-Bliley Act (GLBA) and
E.O. 12866. With regard to GLBA, one commenter stated that ``[t]he
[r]ule proposed by FinCEN directly clashes with the legal guideposts
and requirements of the GLBA.''
Final Rule. FinCEN is issuing this final rule pursuant to its BSA
authority to require ``financial institutions'' to report ``suspicious
transactions'' under 31 U.S.C. 5318(g)(1); the rule falls squarely
within the scope of this authority. As discussed in the NPRM and in
Section II.A.1 of this final rule, ``persons involved in real estate
closings and settlements'' are a type of ``financial institution''
under the BSA.\19\ As such, FinCEN has clear statutory authority to
require ``persons involved in real estate closings and settlements'' to
file reports on suspicious activity,\20\ and courts have long affirmed
the constitutionality of, such reporting requirements.\21\ Furthermore,
a more recent amendment to the BSA at 31 U.S.C. 5318(g)(5)(D) provides
FinCEN with additional flexibility to tailor the form of the SAR
reporting requirement. Consistent with that authority, FinCEN is
instituting a streamlined SAR filing requirement to require specified
``persons involved in real estate closings and settlements'' to report
certain real estate transactions that FinCEN views as high-risk for
illicit finance.
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\19\ 31 U.S.C. 5312(a)(2)(U); see FinCEN, NPRM, ``Anti-Money
Laundering Regulations for Residential Real Estate Transfers,'' 89
FR 12424, 12427 (Feb. 16, 2024).
\20\ See 31 U.S.C. 5318(g).
\21\ See California Bankers Ass'n v. Shultz, 416 U.S. 21 (1974);
U.S. v. Miller, 425 U.S. 435 (1976).
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With regard to the comment concerning the relationship between the
final rule and GLBA, FinCEN notes that information in reports filed
under the BSA, which will include any information in a Real Estate
Report, is exempt from the requirements of GLBA.\22\ Finally, FinCEN
notes that significant comments relating to applicable E.O. are
addressed in the regulatory impact analysis in this final rule.
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\22\ 15 U.S.C. 6802(e)(5).
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2. Suggested Alternatives to Proposed Rule
Proposed Rule. The NPRM proposed that certain persons involved in
the closing and settlement of real estate report and keep records about
certain non-financed transfers of residential real estate to certain
legal entities and trusts.
Comments Received. Commenters suggested several alternatives to the
proposed reporting and recordkeeping requirement. One commenter
suggested expanding the Internal Revenue Service (IRS) Form 1099-S to
include the collection of buyer-side information in addition to the
seller-side information already collected. Some commenters suggested
that, rather than requiring reporting by real estate professionals,
FinCEN should require reporting from county clerk offices when they
accept a deed for a reportable transfer or directly from transferees
before a reportable transfer. Finally, other commenters urged FinCEN to
fund alternative databases or purchase access to electronic records at
each county clerk's office and monitor filed deeds.
Final Rule. The final rule retains the fundamental framework of the
proposed rule. FinCEN believes that the alternatives suggested by
commenters are either technically or legally unworkable and would
likely not result in the reporting of information that is equally
useful to law enforcement. First, the IRS Form 1099-S is filed
annually, making it significantly less useful to law enforcement and,
as discussed in the NPRM,\23\ is not readily available for FinCEN or
broader law enforcement uses due to confidentiality protections around
federal taxpayer information. Second, FinCEN believes that county
clerks' offices and individuals do not typically play a role in the
kinds of transfers that would require reporting. Therefore, these
individuals would not likely be in a position to interact with both the
transferor(s) and the transferee(s), and thus, may not have ready
access to reportable information. Regarding the suggested alternative
of collecting reportable information directly from transferees instead
of through reporting persons, FinCEN believes that buyers and sellers
would be less willing to share personal information with each other
than with a real estate professional fulfilling a function described in
this rule's reporting cascade. Third, simply monitoring deeds at the
county clerk level would likely not produce the information, including
beneficial ownership and payment information, that FinCEN believes is
important to law enforcement in combating illicit actors' abuse of
opaque legal structures in the residential real estate market. Further,
funding alternative databases would similarly not result in this
information being made available to law enforcement, as private service
providers would be unable to gather the same variety of highly relevant
information, and any information they did provide would not be
consolidated in a database with other BSA reports. The consolidation of
Real Estate Reports with other BSA reports--including, but not limited
to, traditional SARs, CTRs, Reports of Cash Payments Over $10,000
Received in a Trade or Business (Forms 8300), and Reports of Foreign
Bank and Financial Accounts--is important for law enforcement purposes,
as doing so will allow law enforcement to efficiently cross-reference
information across the various BSA reports.
---------------------------------------------------------------------------
\23\ See FinCEN NPRM, ``Anti-Money Laundering Regulations for
Residential Real Estate Transfers,'' 89 FR 12424, 12447-12448 (Feb.
16, 2024).
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3. Attorneys as Potential Reporting Persons
Proposed Rule. Under the proposed rule, attorneys could potentially
be subject to a reporting requirement if they perform any of the real
estate closing and settlement functions described in the reporting
cascade. The proposed rule did not differentiate between attorneys and
non-attorneys when they perform the same functions involving transfers
of residential real property.
Comments Received. A number of commenters addressed the inclusion
of attorneys in the reporting cascade. In general, legal associations
opposed the inclusion of attorneys performing certain closing and
settlement functions in the cascade as reporting persons, while others,
in particular transparency organizations, supported the inclusion of
attorneys as reporting persons. Commenters opposed to inclusion of
attorneys generally argued that an attorney could not act as a
reporting
[[Page 70263]]
person without either breaching the attorney's professional ethical
obligations to maintain client confidentiality or violating attorney-
client privilege. Some commentors also suggested that FinCEN lacks
legal authority to regulate attorneys under the BSA.
Final Rule. FinCEN declines to amend the reporting cascade to
exclude attorneys from the requirement to report.
First, FinCEN does not believe that attorneys would violate their
professional ethical obligations by filing a Real Estate Report.
Although commenters noted that the ABA Model Rules on Professional
Conduct generally require attorneys to keep client information
confidential regardless of whether it is subject to the attorney-client
privilege, Rule 1.6(b)(6) of the Model Rules states that ``[a] lawyer
may reveal information relating to the representation of a client to
the extent the lawyer reasonably believes necessary . . . to comply
with other law or a court order.'' The annotations to the Model Rules
further elaborate that ``[t]he required-by-law exception may be
triggered by statutes, administrative agency regulations, or court
rules.'' FinCEN believes that the Real Estate Report falls squarely
within the required-by-law exception described in Rule 1.6(b)(6).
Second, FinCEN believes that the information required in the Real
Estate Report (e.g., client identity and fee information) is of a type
not generally protected by the attorney-client privilege, and
accordingly FinCEN is not persuaded that attorneys should be
categorically excluded from the reporting cascade on that basis.\24\
Moreover, even if there were an unusual circumstance in which some
information required to be reported in the Real Estate Report might
arguably be subject to the attorney-client privilege, an attorney in
such an unusual situation need not assume a reporting obligation, as
that attorney might allow other parties in the reporting cascade to
file the Real Estate Report through a designation agreement or, in
certain circumstances, might decline to perform the function that
triggers the obligation. It is therefore unlikely that any attorney
would necessarily be required to disclose privileged information.
Nonetheless, FinCEN expects to issue guidance that will address the
rare circumstance in which an attorney is concerned about the
disclosure of potentially privileged information, which will provide
further information on the mechanism for asserting the attorney-client
privilege and appropriately filing the relevant Real Estate Report.
---------------------------------------------------------------------------
\24\ See, e.g., In re Grand Jury Subpoenas, 906 F.2d 1485, 1488
(10th Cir. 1990) (collecting cases).
---------------------------------------------------------------------------
Similarly, FinCEN is not persuaded by commentors who argued that
FinCEN lacks the authority to regulate attorneys under the BSA,
claiming that the BSA does not clearly evince an intention to regulate
attorneys. The BSA expressly authorizes regulation of ``persons
involved in real estate closings and settlements,'' and it is common
for such persons to be attorneys. Congress thus made clear its
intention to authorize regulation of functions commonly performed by
attorneys, and it would be anomalous to regulate those functions only
when performed by non-attorneys. FinCEN also notes that attorneys are
not exempt from submitting reporting forms to FinCEN in other contexts
in which they are not explicitly identified by statute, such as with
FinCEN Form 8300, which must be submitted by any ``[a]ny person . . .
engaged in a trade or business.'' All courts of appeals that have
considered the question have concluded that Form 8300 reporting
requirements do not per se violate the attorney-client privilege and
that attorneys must file such a form absent certain narrow
exceptions.\25\
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\25\ See; U.S. v. Sindel, 53 F.3d 874, 876 (8th Cir. 1995); U.S.
v. Blackman, 72 F.3d 1418, 1424-25 (9th Cir. 1995); U.S. v. Ritchie,
15 F.3d 592, 602 (6th Cir. 1994); U.S. v. Leventhal, 961 F.2d 936,
940 (11th Cir. 1992); U.S. v. Goldberger & Dubin, P.C., 935 F.2d
501, 505 (2d Cir. 1991); In re Grand Jury Subpoenas, 906 F.2d 1485,
1492 (10th Cir. 1990).
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4. Reasonable Reliance Standard
Proposed Rule. Proposed 31 CFR 1031.320(e)(3) provided that the
reporting person may collect beneficial ownership information for the
transferee entity or transferee trust directly from a transferee or a
representative of the transferee, so long as the person certifies in
writing that the information is correct to the best of their knowledge.
However, the proposed rule did not state whether and to what extent a
reporting person could rely on information provided by other persons in
the context of other required information (i.e., other than beneficial
ownership information) required under the rule or to make any
determination necessary to comply with the rule.
Comments Received. Several commenters asked for clarification of
this provision, suggesting that the burden to industry would be
significant if reporting persons were required to verify the accuracy
of each piece of reportable information provided by a transferee or
another party, with one commenter questioning whether true verification
is possible. Several commenters also expressed liability concerns,
including that reporting persons could be penalized if a third party
provides information that turns out to be incorrect.
To resolve these concerns, commenters suggested that reporting
persons should be able to rely on information provided by the
transferee or that the transferee should certify the accuracy of
required information beyond beneficial ownership information. One
industry group took the reliance standard a step further, suggesting
that the reporting person be able to rely on the representations of the
transferee for purposes of determining whether the transferee is an
exempt entity or trust. One transparency group suggested that the final
rule require that reporting persons perform a ``clear error'' or ``best
efforts'' check to ensure they are not reporting obviously fraudulent
information.
Some commenters suggested that, where a transferee is unwilling to
provide complete or accurate information, reporting persons should be
allowed to file incomplete forms, with some arguing that ``good faith
attempts'' to file reports that are ultimately incomplete should not be
penalized. Another argued that the reporting person should be able to
simply file the information provided without any responsibility for its
accuracy or completeness. However, one transparency group argued that
reporting persons should not be allowed to file incomplete forms and
that the final rule should clarify that, where a reporting person
cannot gather complete information from a transferee, then the
reporting person should decline to take part in the real estate
transfer. Other commenters similarly questioned whether a reporting
person can continue to facilitate a transfer if the transferee refuses
to cooperate in providing reportable information. Additionally, one
industry group requested that the final rule impose a clear duty on
other persons described in the reporting cascade to share information
reportable under the proposed rule.
Final Rule. In 31 CFR 1031.320(j), the final rule adopts a
reasonable reliance standard that allows reporting persons to
reasonably rely on information provided by other persons. As a result,
the reporting person generally may rely on information provided by any
other person for purposes of reporting information or to make a
determination necessary to comply with the final rule, but only if the
reporting person does not have knowledge of facts that would
[[Page 70264]]
reasonably call into question the reliability of the information. This
reasonable reliance standard is consistent with that used by certain
financial institutions subject to customer due diligence
requirements.\26\
---------------------------------------------------------------------------
\26\ 31 CFR 1010.230(b)(2).
---------------------------------------------------------------------------
This reasonable reliance standard is slightly more limited when a
reporting person is reporting beneficial ownership information of
transferee entities or transferee trusts. As expressed in the proposed
rule, and as adopted in the final rule, when a reporting person is
collecting the beneficial ownership information of transferee entities
and transferee trusts. In those situations, the reasonable reliance
standard applies only to information provided by the transferee or the
transferee's representative and only if the person providing the
information certifies the accuracy of the information in writing to the
best of their knowledge.
FinCEN recognizes the necessity of permitting reliance on
information supplied to the reporting person, considering the time and
effort it would take for the reporting person to verify each piece of
information independently. FinCEN believes that the reasonable reliance
standard is significantly less burdensome than an alternative full
verification standard, while still ensuring that obviously false or
fraudulent information would not be reported.
As an example, FinCEN expects that the reporting person would be
able to reasonably rely on the accuracy of a person's address provided
orally or in writing, without reviewing government-issued documentation
such as a drivers' license, provided the reporting person does not have
reason to question the information provided (e.g., if the information
provided were to contain a numerically unlikely ZIP code or the person
providing it makes comments bringing into question the reliability of
the address or has provided other unreliable information).
As an additional example, in the context of ascertaining whether
particular transfers are ``non-financed transfers,'' \27\ a reporting
person may rely on the information provided by the relevant lender
extending credit secured by the underlying residential real property as
to whether the lender has an obligation to maintain an AML program and
an obligation to report suspicious transactions under 31 CFR Chapter X,
provided the reporting person does not have reason to question the
lender's information (e.g., if the lender were to represent that he (as
a natural person) is subject to AML obligations).
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\27\ Discussed below in Section III.C.2.b.
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In response to the comment requesting that FinCEN permit the filing
of an incomplete report, FinCEN declines to add language to the
regulation to provide for that option. FinCEN believes that allowing
for the submission of incomplete reports could make it easier for
transferees to avoid reporting requirements while simultaneously also
making it difficult for FinCEN to ensure compliance with the rule. It
could also greatly reduce the reports' utility to law enforcement.
FinCEN believes the adoption of the reasonable reliance standard
addresses many of the concerns expressed about access to reportable
information.
Finally, FinCEN does not adopt the suggestion that a legal duty be
imposed on other persons in the reporting cascade to share reportable
information with the reporting person. FinCEN believes that the
reasonable reliance standard will make the sharing of information
easier and therefore will decrease potential friction among the persons
described in the reporting cascade. Further, FinCEN believes that
reporting persons are unlikely to perform the function described in the
reporting cascade until they have either obtained the required
information or are reasonably certain that they will be able to obtain
it soon after the date of closing. If information cannot be obtained
from a person in the reporting cascade, the reporting person would
reach out directly to a relevant party to the transfer (e.g., the
transferee) to gather the missing information.
FinCEN notes that there is no exception from reporting under the
final rule should a transferee fail to cooperate in providing
information about a reportable transfer. The final rule does not
authorize the filing of incomplete reports, and a reporting person who
fails to report the required information about a reportable transfer
could be subject to penalties. However, FinCEN will consider issuing
additional public guidance to assist the financial institutions subject
to these regulations in complying with their reporting obligations.
5. Penalties
Proposed Rule. The proposed rule did not include a specific
reference to potential penalties for noncompliance, as those penalties
are already set forth in the provisions of the BSA that discuss
criminal and civil penalties for violating a BSA requirement.
Comments Received. Several commenters sought clarification about
penalties for noncompliance, with one commenter noting that the
proposed rule did not explicitly address potential penalties for
failing to file a report or for filing an inaccurate report.
Final Rule. Consistent with the NPRM, FinCEN believes that it is
unnecessary to list potential penalties in the regulatory text because
the applicable penalties are already set forth by statute. Negligent
violations of the final rule could result in a civil penalty of, as of
the publication of the final rule, not more than $1,394 for each
violation, and an additional civil money penalty of up to $108,489 for
a pattern of negligent activity.\28\ Willful violations of the final
rule could result in a term of imprisonment of not more than five years
or a criminal fine of not more than $250,000, or both.\29\ Such
violations also could result in a civil penalty of, as of the
publication of the final rule, not more than the greater of the amount
involved in the transaction (not to exceed $278,937) or $69,733.\30\
This penalty structure generally applies to any violation of a BSA
requirement.\31\ FinCEN intends to conduct outreach to potential
reporting persons on the need to comply with the final rule's
requirements.
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\28\ 31 U.S.C. 5321.
\29\ 31 U.S.C. 5322.
\30\ 31 U.S.C. 5321; 31 CFR 1010.821.
\31\ See FinCEN, ``Financial Crimes Enforcement Network (FinCEN)
Statement on Enforcement of the Bank Secrecy Act'' (Aug. 18, 2020),
available at <a href="https://www.fincen.gov/sites/default/files/shared/FinCENEnforcementStatement_FINAL508.pdf">https://www.fincen.gov/sites/default/files/shared/FinCENEnforcementStatement_FINAL508.pdf</a>.
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6. Unique Identifying Numbers
Proposed Rule. Proposed 31 CFR 1031.320(e) set forth requirements
for the reporting person to report a unique identifying number of the
transferee entity or transferee trust, the beneficial owners of the
transferee entity or trust, the individuals signing documents on behalf
of the transferee entity or trust, and the trustee of a transferee
trust. FinCEN proposed that the specific form of unique identifying
number required would be a taxpayer identification number (TIN) issued
by the IRS, such as a Social Security Number or Employer Identification
Number. However, the proposed rule provided that, when no IRS TIN had
been issued, the proposed rule required the reporting of a foreign tax
identification number or other form of foreign identification number,
such as a passport number or entity registration number issued by a
foreign government.
Comments Received. One commenter argued against the collection of
TINs as a unique identifying number, citing to the reporting
requirements of the Beneficial Ownership Information
[[Page 70265]]
Reporting Rule (BOI Reporting Rule).\32\ In the NPRM for the BOI
Reporting Rule,\33\ which was issued pursuant to the Corporate
Transparency Act (CTA),\34\ FinCEN initially proposed the voluntary
reporting of TINs by a reporting company of its beneficial owners but
eliminated this optional reporting in the final rule. The final BOI
Reporting Rule does, however, require that reporting companies report
their own TINs.\35\
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\32\ The BOI Reporting Rule implements the CTA's reporting
provisions. In recognition of the fact that illicit actors
frequently use corporate structures to obfuscate their identities
and launder ill-gotten gains, the BOI Reporting Rule requires
certain legal entities to file reports with FinCEN that identify
their beneficial owners. See FinCEN, ``Beneficial Ownership
Information Reporting Requirements,'' 87 FR 59498 (Sept. 30, 2022).
Access by authorized recipients to beneficial ownership information
collected under the CTA are governed by other FinCEN regulations.
See FinCEN, ``Beneficial Ownership Information Access and
Safeguards,'' 88 FR 88732 (Dec. 22, 2023).
\33\ See FinCEN, NPRM, ``Beneficial Ownership Information
Reporting Requirements,'' 86 FR 69920 (Dec. 8, 2021).
\34\ The CTA is Title LXIV of the William M. (Mac) Thornberry
National Defense Authorization Act for Fiscal Year 2021, Public Law
116-283 (Jan. 1, 2021) (the NDAA). Division F of the NDAA is the
Anti-Money Laundering Act of 2020, which includes the CTA. Section
6403 of the CTA, among other things, amends the Bank Secrecy Act
(BSA) by adding a new section 5336, Beneficial Ownership Information
Reporting Requirements, to subchapter II of chapter 53 of title 31,
United States Code.
\35\ See 31 CFR 1010.380(b)(1)(i).
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Final Rule. In the final rule, FinCEN adopts the proposed
requirement to collect the unique identifying numbers of entities and
individuals, including their TINs, but clarifies that, for legal
entities, a unique identifying number is required only if such number
has been issued to that entity. The proposed rule contained a similar
provision for transferee trusts, which the final rule adopts. In the
trust context, no unique identifying number would need to be reported
if a unique identifying number has not been issued to the trust. For
instance, there may be a situation in which a transferee trust has not
been issued an IRS TIN, nor has it been issued any of the foreign
identifying numbers set out in the rule. With the clarifying edit to
the unique identifying numbers required for legal entities, the rule
makes clearer that a unique identifying number would similarly not be
required to be reported in such a situation. FinCEN notes that the
final rule does not extend this language to the TINs of individuals, as
FinCEN expects that individuals will have been issued one of the unique
identifying numbers required by the regulations.
While FinCEN continues to acknowledge that IRS TINs are subject to
heightened privacy concerns and that the collection of such information
could entail cybersecurity and operational risks, several factors
weighed heavily in its decision to retain this requirement. TINs are
commonly required on other BSA reports, including, for example, Forms
8300, which FinCEN notes are commonly filed by the real estate
industry. Furthermore, TINs are frequently necessary to identify the
same actors, particularly those with similar names or those using
aliases, across different BSA reports and investigations. FinCEN
believes that nearly all reporting persons--primarily businesses
performing functions typically conducted by settlement companies,
including many that already file reports containing TINs with the
government--will have preexisting data security systems and programs to
protect information such as TINs, particularly since such information
is often collected in the course of financed transfers of residential
real estate.
C. Section-by-Section Analysis
1. 31 CFR 1031.320(a) General
FinCEN did not receive any comments to the general paragraph of the
proposed rule found in proposed 31 CFR 1031.320(a), which provided a
framework for the rule. That paragraph has been adopted in the final
rule without substantial change. The technical changes that have been
made include the renumbering of paragraph references, the addition of a
reference to a new paragraph discussing the concept of reasonable
reliance, and certain clarifying changes, such as the addition of
language clarifying that reports required under this section and any
other information that would reveal that a reportable transfer has been
reported are not confidential.
2. 31 CFR 1031.320(b) Reportable Transfer
The proposed rule defined a reportable transfer as a non-financed
transfer of any ownership interest in residential real property to a
transferee entity or transferee trust, with certain exceptions. These
proposed exceptions, found in 31 CFR 1031.320(b), reflected FinCEN's
intent to capture only higher risk transfers. The proposed rule
provided that transfers would be reportable irrespective of the value
of the property or the dollar value of the transaction; there was no
proposed dollar threshold for a reportable transfer. The proposed rule
also provided that transfers would only be reportable if a reporting
person is involved in the transfer and if the transferee is either a
legal entity or trust. Transfers between individuals would not be
reportable.
a. Residential Real Property
Proposed Rule. Proposed 31 CFR 1031.320(b) defined ``residential
real property'' to include real property located in the United States
containing a structure designed principally for occupancy by one to
four families; vacant or unimproved land located in the United States
zoned, or for which a permit has been issued, for the construction of a
structure designed principally for occupancy by one to four families;
and shares in a cooperative housing corporation.
Comments Received. Several commenters argued that reporting persons
would not have ready access to the zoning or permitting information
necessary to determine whether vacant or unimproved land is reportable
under the rule. Commenters noted that reporting persons do not
routinely determine zoning information and that accurate zoning
information may take several weeks to obtain. Examination of permits,
they argued further, would take similar time and effort. Some
commenters also noted that purchases of unimproved or vacant land are
often for lower dollar amounts and therefore present a lower risk for
money laundering. Two other commenters suggested that the determination
of whether a property is ``residential real property'' as defined under
the rule should turn on whether the real estate sales contract or
purchase and sale agreement describes the property as being
residential.
Furthermore, two commenters suggested that the proposed definition
of residential real property lacked clarity, with one focusing on the
treatment of mixed-use property and the other requesting that the
definition provide clearer criteria, taking into account the treatment
of residential real estate under tax law, zoning processes, and
mortgage agreements, with examples provided. Another commenter
suggested that FinCEN provide a non-exhaustive list of possible
transfers intended to be subject to reporting requirements and that the
list specifically include any transfer of ownership and any creation of
an equitable interest, whether in whole or in part, directly or
indirectly, in the property. One commenter requested clarity as to
whether a transfer of residential real property as defined under the
rule includes assignment contracts.
Final Rule. The definition of residential real property in
paragraph 31 CFR 1031.320(b), as adopted in the final
[[Page 70266]]
rule, contains several modifications and clarifications of the language
in the proposed rule. This definition continues to include vacant or
unimproved land, as FinCEN does not agree with the comment suggesting
that transfers of such property inherently pose a lower risk for money
laundering.
The revised definition addresses the difficulty raised by
commenters in determining whether vacant or unimproved land is zoned or
permitted for residential use by focusing on whether the transferee
intends to build on the property a structure designed principally for
occupancy by one to four families. Furthermore, the new provision added
to the rule concerning reasonable reliance permits the reporting person
to reasonably rely on information provided by the transferee to
determine such intent. To address comments that requested clarity on
whether mixed-use property qualifies as residential real property, the
definition of residential real property also clarifies that separate
residential units within a building, such as individually owned
condominium units, as well as entire buildings designed for occupancy
by one to four families, are included.
Taking into account the above changes, the definition of
residential real property is now: (1) real property located in the
United States containing a structure designed principally for occupancy
by one to four families; (2) land located in the United States on which
the transferee intends to build a structure designed principally for
occupancy by one to four families; (3) a unit designed principally for
occupancy by one to four families within a structure on land located in
the United States; or (4) any shares in a cooperative housing
corporation for which the underlying property is located in the United
States. Given the ability for a reporting person to reasonably rely on
information obtained from other persons, FinCEN declines to adopt the
other suggestions made by some of the commenters to facilitate the
determination of whether the property is residential in nature. FinCEN
further notes that the definition is meant to include property such as
single-family houses, townhouses, condominiums, and cooperatives,
including condominiums and cooperatives in large buildings containing
many such units, as well as entire apartment buildings designed for one
to four families. Furthermore, transfers of such properties may be
reportable even if the property is mixed use, such as a single-family
residence that is located above a commercial enterprise.
FinCEN also notes that the rule is not designed to require
reporting of the transfer of contractual obligations other than those
demonstrated by a deed or, in the case of a cooperative housing
corporation, through stock, shares, membership, certificate, or other
contractual agreement evidencing ownership. Therefore, the transfer of
an interest in an assignment contract would not be reportable.
Assignment contracts typically involve a wholesaler contracting with
homeowners to buy residential real property and then assigning their
rights in the contract to a person interested in owning the property as
an investment. The eventual purchase of the property by the assignee
investor may be reportable under this rule because a transfer of an
ownership interest demonstrated by a deed has occurred, but the initial
signing of the contract between the assignor and the original homeowner
would not be reportable.
b. Non-Financed Transfers
Proposed Rule. Proposed 31 CFR 1031.320(b)(1) defined the term
``reportable transfer'' to only include transfers that do not involve
an extension of credit to all transferees that is both secured by the
transferred residential real property and extended by a financial
institution that has both an obligation to maintain an AML program and
an obligation to report suspicious transactions under 31 CFR Chapter X.
As explained in the NPRM, FinCEN considers such transfers to be ``non-
financed'' for purposes of this rule.
Comments Received. One industry organization noted that the
proposal would result in reporting when an individual transfers
property subject to qualified financing to a trust, because the
qualified financing is in the name of the transferor rather than the
transferee trust. Another commenter similarly requested clarity as to
whether the reporting of non-financed transfers applies only with
respect to qualified financing held by the transferee, as opposed to
qualified financing held by the transferor.
Two transparency organizations requested that FinCEN clarify
whether partially financed transfers are reportable. These commenters
cited as examples a situation in which some or all of the source of
funds originate from entities or beneficial owners that have not
undergone AML checks from a covered financial institution or where
qualified credit is extended to some, but not all, beneficial owners of
transferees. Finally, one commenter requested clarity as to how the
reporting person would determine if the transfer is non-financed.
Final Rule. The substance of the definition of a ``non-financed
transfer'' is adopted as proposed, but FinCEN has elected to move the
definitions paragraph of the rule to 31 CFR 1031.320(n)(5). FinCEN
declines to adopt the commenter's suggestion to include a specific
carveout in the definition to account for transfers where the qualified
financing is extended to the grantor or settlor of a trust, rather than
to the trust itself--an issue raised in the comments. This situation is
addressed, however, in the new exception for certain transfers to
trusts for no consideration, discussed in depth in Section III.C.2.c.
In regards to requests for clarity about whether partially financed
transfers meet the definition of a non-financed transfer, FinCEN notes
that partially financed transfers involving one transferee (for
example, in which the transferee entity or transferee trust puts down a
50 percent down payment but obtains a mortgage to finance the rest of
the transfer) would not be reported. However, the definition of a non-
financed transfer would result in reporting of transfers in which there
are multiple transferee entities or transferee trusts receiving the
property and financing is secured by some, but not all, of the
transferees.
As to the comment questioning how reporting persons would determine
whether a transfer is non-financed, it has been FinCEN's experience
with the Residential Real Estate GTOs that persons required to report
have readily determined whether a given financial institution extending
financing has such AML program obligations by asking the financial
institution directly. The reporting person can reasonably rely on the
representations made by the financial institution.
c. Excepted Transfers
Proposed Rule. Proposed 31 CFR 1031.320(b)(2) provided exceptions
for transfers that are: the result of a grant, transfer, or revocation
of an easement; the result of the death of an owner; incident to
divorce or dissolution of marriage; to a bankruptcy estate; to
individuals; or for which there is no reporting person.
Comments Received. Support for the proposed exceptions came from an
industry group that applauded the decision to except transfers made to
individuals. Other commenters did not oppose the proposed regulation
and instead suggested modifications or clarifications that built on the
proposed
[[Page 70267]]
exceptions. Numerous commenters also proposed additional exceptions.
However, FinCEN received several comments suggesting that FinCEN
clarify or otherwise amend certain other exceptions, including those
proposed for death, divorce, and bankruptcy. Two legal associations
proposed that FinCEN clarify the exception for transfers that are the
result of a death to ensure that the exception applies even if a
transfer is not executed pursuant to a will or where the decedent is
not technically the owner of the property at death because the property
is owned by a revocable trust set up by the decedent. One legal
association suggested that FinCEN expand the proposed exceptions for
divorce, death, or bankruptcy to include transfers to certain specific
types of trusts. One State bar association suggested that the rule
build on the exceptions for death and divorce by excepting any
transfers made in connection with a court-supervised legal settlement.
A transparency organization recommended limiting the exceptions to
transfers made to family members or heirs pursuant to divorce, probate
proceedings, or a will, expressing concern that transfers resulting
from death or divorce would remain at risk for money laundering.
Multiple commenters requested additional exceptions. Several
commenters focused on exceptions for transfers to trusts used for
estate or tax planning purposes. A State bar association requested the
exclusion of transfers for estate planning purposes that involve no
monetary consideration. One commenter suggested excepting gifts between
family members, whether being transferred into a trust or legal entity,
and in particular suggested excluding transfers to revocable trusts in
which the trustee confirms by affidavit that the trustee or the settlor
is the same person as the primary beneficiary. Similarly, another State
bar association suggested that FinCEN except any intrafamily transfers
and transfers into certain trusts created for estate or tax planning
purposes, including revocable trusts, irrevocable trusts, irrevocable
life insurance trusts, grantor trusts, purpose trusts, qualified
personal residence trusts, pooled trusts, special needs and
supplemental trusts, creditor protection trusts, various charitable
trusts, certain State business trusts, and certain State business
associations.
Some commenters suggested exceptions built around the relationship
between the transferor and the transferee in the context of estate
planning. Two such commenters requested that the final rule exclude any
transfer where the transferor is the settlor of a transferee trust,
because beneficial ownership of the property would remain the same. A
State bar association suggested excluding transfers that include the
creation of a self-settled revocable or irrevocable trust, wherein the
grantor(s)/settlors(s) of the trust have created it for the benefit of
the grantor(s) or members of their family, arguing that such trusts for
the purposes of estate planning are low risk for money laundering, and
therefore of little interest to FinCEN, and that their exclusion would
reduce the number of reports required from reporting persons. In a
similar vein, a State land title association suggested the exclusion of
living trusts with the same name as the property owner, citing the
example of an individual purchasing property in a non-financed transfer
and then subsequently transferring the property to a trust for estate
planning purposes. A trust and estate-focused legal association
similarly suggested the exclusion of transfers to trusts in which at
least one of the beneficial owners is the same as the transferor or in
which the transfer is for the benefit of the family of the transferor.
One legal association asked that exceptions be made for transfers in
which there is no change in beneficial ownership of the property and
two other commenters similarly requested that FinCEN exclude any
transfers where the transferor is the managing or sole member of a
transferee entity or is the settlor of a transferee trust. The legal
association also suggested an exception when the ownership interest in
the property remains within a family.
Two commenters suggested the exclusion of sequential transfers
involving a trust. One described these sequential transfers as
occurring when an individual purchases residential real property in
their own name with a mortgage and subsequently transfers the property
to a trust, or when an individual seeks to refinance property held in a
trust by transferring title of the property from the trust to the
individual, refinancing in the name of the individual, and then
transferring title of the property back to the trust. Another commenter
stated that properties held in revocable trusts for estate planning are
often only removed from the trust for refinancing or taking on
additional debt and therefore have oversight from those processing
mortgage loans. Such transfers, argued the commenters, are low risk and
would result in unnecessary and redundant reporting.
Some commenters suggested excepting transfers where the transferee
or transferor is a qualified intermediary for the purposes of 26 U.S.C.
1031 (1031 Exchange), also known as a like-kind exchange. A national
trade association for 1031 Exchange practitioners suggested adding an
exception that would mirror the exception found in the BOI Reporting
Rule for reporting of individuals acting as nominee, intermediary,
custodian, or agent on behalf of another individual.\36\ Three title
insurance associations and two State bar associations urged FinCEN to
include an exception for corrective conveyances, one commenter
requested exclusion of transfers involving additional insured
endorsements, another commenter suggested that FinCEN explicitly
exclude foreclosures and evictions, and several commenters suggested
that the final rule focus only on foreign transferees.
---------------------------------------------------------------------------
\36\ 31 CFR 1010.380(d)(3)(ii).
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FinCEN also received a range of comments related to whether a
dollar threshold should be included, below which reporting would not be
required. In general, commenters representing transparency
organizations supported the lack of a threshold in the proposed rule,
with one commenter arguing that any threshold would provide a clear
path for evasion. Other commenters--mostly real estate associations,
businesses, or professionals--advocated for the inclusion of a
threshold to reduce the number of reports that would need to be filed
and avoid the reporting of transfers perceived as low risk for money
laundering. One commenter suggested implementing a $1 threshold, others
suggested $1,000, one suggested $10,000, and another suggested adopting
the same threshold as FinCEN's Residential Real Estate GTOs.
Final Rule. In the final rule, FinCEN is adopting the exceptions
proposed in 31 CFR 1031.320(b)(2) and adding several additional
exceptions.
First, in response to comments asking FinCEN to clarify the scope
of the exception for transfers resulting from death, FinCEN has adopted
language, set forth at 31 CFR 1031.320(b)(2)(ii), to clarify that the
exception includes all transfers resulting from death, whether pursuant
to the terms of a will or a trust, by operation of law, or by
contractual provision. In the context of transfers resulting from
death, transfers resulting by operation of law include, without
limitation, transfers resulting from intestate succession, surviving
joint owners, and transfer-on-death deeds, and transfers resulting from
contractual provisions include, without limitation, transfers resulting
from beneficiary designations. With respect to inclusion
[[Page 70268]]
of transfers required under the terms of a trust, by operation of law,
or by contractual agreements, FinCEN believes such transfers are akin
to transfers required by a will, as they result from the death of the
grantor or settlor or individual who currently owns the residential
real property. As described in the NPRM, the exception was meant to
include transfers governed by preexisting legal documents, such as
wills, or that generally involve the court system. FinCEN believes that
the adopted language will clarify the intended scope of the exception,
which is meant to exclude only low-risk transfers of residential real
property involving transfers that are required by legal or judicial
processes at the time of the decedent's death.
Second, the rule adds an exception for any transfer supervised by a
court in the United States at 31 CFR 1031.320(b)(2)(v). This exception
builds on a commenter's suggestion to expand the list of exceptions to
include transfers made in connection with a court-supervised legal
settlement, but is focused on transfers required by a court instead of
simply supervised by a court, which narrows the opportunity for such
transfers to be abused by illicit actors. FinCEN believes that, like
probate and divorce, transfers required as a result of judicial
determination in the United States are generally publicly documented
and subject to oversight and therefore are subject to a lower risk for
money laundering.
Third, while FinCEN did not receive comments on the scope of the
exception for transfers incident to divorce or the dissolution of
marriage, FinCEN believes it is appropriate to clarify in the
regulation that the exception also applies to the dissolution of civil
unions and has done so at 31 CFR 1031.320(b)(2)(iii). Civil unions are
similar to marriages with regard to property issues in form and
function and are terminated in a similar manner--generally with the
involvement of courts.
Fourth, in response to the comments requesting exceptions for
estate planning techniques and for sequential transfers to trusts, an
exception is added at 31 CFR 1031.320(b)(2)(vi) for transfers of
residential real property to a trust where the transfer meets the
following criteria: (1) the transfer is for no consideration; (2) the
transferor of the property is an individual (either alone or with the
individual's spouse); and (3) the settlor or grantor of the trust is
that same transferor individual, that individual's spouse, or both of
them. FinCEN expects that this addition will except many common
transfers made for estate planning purposes described by commenters,
including transfers described in the exception where the grantor or
settlor's family are beneficiaries of the trust, as well as sequential
transfers to trusts, such as where the qualified financing is extended
to the grantor or settlor rather than to the trust itself and the
grantor or settlor then is transferring the secured residential real
property for no consideration to the trust.
FinCEN intended to scope this exception in a manner that was
responsive to comments but that would not create an overly broad
exception that would be open to significant abuse. To be sure, illicit
actors are known to use estate planning techniques to obscure the
ownership of residential real estate, and all non-financed transfers of
residential real estate not subject to this rule are subject to less
oversight from financial institutions than financed transfers and are
therefore inherently more vulnerable to money laundering. However,
transfers in which an individual who currently owns residential real
property is funding their own trust with that property are believed to
be a lower risk for money laundering because the true owner of the
property is not obscured when the property is transferred. Given this
limitation on the exception and how common it is for an individual to
place residential real property into a trust, whether revocable or
irrevocable, for estate planning purposes, FinCEN believes it is
appropriate to except such transfers at this time. Additionally, the
expanded exception benefits from relying on information readily
available to the reporting person, as the reporting person will know
the identity of the transferor and can ascertain, such as through a
trust certificate, whether the transferor is the grantor or settlor of
the trust.
FinCEN does not agree with some commenters that the exception
should be broader by excepting transfers where beneficial ownership
does not change or where the transfer is an intrafamily one. An
exception for such transfers would be difficult for the reporting
person to administer, as it would require a review of the dispositive
terms of the trust instrument, and it would be difficult for the
reporting person to assess the reliability of information provided to
them about beneficial ownership or family relationships. FinCEN also
does not agree that all such transfers are automatically low risk for
money laundering, especially when consideration is involved. Overall,
the adopted exception offers a low-risk, bright line that should be
easy to understand and implement, lowering the burden on both industry
and the parties to the transfer, when compared with the proposed rule.
FinCEN also does not believe that this same logic can be extended
to justify excepting transfers of property by an individual to a legal
entity owned or controlled by such individual, as some commenters
suggested. In the exception described above concerning no consideration
transfers to trusts, the exception applies when the transferor of
residential real property is also the grantor or settlor of the trust--
the identity of the grantor or settlor of the trust is a fact tied to
the creation of the trust, is revealed on the face of the trust
instrument, and generally cannot be changed. Although the trustee and
beneficiaries of the trust may change over time, the identification of
the settlor or grantor of the trust generally allows FinCEN to identify
the source of the property being contributed to the trust, a factor
that is critical to the identification and prevention of money
laundering. That same identification and persistent connection with the
transferor does not exist in the context of transfers of residential
real property to a legal entity, where it is common for various owners
of interests in the entity to each contribute assets to it.
Finally, the final rule adopts an exception, at 31 CFR
1031.320(b)(2)(vii), for transfers made to qualified intermediaries for
purposes of effecting 1031 Exchanges. Such exchanges are commonly
conducted to defer the realization of gain or loss, and, thus, the
payment of any related taxes, for Federal income tax purposes.\37\ This
exception is limited to transfers made to the qualified intermediary;
transfers from a qualified intermediary to the person conducting the
exchange (the exchanger) remain potentially reportable if the exchanger
is a legal entity or trust. When taking ownership of property in a 1031
Exchange, the qualified intermediary is acting on behalf of the
exchanger for the limited purpose of effecting the exchange. In
addition, the qualified intermediary may hold the property for only a
limited
[[Page 70269]]
period of time before it jeopardizes the transaction's ability to
qualify as a valid 1031 Exchange. Accordingly, FinCEN has determined
that requiring the reporting of transfers made to a qualified
intermediary would likely result in information that is of lower value
to law enforcement. FinCEN considered whether to resolve commenter
concerns around qualified intermediaries by relying, as one commenter
suggested, on the rule's definition of transferee entity, which adopts
by reference the exception found in 31 CFR 1010.380(d)(3)(ii) for the
reporting of individuals who are acting as a nominee, intermediary,
custodian, or agent. Without noting whether such exception for
nominees, intermediaries, custodians, or agents would appropriately
apply in the context of qualified intermediaries, FinCEN believes that
allowing the broader exception for 1031 Exchanges in this rule more
clearly resolves commenter concerns.
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\37\ In a 1031 Exchange, real property held for productive use
in a trade or business or held for investment is exchanged for other
business or investment property that is the same type or kind; as a
result, the person conducting the exchange is not required to
realize taxable gain or loss as part of the exchange. To avoid the
exchange being disqualified, a qualified intermediary may be used to
ensure that the exchanger avoids taking premature control of the
proceeds from the sale of the relinquished property or, in a reverse
1031 Exchange in which the replacement property is identified and
purchased before the original property is relinquished, ownership of
the replacement property.
---------------------------------------------------------------------------
The final rule does not adopt the suggestions to exclude corrective
conveyances and additional insured endorsements, as FinCEN believes
such exceptions are not necessary. Corrective conveyances are used to
correct title flaws, such as misspelled names, and are not used to
create a new ownership interest in a property. As such, corrective
conveyances do not involve a transfer of residential real property and
are therefore not reportable. Similarly, additional insured
endorsements are used to extend coverage of title insurance to an
additional party identified by the policyholder and do not meet the
rule's definition of a reportable transfer of residential real
property.
The final rule also does not adopt the suggestion to exclude
foreclosure sales, although FinCEN notes that foreclosure court
proceedings wherein a lender obtains a judgment to foreclose on
property would be excluded under the exception for transfers required
by a court in the United States. Outside of such court-supervised
foreclosure proceedings, FinCEN does not agree that potential reporting
persons involved in sales of foreclosed property should be treated
differently from other transfers, as such sales, where the property is
sold to a third party, do not necessarily present a lower risk for
money laundering.
FinCEN also declines to implement the suggestion that the final
rule collect information only on foreign transferee entities and
trusts. Law enforcement investigations and FinCEN's experience with the
Residential Real Estate GTOs have repeatedly confirmed that non-
financed transfers of residential real estate to both foreign and
domestic legal entities and trusts are high risk for money laundering.
Furthermore, the rule does not adopt suggestions to include a
dollar threshold for reporting. Low value non-financed transfers to
legal entities and trusts, including gratuitous ones for no
consideration, can present illicit finance risks and are therefore of
interest to law enforcement. Although the Residential Real Estate GTOs
have had an evolving dollar threshold over the course of the program,
ranging from over $1 million to the current threshold of $300,000,
FinCEN's experience with administering the program and discussions with
law enforcement shows that money laundering through real estate occurs
at all price points. FinCEN believes that incorporation of a dollar
threshold could move illicit activity into the lower priced market,
which would be counter to the aims of the rule.\38\ Rather than
specifically exclude all such transfers from being reported, the final
rule includes additional exceptions, discussed here and in Section
III.C.2.c, that FinCEN believes will focus the reporting requirement on
higher-risk low-value transfers.
---------------------------------------------------------------------------
\38\ The current Residential Real Estate GTO threshold is
$300,000 for all covered jurisdictions, except for in the City and
County of Baltimore, where the threshold is $50,000.
---------------------------------------------------------------------------
d. Transferee Entities
Proposed Rule. Proposed 31 CFR 1031.320(j)(10) provided that a
``transferee entity'' is any person other than a transferee trust or an
individual and set out the exceptions from this definition for certain
entities, including certain highly regulated entities and government
authorities. The definition of transferee entity was meant to include,
for example, a corporation, partnership, estate, association, or
limited liability company. Among the exceptions FinCEN proposed was an
exception for any legal entity whose ownership interests are controlled
or wholly owned, directly or indirectly, by an exempt entity.
Comments Received. Some commenters supported the proposed rule's
inclusion of transferee entities as defined in the proposed rule, with
one transparency organization highlighting that pooled investment
vehicles (PIVs) and non-profits are largely exempt from beneficial
ownership information reporting requirements under the CTA, which
increases their risks for money laundering.
Final Rule. In 31 CFR 1031.320(n)(10), the final rule adopts the
proposed definition of ``transferee entity'' with technical edits to
two specific exceptions from that definition. First, in 31 CFR
1031.320(n)(10)(O), FinCEN removed the unnecessary inclusion of the
acronym ``(SEC)'' because the Securities and Exchange Commission is
referred to only once in 31 CFR 1031.320. Second, FinCEN removed the
term ``ownership interests'' from 31 CFR 1031.320(n)(10)(P), so that
the regulation now excludes from the definition of a transferee entity
a ``legal entity controlled or wholly owned, directly or indirectly, by
[an excepted legal entity].'' FinCEN made this amendment to avoid
potential confusion because the term ``ownership interests'' is
specifically defined in the regulations at 31 CFR 1031.320(n)(6) and
employed only in relation to residential real property.
e. Transferee Trusts
Proposed Rule. Proposed 31 CFR 1031.320(j)(11) defined ``transferee
trust'' as any legal arrangement created when a person (generally known
as a grantor or settlor) places assets under the control of a trustee
for the benefit of one or more persons (each generally known as a
beneficiary) or for a specified purpose, as well as any legal
arrangement similar in structure or function to the above, whether
formed under the laws of the United States or a foreign jurisdiction.
The NPRM proposed several exceptions for certain types of trusts that
FinCEN views as highly regulated--for instance, trusts that are
securities reporting issuers and trusts that have a trustee that is a
securities reporting issuer. Accordingly, such trusts were not covered
by the proposed rule. Similarly, the proposed rule excluded statutory
trusts from the definition of a transferee trust but, instead, proposed
to capture statutory trusts within the definition of a transferee
entity.
Comments Received. Several commenters supported the general
inclusion of trusts within the scope of the rule and provided examples
of money laundering through real estate transfers to trusts. One
transparency organization highlighted that trusts are not required to
directly report beneficial ownership information under the CTA and are
therefore a higher risk for money laundering. However, other commenters
were not supportive of the inclusion of trusts, arguing that trusts
are: complicated arrangements for which the paperwork would not be
easily understood by reporting persons; used for probate avoidance; and
inherently low risk.
[[Page 70270]]
Several commenters suggested excluding living trusts. Three
commenters suggested excluding transfers to irrevocable living trusts,
arguing either that such trusts are low risk for money laundering or
that such reporting is redundant with information received by the IRS.
Some focused on revocable trusts, particularly those used for estate
planning, arguing that they are subject to a lower risk of money
laundering and that requiring reporting on such trusts would be
burdensome given how commonly they are used.
Other commenters suggested the exclusion of specialized types of
trusts. Two suggested excluding transfers to a qualified personal
residence trust and another suggested excluding transfers to an
intentionally defective grantor trust, charitable remainder trust, any
qualified terminal interest property trust benefitting the contributing
homeowner, testamentary trust, third-party common law discretionary
trust, a discretionary support trust, or a trust for the support of an
incapacitated beneficiary, including supplemental or special needs
trusts, arguing that these transfers generally do not involve property
purchased in cash within the last year and are low risk for money
laundering.
Final Rule. In the final rule, FinCEN retains the requirement to
report transfers to transferee trusts and, in 31 CFR 1031.320(n)(11),
adopts the definition of ``transferee trust'' as proposed with one
technical edit to make certain language consistent across similar
provisions in the rule. As discussed in Section II.A.2, FinCEN
continues to believe that non-financed residential real estate
transfers to certain trusts present a high risk for money laundering.
FinCEN also believes that the potential difficulties described by
commenters, such as the need to review complex trust documents to
determine whether a trust is reportable, will be minimized by the
addition of new exceptions and by the reasonable reliance standard
adopted in the final rule which is discussed in Section III.B.4.
FinCEN considered comments suggesting that it adopt additional
exceptions from the definition of a transferee trust for specific types
of trusts. In particular, comments suggested exceptions for all living
trusts, all revocable trusts, or all irrevocable trusts, as well as
more specialized types of trusts such as qualified personal residence
trusts or defective grantor trusts. FinCEN believes that the suggested
exceptions would be overly broad and, as such, would exclude from
reporting certain transfers that pose a high risk for illicit finance.
However, depending on the particular facts and circumstances of a trust
arrangement, some of the aforementioned trusts may be covered under the
more tailored exception for ``no consideration transfers'' to trusts
described in Section III.C.2.c. We also note that certain trusts, such
as testamentary trusts, are not captured by the reporting requirement,
as such trusts are created by wills and therefore fall within the
exception for transfers occurring as a result of death.
3. 31 CFR 1031.320(c) Determination of Reporting Person
Proposed 31 CFR 1031.320(c) set forth a cascading reporting
hierarchy to determine which person providing real estate closing and
settlement services in the United States must file a report for a given
reportable transfer. As an alternative, the persons described in the
reporting cascade could enter into an agreement to designate a
reporting person.
a. Reporting Cascade
Proposed Rule. Through the proposed reporting cascade, a real
estate professional would be a reporting person required to file a
report and keep records for a given transfer if the person performs a
function described in the reporting cascade and no other person
performs a function described higher in the reporting cascade. For
example, if no person is involved in the transfer as described in the
first tier of potential reporting persons, the reporting obligation
would fall to the person involved in the transfer as described in the
second tier of potential reporting persons, if any, and so on. The
reporting cascade includes only persons engaged as a business in the
provision of real estate closing and settlement services within the
United States. The proposed reporting cascade was as follows: (1) the
person listed as the closing or settlement agent on the closing or
settlement statement for the transfer; (2) the person that prepares the
closing or settlement statement for the transfer; (3) the person that
files with the recordation office the deed or other instrument that
transfers ownership of the residential real property; (4) the person
that underwrites an owner's title insurance policy for the transferee
with respect to the transferred residential real property, such as a
title insurance company; (5) the person that disburses in any form,
including from an escrow account, trust account, or lawyers' trust
account, the greatest amount of funds in connection with the
residential real property transfer; (6) the person that provides an
evaluation of the status of the title; and finally (7) the person that
prepares the deed or, if no deed is involved, any other legal
instrument that transfers ownership of the residential real property.
Comments Received. Some commenters, including real estate agent
associations and transparency organizations, supported the use of a
reporting cascade, believing it to be functional and useful in
preventing arbitrage, while one commenter specifically opposed it,
arguing that the cascading approach would be burdensome. One industry
group asked that FinCEN exclude banks and other financial institutions
subject to AML/CFT program requirements as reporting persons, arguing
that such financial institutions are already subject to a higher
standard of BSA compliance. Some commenters variously opposed the
inclusion of settlement and closing agents, title agents, or escrow
agents as reporting persons because they felt it threatened their
status as neutral third parties with limited responsibilities when
facilitating a transfer of residential real property. Other commenters
expressed concern that certain professionals in the reporting cascade
would be ill-equipped to report.
Associations representing real estate agents agreed with the
absence in the cascade of functions typically associated with real
estate agents, while two escrow industry commenters proposed including
real estate agents as reporting persons. One commenter suggested adding
appraisers as reporting persons, arguing that required inclusion of
appraisers would help to identify potential market distortion by
illicit actors and that appraisers are otherwise well-equipped to be
reporting persons. That commenter also suggested that FinCEN require
appraisals be included in every non-financed transfer. One industry
association urged FinCEN to exempt small businesses from reporting
altogether. One commenter asked for a clear exclusion for homeowners
associations, arguing that their burden would be high. A transparency
organization and an industry commenter suggested that FinCEN explicitly
prohibit transferees, transferors, and their owners from being
reporting persons.
Some commenters argued that certain functions described in the
proposed reporting cascade should be moved further up in the cascade to
ensure parties with what they viewed as the best access to information
are the first-line reporters. One commenter suggested that 31 CFR
1031.320(c)(1)(iii) be modified to include the person who prepares a
stock certificate or a
[[Page 70271]]
proprietary lease to better cover potential reporting persons closing
transfers of cooperative units, and another requested clarity as to who
files deeds with the recording office.
Two commenters noted that the reporting cascade may result in more
than one reporting person in split settlements, in which the buyer and
seller use separate settlement agents. One of those commenters also
suggested that certain scenarios could result in the identification of
multiple reporting persons, such as when transfers are closed by
independent escrow companies but also involve title insurance or when
an attorney performs the document preparation, document signing, and
disbursement of funds in a transfer that also involves title insurance.
Finally, one commenter noted that, in some locations, it is possible
for title insurance to be issued several months after closing.
Final Rule. FinCEN adopts the reporting cascade largely as
proposed. The reporting cascade is designed to efficiently capture both
sale and non-sale transfers, and FinCEN notes that the real estate
industry already uses a similar reporting cascade to comply with
requirements associated with IRS Form 1099-S.\39\
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\39\ See 29 CFR 1.6045-4 (Information reporting on real estate
transactions with dates of closing on or after January 1, 1991).
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As set forth at 31 CFR 101.320(c)(3), FinCEN adopts the suggestion
made by one commenter to exclude from the definition of a reporting
person financial institutions with an obligation to maintain an AML
program. Where a financial institution would have otherwise been a
reporting person, the reporting obligation falls to the next available
person described in the reporting cascade. The intent of this
rulemaking is to address money laundering vulnerabilities in the U.S.
real estate market, recognizing that most persons involved in real
estate closings and settlements are not subject to AML program
requirements. FinCEN considered imposing comprehensive AML obligations
on such unregulated persons, but ultimately decided, as reflected in
the final rule, to impose the narrower obligation of a streamlined SAR
filing requirement. Financial institutions that already have an
obligation to maintain AML programs, however, generally already have a
SAR filing requirement that is more expansive than the streamlined
reporting requirement adopted by this final rule. Therefore, FinCEN
believes that it would not be appropriate at this time to add a
streamlined reporting requirement to the existing obligations of a
financial institution with an obligation to maintain an AML program.
FinCEN also believes that the removal of financial institutions from
the cascade of reporting persons will generally result in real estate
reports simply being filed by others in the reporting cascade, not in
those reports remaining unfiled.
FinCEN is not persuaded by commenters suggesting that other types
of professionals should be added to or excluded from the cascade.
Excluding categories of real estate professionals that execute
functions listed in the reporting cascade based on their professional
title or business size would result in a significant reporting loophole
that illicit actors would exploit. FinCEN believes it is also
unnecessary for the effectiveness of the reporting cascade to include
additional functions, such as the provision of appraisal services or
services that real estate agents typically provide to buyers and
sellers. FinCEN believes that the reporting cascade, as adopted, will
effectively capture high risk non-financed transfers of residential
real estate and any additional functions would unnecessarily increase
the complexity of the rule. Furthermore, real estate agents and
appraisers usually perform their primary functions in advance of the
actual closing or settlement and therefore generally do not perform a
central role in the actual closing or settlement process, unlike real
estate professionals performing the functions described in the
reporting cascade. FinCEN believes that focusing the reporting cascade
on functions more central to the actual closing or settlement is
necessary to ensure the reporting person has adequate access to
reportable information. Regarding homeowners associations, FinCEN
believes that is not necessary to explicitly exempt them the definition
of a reporting person because they do not traditionally play the roles
enumerated in the reporting cascade.
FinCEN is also not persuaded by commenters' suggestion that the
reporting obligation would affect or decrease the neutral position of
settlement agents and escrow agents. These real estate professionals
are ``neutral'' in that they have similar obligations to both the
transferee and transferor and are therefore seen as an independent
party acting only to facilitate the transfer, as opposed to a party
acting primarily to advance the interests of just one of the parties to
the transfer. The reporting obligation does not upset the balance
between service to the transferee and transferor. It merely requires
the professional to report additional information about the transfer.
FinCEN confirms that transferees, transferors, and their beneficial
owners cannot be reporting persons unless they are engaged within the
United States as a business in the provision of a real estate closing
and settlement service listed in the reporting cascade, but declines to
explicitly prohibit transferees, transferors, and their beneficial
owners from being reporting persons when they do play these roles, as
it would create an exploitable loophole in the reporting cascade, if
such persons were the only real estate professionals involved in the
transfer.
The final rule adopts clarifications proposed by commenters with
respect to cooperatives. For cooperatives, the stock certificate is
akin to a deed prepared for other types of residential real estate, and
therefore FinCEN believes that it is appropriate to include these types
of functions in the reporting cascade. However, FinCEN declines to
modify the language for the person that files with the recordation
office the deed or other instrument that transfers ownership of the
residential real property, as requested by one commenter. FinCEN
believes the proposed language clearly captures a person engaged as a
business in the provision of real estate closing and settlement
services that files the deed with the recordation officer. It would not
include the individual clerk at the office who accepts the deed or
other instrument.
In regard to concerns raised by a commenter about split
settlements, the definition of ``closing or settlement statement''
found in 31 CFR 1031.320(n)(2) is modified in the final rule to make
clarify that the closing or settlement statement is limited to the
statement prepared for the transferee only. FinCEN does not agree that
the other situations described by the commenter would result in
multiple reporting persons being identified, given the inherent nature
of the reporting cascade wherein the reporting responsibility flows
down the cascade depending on the presence of a person performing each
listed function.
The final rule does not adopt any changes to account specifically
for title insurance purchased a significant period of time after a
transfer of property. In those situations, FinCEN expects that the
underwriting of title insurance would not be part of the closing or
settlement process, and therefore another person in the reporting
cascade would file the report. However, in the rare situation where
there is no other person in the reporting
[[Page 70272]]
cascade participating in the closing or settlement of a reportable
transfer, the underwriter of title insurance may ultimately be required
to file the report when the insurance is eventually purchased.
b. Designation Agreements
Proposed Rule. Proposed 31 CFR 1031.320(c)(3) set forth the option
for persons in the reporting cascade to enter into an agreement
deciding which person should be the reporting person with respect to
the reportable transfer. For example, if a real estate professional
involved in the transfer provides certain settlement services in the
settlement process, as described in the first tier of the reporting
cascade, that person may enter into a written designation agreement
with a title insurance company underwriting the transfer as described
in the second tier of the reporting cascade, through which the two
parties agree that the title insurance company would be the designated
reporting person with respect to that transfer. The person who would
otherwise be the reporting person must be a party to the agreement;
however, it is not necessary that all persons involved in the transfer
who are described in the reporting cascade be parties to the agreement.
The agreement must be in writing and contain specified information,
with a separate agreement required for each reportable transfer.
Comments Received. Two business associations requested that the
rule allow for what they described as ``blanket'' designation
agreements. Such agreements would allow two or more persons described
in the reporting cascade to designate a potential reporting person for
a set period of time or a set number of transfers. For example, a
commenter put forward the example of a title insurance company and a
settlement company entering into an agreement wherein, for any transfer
in which they are both involved, the title insurance company would be
the designated reporting person. One of these commenters stated that
blanket designation agreements would bring a type of certainty that is
required for them to benefit from the costs savings provided by
designation agreements. A third business association argued that
designation agreements will not be effective, resulting in settlement
companies being the primary reporting person. A fourth business
association asked whether a third-party vendor could be a designated
reporting person.
Final Rule. In the final rule, FinCEN adopts the allowance for
designation agreements in 31 CFR 1031.320(c)(4) as proposed. Although
FinCEN sees the potential benefits of blanket designation agreements,
such agreements would undermine FinCEN's ability to enforce the rule,
particularly when a Real Estate Report is not filed as required, and
accordingly the final rule does not permit a blanket designation
agreement in lieu of a separate designation agreement for each relevant
transfer. A single transfer could be subject to multiple, potentially
overlapping, blanket designation agreements between different parties.
In such a situation, it would be difficult for FinCEN to determine
which person had ultimate responsibility for filing the report, and
even the persons described in the reporting cascade may not know who
had filing responsibility. By comparison, a separate designation
agreement for each transfer, describing the specific details of the
transfer, makes that determination straightforward. The designation
agreement is designed to provide an optional alternative to the
reporting cascade that can be effectively and efficiently implemented
by reporting persons if they choose. However, nothing in the final rule
prohibits persons in the reporting cascade from having an
understanding, in writing or otherwise, as to how they generally intend
to comply with the rule, provided that they continue to effect
designation agreements for applicable transfers.
The final rule also does not allow for third-party vendors who are
not described in the reporting cascade to be designated as a reporting
person, as such vendors are not financial institutions that can be
regulated by FinCEN; a reporting person could outsource the preparation
of the form to a third-party vendor, but the ultimate responsibility
for the completion and filing of the report would lie with the
reporting person.
4. 31 CFR 1031.320(d) Information Concerning the Reporting Person
Proposed Rule. Proposed 31 CFR 1031.320(d) set forth a requirement
that reporting persons must report their full legal name and the
category into which they fall in the reporting cascade, as well as the
street address of their principal place of business in the United
States.
Comments Received. FinCEN did not receive any comments on
reportable information concerning the reporting person.
Final Rule. FinCEN is adopting 31 CFR 1031.320(d) as proposed.
5. 31 CFR 1031.320(e) Information Concerning the Transferee
a. General Information Concerning Transferee Entities
Proposed Rule. Proposed 31 CFR 1031.320(e)(1) set forth a
requirement for the reporting of the name, address, and unique
identifying number of a transferee entity, as well as similar
identifying information for the beneficial owners of the transferee
entity and the persons signing documents on behalf of the transferee
entity.
Comments Received. One organization requested that the final rule
collect legal entity identifiers (LEIs) for transferee entities. As
described by the commenter, the LEI was developed by the International
Organization for Standards and is ``the only global standard for legal
entity identification.''
Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(e)(1)
as proposed. It does not incorporate the suggestion to require
reporting of LEIs. For purpose of this reporting requirement, FinCEN
believes that a TIN is preferable, as it is broadly utilized by law
enforcement and may be easily connected to other BSA documents.
b. General Information Concerning Transferee Trusts
Proposed Rule. Proposed 31 CFR 1031.320(e)(2) set forth a
requirement to report certain information about transferee trusts,
including the name of the trust, the date the trust instrument was
executed, the address of the place of administration, a unique
identifying number, and whether the trust is revocable. Proposed 31 CFR
1031.320(e)(2) also required the reporting of information about each
trustee that is an entity, including full legal name, trade name,
current address, the name and address of the trust officer, and a
unique identifying number. Furthermore, proposed 31 CFR 1031.320(e)(2)
required the reporting of identifying information about the trust's
beneficial owners and the individuals signing documents on behalf of
the trust.
Comments Received. Two industry organizations and two other
commenters associated with the title insurance industry argued that
information reportable for trusts should align with that on trust
certificates issued under State law. As described by one industry
organization, ``[u]nder the Uniform Trust Act promulgated by the
Uniform Law Commission and enacted in 35 states, a trustee is
authorized to issue a certification of trust containing much of the
information sought under
[[Page 70273]]
this proposed rule.'' Another commenter requested that the beneficial
ownership information collected under this rule align more closely with
that collected under the BOI Reporting Rule. One other commenter, a
non-profit organization, requested that the final rule collect legal
entity identifiers (LEIs) for transferee trusts, for the reason
discussed in Section III.C.5.a above with respect to legal entities.
Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(e)(2)
largely as proposed. FinCEN is persuaded by the recommendation to align
information collected about trust transferees more closely with what is
available on trust certificates. While they vary by state, trust
certificates generally contain much of a trust's basic identifying
information, such as the name of the trust, the date the trust was
entered into, the name and address of the trustee, and whether the
trust is revocable. The final rule eliminates the proposal to report
information identifying the trust officer or the address that is the
trust's place of administration, as this information is not commonly
found on trust certificates and FinCEN believes other information
collected will be sufficient to support law enforcement investigations.
However, reporting persons are still required to report some
information that may not be available on trust certificates, such as
the identifying information for the trustee, as this is basic
information necessary to conclusively identify the trust and to
effectively conduct investigations into illicit activity. FinCEN
believes this information will be readily collected by reporting
persons; for example, because trustees generally manage the assets of
the trust, the trustee will likely be directly involved in the transfer
of residential real property to the trust.
The final rule does not adopt the suggestion to completely align
the collection of beneficial ownership information with that collected
under the BOI Reporting Rule. While the two rules do align in the
collection of the beneficial owner's name, date of birth, and address,
they differ in two key respects: first, regarding the unique
identifying number, the real estate rule relies largely on TINs instead
of passport numbers; and second, the real estate rule collects
citizenship information, while the BOI Reporting Rule does not. As
discussed in Section III.B.6, TINs are a key piece of identifying
information for purposes of the database that would hold Real Estate
Reports, and other BSA reports typically require TINs for this reason.
Furthermore, FinCEN believes that the collection of citizenship
information is necessary in this context to better analyze the volume
of illicit funds entering the United States via entities or trusts
beneficially owned by non-U.S. persons and is a key element for
ensuring that the implementation of this rule will enhance and protect
U.S. national security. FinCEN notes that such citizenship information,
along with TINs, are reported on traditional SARs. Finally, the rule
does not incorporate the suggestion to require reporting of LEIs, for
the reasons discussed in Section III.C.2.d with respect to information
collected for transferee entities.
c. Beneficial Ownership Information of Transferee Entities and Trusts
Proposed Rule. Proposed 31 CFR 1031.320(e) set forth requirements
to report certain beneficial ownership information with respect to
transferee entities and transferee trusts. Proposed 31 CFR
1031.320(j)(1)(i) largely defined beneficial owners of transferee
entities through a reference to regulations in the BOI Reporting Rule,
specifically 31 CFR 1010.380(d). Similarly, proposed 31 CFR
1031.320(j)(1)(ii) established a definition for the beneficial owners
of transferee trusts by leveraging concepts from the BOI Reporting
Rule. For both transferee entities and transferee trusts, the proposed
regulation set forth that the determination of beneficial ownership
would be as of the date of closing. The proposed rule did not require
reporting persons to determine whether an individual was a beneficial
owner, allowing them instead to use a certification form described in
31 CFR 1031.320(e)(3) to collect beneficial ownership information
directly from a transferee trust or a person representing a trust in
the reportable transfer, as discussed further in Section III.B.4.
Comments Received. Three commenters expressed support for the
collection of beneficial ownership information on the Real Estate
Report, with one transparency organization specifically supporting the
proposed rule's adoption of definitions from the BOI Reporting Rule.
This commenter noted that the proposal would minimize confusion,
promote consistency, and maximize the ability to cross-reference data.
Multiple commenters, however, argued that the collection of beneficial
ownership information under the proposed rule is unnecessary due to the
collection of similar information under the BOI Reporting Rule. Some of
these commenters also argued that, if beneficial ownership information
is collected, it should be limited to the reporting of a FinCEN
Identifier, which is an identification number that reporting entities
and their beneficial owners may use to report beneficial ownership
information under the BOI Reporting Rule. An industry group
representing trust and estate lawyers argued that the definition of a
beneficial owner of a transferee trust should be limited to trustees,
rather than also including grantors/settlors and beneficiaries.
One commenter requested that the final rule retain the exception
from beneficial ownership information reporting found in 31 CFR
1010.380(d)(3)(ii) for nominees, intermediaries, custodians, and
agents, while two other commenters requested that the rule should
except reporting where a beneficial owner is a minor.
Final Rule. The final rule retains the requirement to provide
beneficial ownership information in the report, as proposed, with one
technical edit to correct a cross reference. FinCEN agrees that the
Real Estate Report will contain some information that is also reported
under the BOI Reporting Rule. However, because these two distinct
reports would be filed on different facets of a single legal entity's
activities, FinCEN believes it is appropriate for some of the same
information to be reported on both forms. As FinCEN explained in the
NPRM, the beneficial ownership information report (BOIR) and the report
required by this rule serve different purposes.
The information reported on a BOIR informs FinCEN about the
reporting companies that have been formed or registered in the United
States, while Real Estate Reports will inform FinCEN about the legal
entities, some of which may be ``reporting companies'' within the
meaning of the BOI Reporting Rule, that have participated in reportable
real estate transfers that Treasury believes to be at high risk for
money laundering. Real Estate Reports, by including beneficial
ownership information and real estate transfer information in a single
report, will enable law enforcement to investigate potential criminal
activity in a timely and efficient manner, and will allow Treasury and
law enforcement to connect money laundering through real estate with
other types of illicit activities and to conduct broad money laundering
trend analyses. BOIRs are kept secure but are intended to be made
available not only to government agencies but to financial institutions
for certain compliance purposes. Real Estate Reports will be subject to
all of the protections and limitations on access and use that already
apply to SARs.
[[Page 70274]]
The need for two different types of report, of course, does not
mean that FinCEN is not concerned about eliminating unnecessary
duplication of effort. FinCEN appreciates the suggestion that reporting
persons be allowed to submit FinCEN Identifiers in lieu of collecting
and submitting beneficial ownership information for legal entities that
are considered reporting companies under the BOI Reporting Rule.
However, FinCEN has identified a number of legal and operational
limitations that would prevent FinCEN from accepting FinCEN identifiers
outside of the CTA context.\40\ For instance, information provided to
FinCEN under the CTA, including the information provided in order to
obtain FinCEN identifiers, is housed in an information technology
system kept separate from other Bank Secrecy Act reports. The CTA
imposes strict limits on access to that system, and those statutory
limits are reflected in implementing regulations and the relevant
Privacy Act System of Records Notice.\41\ There is no reason to think
that persons entitled to access to CTA information will routinely also
be entitled to access to SARs and other BSA reports, or vice versa.
Thus, at this time, allowing FinCEN identifiers to be reported in lieu
of the underlying information would limit the usefulness of Real Estate
Reports to law enforcement. As discussed in Section II.A.2 in the
context of cross-referencing data from Residential Real Estate GTOs
with SARs, the ability to link non-financed transfers of residential
real property with other BSA reports is of significant value to law
enforcement. Thus, FinCEN has not adopted this suggestion in the final
rule.
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\40\ See FinCEN, ``Beneficial Ownership Information Access and
Safeguards,'' 88 FR 88732 (Dec. 22, 2023).
\41\ FinCEN, ``Notice of a New System of Records,'' 88 FR 62889
(Sept. 13, 2023).
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With regard to the comments suggesting a more limited definition of
a beneficial owner, FinCEN does not adopt the suggestion that
beneficial owners of trusts be limited to trustees. The final rule
instead adopts the approach in the proposed rule, which set forth
several positions in a transferee trust that FinCEN considers to be
occupied by the beneficial owners of the trust, including: the trustee;
an individual other than a trustee with the authority to dispose of
transferee trust assets; a beneficiary that is the sole permissible
recipient of income and principal from the transferee trust or that has
the right to demand a distribution of, or withdraw, substantially all
of the assets from the transferee trust; a grantor or settlor who has
the right to revoke the transferee trust or otherwise withdraw the
assets of the transferee trust; and the beneficial owner(s) of any
legal entity that holds at least one of these positions. The persons
holding these positions have clear ownership or control over trust
assets and therefore should be reported as beneficial owners of the
trust.
For legal entities, 31 CFR 1031.320(n)(1)(i) continues to reference
31 CFR 1010.380(d) and therefore the final rule incorporates exceptions
from the definition of beneficial owner of a reporting company; these
exceptions include nominees, intermediaries, custodians, and agents, as
well as minor children (when certain other information is reported).
For transferee trusts, the definition of beneficial owner in 31 CFR
1031.320(n)(1)(ii) does not contain exceptions mirroring those found in
the definition of a beneficial owner of a transferee entity. FinCEN
considered adding an exception for minor children as suggested by
commenters but believes at this time that such an exception is not
appropriate for trusts. Trusts, unlike legal entities, are largely
designed to transfer assets to family members such as minor children,
and therefore the reporting of minor children will accurately reflect
the nature of the trust and, in aggregate, will allow FinCEN to more
accurately determine the risks related to trusts. FinCEN notes,
however, that the definition of beneficial owner is unlikely to result
in significant reporting of minor children, as minor children would
fall into only one category of beneficial owner--as the beneficiary of
the transferee trust, and only when the minor child is the beneficiary
who is the sole permissible recipient of income and principal from the
transferee trust.
6. 31 CFR 1031.320(f) Information Concerning the Transferor
Proposed Rule. Proposed 31 CFR 1031.320(f) required the reporting
person to report information relevant to identifying the transferor,
such as the transferor's name, address, and identifying number. If the
transferor is a trust, similar information would be reported
identifying the trustee.
Comments Received. One think tank supported the collection of
information on transferors, while three industry organizations opposed
it, arguing that such information is unnecessary for law enforcement
and is redundant with other information available to law enforcement
through public land records, BOI reports filed under the CTA, or IRS
Form 1099-S.
Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(f) as
proposed. Information identifying the transferor is necessary to
identify certain money laundering typologies, such as where the
transferor and transferee are related parties mispricing the real
estate in order to transfer value from one to the other. There is
therefore a significant benefit to having the transferor's information
on the same report as the transferee's information. The transferor's
information is basic information about the transferor and does not
include information that may be more difficult to gather, such as
beneficial ownership information. There is a significant value in
adding transferor information in the same report as transferee
information and in the same database as information from other BSA
reports. FinCEN has addressed the suggestion that similar information
is available through reports filed under the BOI Reporting Rule or IRS
Form 1099-S in Section III.B.2.
7. 31 CFR 1031.320(g) Information Concerning the Residential Real
Property
Proposed Rule. Proposed 1031.320(g) required the reporting person
to report the street address, if any, and the legal description (such
as the section, lot, and block) of each residential real property that
is the subject of a reportable transfer.
Comments Received. FinCEN did not receive any comments related to
the reporting of information concerning residential real property.
Final Rule. FinCEN adopts 31 CFR 1031.320(g) with technical edits
that are meant to lay out the requirements more clearly, and a
modification to the text to require the reporting of the date of
closing. The NPRM requested comments as to whether the proposed
information reported regarding the description of the transferred
residential real property was sufficient. Although FinCEN received no
comments regarding the reporting of date of closing, FinCEN has
subsequently determined that such information is necessary for it to
confirm whether reporting persons are complying with the final rule.
The term ``date of closing'' was defined in the NPRM (and is adopted in
the final rule) to mean the date on which the transferee entity or
transferee trust receives an ownership interest in the residential real
property. As proposed in the NPRM and adopted in the final rule,
reporting persons have to ascertain the date of closing to make key
determinations, such as the filing
[[Page 70275]]
deadline, discussed in Section III.C.11, and whether an individual is a
beneficial owner, discussed in Section III.C.5.c. Because the date of
closing is information that a reporting person must obtain to comply
with the final rule and, relatedly, is information FinCEN also must
receive to enforce compliance with the rule, the reporting of such
information is a logical outgrowth of the NPRM. The parties to the
transfer will know the date of closing and be able to report that date
easily on the Real Estate Report.
8. 31 CFR 1031.320(h) Information Concerning Payments
Proposed Rule. Proposed 31 CFR 1031.320(h) set forth a requirement
that reporting persons report detailed information about the
consideration, if any, paid in relation to any reportable transfer.
This would include total consideration paid for the property, the
amount of each separate payment made by or on behalf of the transferee
entity or transferee trust, the method of such payment, the name of and
account number with the financial institution originating the payment,
and the name of the payor.
Comments Received. Several commenters argued that reporting persons
would not have ready access to the proposed information to be collected
about payments. An industry group, for example, stated that state-level
``good funds'' laws limit settlement agents to accepting fully and
irrevocably settled and collected funds, meaning typically wire
payments and cashier's checks, which would not contain information such
as the originator's full account number. A business clarified that, for
wire payments, a settlement company would only see: the date on which
the wire transfer was received; the amount of the wire transfer; the
name on the originator's account; the routing number for the sending
bank; the name of the bank used by the beneficiary; the beneficiary's
account number; the beneficiary's name and address; and wire
information providing a reference number relevant to escrow. Some
commenters also argued that the originating financial institution would
be unlikely to provide the relevant information; that the person
holding the originating account, such as an escrow company or attorney,
would similarly be unlikely to provide the relevant information; or
that transferees may refuse to provide information, believing the
reporting of account numbers would put them at risk.
To remedy these issues, commenters argued that payment information
should instead be limited to either the total consideration or to the
information readily available on wire instructions or a check. Some
commenters suggested eliminating the reporting of payment information
entirely, questioning the usefulness of reporting such information
given that covered financial institutions are likely involved in the
processing of such payments and that the reporting person may be
separately required to report payment information on a Form 8300, and
also raising concerns about the potential increased risk of fraud if
detailed account information is required to be reported.
Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(h)
largely as proposed, with edits to clarify the reporting of the total
consideration paid. FinCEN acknowledges that the information required
may be beyond what is normally available to the reporting person, but
nevertheless believes that the information can be readily collected
from the transferee. FinCEN expects that the adoption of the reasonable
reliance standard in this rule will help relieve concerns articulated
by commenters about the burden of verifying payment information or
their ability to collect such information. FinCEN also notes that
filers of IRS Form 1099-S must report the account numbers of
transferors and therefore believes these to be accessible to reporting
persons, many of whom file such forms.
FinCEN appreciates commenters' concerns about potential risks
associated with collecting and retaining detailed payment information
in relation to reportable transfers and believes that the removal of
the requirement to retain Real Estate Reports, in which personal
information would be aggregated, for five years, as discussed in
Section III.C.12, will help mitigate this risk.
9. 31 CFR 1031.320(i) Information Concerning Hard Money, Private, and
Similar Loans
Proposed Rule. Proposed 31 CFR 1031.320(i) set forth the
requirement that reporting persons report whether the transfer involved
an extension of credit from any institution or individual that does not
have AML program obligations.
Comments Received. FinCEN did not receive any comments about the
reporting of information concerning hard money, private, and similar
loans.
Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(i) as
proposed. FinCEN believes this information will be valuable to
understanding the risks presented by private lenders. FinCEN notes
that, as discussed in Section III.C.2.b covering the definition of a
non-financed transfer, reporting persons may rely on information from
the lender as to whether the lender has an AML program obligation.
10. 31 CFR 1031.320(j) Reasonable Reliance
The final rule adopts a reasonable reliance standard, set forth in
31 CFR 1031.320(j), that generally allows reporting persons, whether
when reporting information required by the final rule or when necessary
to make a determination to comply with the rule, to reasonably rely on
information provided by other persons. This change from the proposed
rule is explained in detail in Section III.B.4.
11. 31 CFR 1031.320(k) Filing Procedures
Proposed Rule. Proposed 31 CFR 1031.320(k) set forth a requirement
that reporting persons file a Real Estate Report with FinCEN no later
than 30 calendar days after the date of a given closing.
Comments Received. One transparency organization supported the 30-
day filing period, arguing that 30 days is both reasonable and
necessary to ensure that current and useful information is available to
law enforcement soon after a reportable transfer takes place. Two other
commenters, however, argued that a 30-day window would be too short a
timeframe in which to gather the required information and that it would
be burdensome to monitor differing filing dates for each reportable
transfer. As an alternative, these commenters proposed an annual filing
deadline, akin to IRS Form 1099-S, with another suggesting that a
quarterly filing deadline would also be an improvement.
Final Rule. In the final rule, FinCEN adopts, in 31 CFR
1031.320(k)(3), a reporting deadline of the final day of the following
month after which a closing took place, or 30 days after the date of
the closing, whichever is later. FinCEN believes that this approach
will reduce date tracking burdens for industry and may further reduce
the logistical burden of compliance by providing a longer period of
time in which to gather the reportable information, while still
providing timely information to law enforcement. FinCEN recognizes that
Real Estate Reports are unique when compared with other BSA reports and
therefore necessitate a unique reporting deadline. Real Estate Reports
require more information than forms such as a CTR or Form 8300--both
required to be filed within 15 days of a transaction--
[[Page 70276]]
and the information may need to be gathered from a variety of sources,
and not just from the single individual conducting the transaction.
Relatedly, traditional SARs, which must be filed within 30 days after
suspicious activity is detected, also frequently rely on information
known to the filer and, critically, are filed by financial institutions
required to have AML programs. FinCEN believes the final filing date
will benefit both reporting persons and law enforcement by ensuring
reporting persons have sufficient time to gather information, resulting
in more complete and accurate reports.
FinCEN believes that a filing period longer than adopted here would
adversely impact the utility of the reports for law enforcement and
that the extended filing period adopted in this final rule strikes the
appropriate balance between accommodating commenters' concerns and
ensuring timely reporting of transfers, particularly given other
modifications and clarifications in this rule. In particular, FinCEN
believes that the adoption of the reasonable reliance standard will
significantly reduce the time needed to file the form compared to
verifying the accuracy of each piece of information. FinCEN therefore
declines to adopt the longer quarterly or annual suggested filing
periods.
The final rule deletes as unnecessary the reference in proposed 31
CFR 1031.320(k) to the collection and maintenance of supporting
documentation. In contrast with a traditional SAR requirement, the
requirement to file a Real Estate Report does not require the reporting
person to maintain records documenting the reasons for filing, and
therefore there is no need to consider such documentation to have been
deemed filed with the Real Estate Report, or to reference such
documentation when discussing what a reporting person should file.
12. 31 CFR 1031.320(l) Retention of Records
Proposed Rule. Proposed 31 CFR 1031.320(l) set forth a requirement
that reporting persons maintain a copy of any Real Estate Report filed
and a copy of any beneficial ownership certification form provided to
them for five years. It also proposed that all parties to any
designation agreement maintain a copy of the agreement for five years.
Comments Received. Several commenters stated that retaining records
for five years represents an ongoing data storage cost and increases
concerns about data security. Two commenters expressed concern that
collecting and retaining the information that reporting persons would
need to FinCEN to report would run counter to the principles that
underly certain State laws that the comments stated were designed to
protect data privacy. One commenter argued that there were Fourth
Amendment implications for the records retention requirement, which
they viewed as requiring businesses to maintain records and produce
them to law enforcement on demand. However, a transparency organization
supported the proposed five-year recordkeeping requirement, noting also
that FinCEN would need access to the designation agreement to determine
who had responsibility for filing the report in a particular transfer.
Final Rule. The final rule retains the requirement that certain
records be kept for five years but limits the requirement to a copy of
any beneficial ownership certification form that was provided to the
reporting person, as well as a copy of any designation agreement. As
amended, the rule does not require reporting persons to retain a copy
of a Real Estate Report that was submitted to FinCEN. FinCEN believes
that eliminating the requirement to retain a Real Estate Report may
reduce concerns related to data security and to costs associated with
the retention of records. FinCEN also notes, more generally, that the
BSA reporting framework has long been held to be consistent with the
Fourth Amendment of the U.S. Constitution.\42\
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\42\ U.S. v. Miller, 425 U.S. 435 (1976).
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While FinCEN considered eliminating the record retention
requirement in its entirety, it believes that it is necessary to the
enforceability of the rule that reporting persons retain copies of
documents that will not be filed with FinCEN--namely, a copy of any
beneficial ownership information certification form and any designation
agreement to which a reporting person is a party. Furthermore, FinCEN
has retained the requirement in the proposed rule that all parties to a
designation agreement--not just the reporting person--must retain a
copy of such designation agreement, also to ensure enforceability of
the rule. As previously stated, records that are required to be
retained must be maintained for a period of five years.
13. 31 CFR 1031.320(m) Exemptions
Proposed Rule. Proposed 31 CFR 1031.320(m)(1) exempted reporting
persons, and any director, officer, employee, or agent of such persons,
and Federal, State, local or Tribal government authorities, from the
confidentiality provision in 31 U.S.C. 5318(g)(2) that prohibits the
disclosure to any person involved in a suspicious transaction that the
transaction has been reported or any information that would otherwise
reveal that the transaction has been reported.
Proposed 31 CFR 1031.320(m)(2) confirmed that the exemption from
the requirement to establish an AML program, in accordance with 31 CFR
1010.205(b)(1)(v), would continue to apply to those businesses that may
be reporting persons under the final rule. It also stated that no such
exemption applies for a financial institution that is otherwise
required to establish an anti-money laundering program, as provided in
31 CFR 1010.205(c).
Comments Received. FinCEN received one comment by 25 Attorneys
General that supported the exemption of Federal, State, local, or
Tribal government authorities from the confidentiality provision.
Additionally, one industry association supported the proposed rule's
exemption for reporting persons from establishing an AML program.
Final Rule. In the final rule, FinCEN adopts 31 CFR 1031.320(m)
largely as proposed, with one minor deletion for consistency. As in the
NPRM, FinCEN recognizes that the confidentiality provision in 31 U.S.C.
5318(g)(2) applying to financial institutions that file SARs is not
feasible with the Real Estate Report, as reporting persons needs to
collect information directly from the subjects of the Report, thus
revealing its existence. Moreover, all parties to a non-financed
residential real estate transfer subject to this rule would already be
aware that a report would be filed, given such filing is non-
discretionary, rendering confidentiality unnecessary. The final rule
maintains the exemption from the requirement for reporting persons to
establish an AML program. However, given the change discussed earlier
explicitly excluding financial institutions with AML program
obligations from the definition of a reporting person, the sentence
referring to such financial institutions has been deleted.
14. 31 CFR 1031.320(n) Definitions
Proposed Rule. The proposed rule set forth several definitions in
31 CFR 1031.320(j) for key concepts, such as ``transferee entity,''
``transferee trust,'' and the beneficial owners of these aforementioned
entities.
Comments Received. FinCEN received comments related to the
definition of ``Beneficial owner,'' discussed above in Section
III.C.5.c; ``Residential real property,'' discussed above in Section
[[Page 70277]]
III.C.2.a; ``Transferee entity,'' discussed above in Section III.C.2.d;
and ``Transferee trust,'' discussed above in Section III.C.2.e. FinCEN
did not receive comments on other proposed definitions.
Final Rule. For clarity, in the final rule, FinCEN moves the
paragraph containing definitions to the end of the regulations, so that
they appear at 31 CFR 1031.320(n). In addition to modifications and
clarifications discussed in the sections referenced above, the rule
adopts the following modifications:
<bullet> The definition of ``closing or settlement statement'' is
limited to the statement prepared for the transferee, as discussed in
Section III.C.3.a;
<bullet> The rule adds a definition for ``Non-financed transfer''
for clarity, as discussed in Section III.C.2.b;
<bullet> The rule is meant to be applied nationwide, and therefore
the definition of ``Recordation office'' is modified to make clear that
the recordation office may be located in a territory or possession of
the United States, and is not limited to State, local, or Tribal
offices for the recording of reportable transfers as a matter of public
record. As a result, a person may be a reporting person if they file a
deed or other instrument that transfers ownership of the residential
real property with a recordation office located in any state, local
jurisdiction, territory of possession of the United States, or Tribe;
<bullet> For clarity, the term ``Residential real property'' is
removed from the list of definitions found in 31 CFR 1031.320(n) and is
instead defined in 31 CFR 1031.320(b).
The remaining definitions are adopted as proposed.
IV. Effective Date
Proposed Rule. The NPRM proposed that the final rule would be
effective one year after the final rule is published in the Federal
Register.
Comments Received. Several industry commenters agreed that a one-
year delayed effective date is necessary to implement the requirements,
with some indicating that one year, at a minimum, would be feasible.
One commenter suggested that the final rule be implemented in phases to
allow industry time to adapt to the regulation.
Final Rule. The final rule provides for an effective date of
December 1, 2025, at which point reporting persons will be required to
comply with all of the rule's requirements, chief among them the
requirement to file Real Estate Reports with FinCEN. FinCEN believes
that this effective date, which delays the effective date by slightly
more than the one-year that industry commenters generally supported at
a minimum, will provide additional opportunity for potential reporting
persons to understand the requirements of the rule and put appropriate
compliance measures into place. Furthermore, this effective date will
provide FinCEN with the additional time necessary to issue the Real
Estate Report, including the completion of any process required by the
Paperwork Reduction Act (PRA).
However, FinCEN declines to adopt a phased approach to
implementation of the rule, such as by initially limiting the reporting
obligation to persons performing a limited number of functions
described in the reporting cascade or phasing-in the rule
geographically. FinCEN believes a phased approach would likely create
unneeded complexity for industry, as industry would need to adapt
processes and procedures multiple times over the implementation period.
A phased implementation would also undermine the effectiveness of the
rule for an extended period of time. The rule is intended to provide
comprehensive reporting for a subset of high-risk residential real
estate transfers; phased implementation may enable avoidance of
reporting requirements by illicit actors, replicating some of the
issues FinCEN has encountered under the Residential Real Estate GTOs.
V. Severability
If any of the provisions of this rule, or the application thereof
to any person or circumstance, is held to be invalid, such invalidity
shall not affect other provisions or application of such provisions to
other persons or circumstances that can be given effect without the
invalid provision or application.
Indeed, the provisions of this rule can function sensibly if any
specific provision or application is invalidated, enjoined or stayed.
For example, if a court were to hold as invalid the application of the
rule with respect to any category of potential reporting persons,
FinCEN would preserve the reporting cascade approach for all other
persons that perform the functions set out in the cascade. In such an
instance, the provisions of the rule should remain in effect, as those
provisions could function sensibly with respect to other potential
reporting persons. Likewise, if a court were to hold invalid the
application of the rule to any category of residential real property,
as defined, the other categories should still remain covered. Because
these categories operate independently from each other, the remainder
of the rule's provisions could continue to function sensibly: a
reportable transfer would continue to be a non-financed transfer of any
ownership interest in the remaining categories of residential real
property when transferred to a transferee entity or transferee trust.
Similarly, with respect to transferee entities and transferee trusts,
if a court were to enjoin FinCEN from enforcing the rule's reporting
requirements as applied to, for example, transferee trusts, the
reporting of transfers to transferee entities should continue because
the two types of transferees are separate and distinct from one
another. Thus, even if the transferee trust provisions were severed
from the rule, the remaining portions of the rule could still function
sensibly. In sum, in the event that any of the provisions of this rule,
or the application thereof to any person or circumstance, is held to be
invalid, FinCEN has crafted this rule with the intention to preserve
its provisions to the fullest extent possible and any adverse holding
should not affect other provisions.
VI. Regulatory Analysis
This regulatory impact analysis (RIA) evaluates the anticipated
effects of the final rule in terms of its expected costs and benefits
to affected parties, among other economic considerations, as required
by EOs 12866, 13563, and 14094. This RIA also affirms FinCEN's original
assessments of the potential economic impact on small entities pursuant
to the Regulatory Flexibility Act (RFA) and presents the expected
reporting and recordkeeping burdens under the Paperwork Reduction Act
of 1995 (PRA). Furthermore, it sets out the analysis required under the
Unfunded Mandates Reform Act of 1995 (UMRA).
As discussed in greater detail below, the rule is expected to
promote national security objectives and enhance compliance with
international standards by improving law enforcement's ability to
identify the natural persons associated with transfers of residential
real property conducted in the U.S. residential real estate sector, and
thereby diminish the ability of corrupt and other illicit actors to
launder their proceeds through real estate purchases in the United
States. More specifically, the collection of the transfer-specific
SARs--Real Estate Reports--in a repository that is readily accessible
to law enforcement and that contains other BSA reports is expected to
increase the efficiency with which resources can be utilized to
identify such natural persons, or beneficial owners, when they have
conducted non-financed purchases of residential real
[[Page 70278]]
property using legal entities or trusts, and to cross-reference those
beneficial owners and their legal entity or trust against other
reported financial activities in the system.
This RIA first describes the economic analysis FinCEN undertook to
inform its expectations of the rule's impact and burden. That is
followed by certain pieces of additional and, in some cases, more
specifically tailored analysis as required by EOs 12866, 13563, and
14094, the RFA, the UMRA, and the PRA, respectively. Responses to
public comments related to the RIA--regarding specific findings,
assumptions, or expectations, or with respect to the analysis in its
entirety--can be found in Sections VI.A.1.b and VI.C and have been
previewed and cross-referenced throughout the RIA.
A. Assessment of Impact
This final rule has been determined to be a ``significant
regulatory action'' under Section 3(f) of E.O. 12866 as amended by
14094. The following assessment indicates that the rule may also be
considered significant under Section 3(f)(1), as the rule is expected
to have an annual effect on the economy of $200 million or more.\43\
Consistent with certain identified best practices in regulatory
analysis, the economic analysis conducted in this section begins with a
review of FinCEN's broad economic considerations,\44\ identifying the
relevant market failures (or fundamental economic problems) that
demonstrate the need or otherwise animate the impetus for the policy
intervention.\45\ Next, the analysis turns to details of the current
regulatory requirements and the background of market practices against
which the rule will introduce changes (including incremental costs) and
establishes FinCEN's estimates of the number of entities and
residential real property transfers it anticipates to be affected in a
given year.\46\ The analysis then briefly reviews the final rule with a
focus on the specifically relevant elements of the definitions and
requirements that most directly inform how FinCEN contemplates
compliance would be operationalized.\47\ Next, the analysis proceeds to
outline the estimated costs to the respective affected parties that
would be associated with such operationalization.\48\ Finally, the
analysis concludes with a brief discussion of the regulatory
alternatives FinCEN considered in the NPRM, including a discussion of
the public comments received in response.\49\ Throughout the analysis,
FinCEN has attempted to incorporate public comments received in
response to the NPRM where most relevant. Certain broad commentary
themes that are pertinent to the RIA as a whole are addressed
specifically in Sections VI.A.1.b and VI.C below, while the remainder
are integrated into the general discussion throughout the rest of the
analysis.
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\43\ E.O. 12866, 58 FR 51735 (Oct. 4, 1993), section 3(f)(1);
E.O. 14094, 88 FR 21879 (Apr. 11, 2023), section 1(b).
\44\ See Section VI.A.1.
\45\ Broadly, the anticipated economic value of a rule can be
measured by the extent to which it might reasonably be expected to
resolve or mitigate the economic problems identified by such review.
\46\ See Section VI.A.2.
\47\ See Section VI.A.3.
\48\ See Section VI.A.4.
\49\ See Section VI.A.5.
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1. Economic Considerations
a. Broad Economic Considerations
As FinCEN articulated in the RIA of the NPRM, two problematic
phenomena animate this rulemaking.\50\ The first is the use of the
United States' residential real estate market to facilitate money
laundering and illicit activity. The second, and related, phenomenon is
the difficulty of determining who beneficially owns legal entities or
trusts that may engage in non-financed transfers of residential real
estate, either because this data is not available to law enforcement or
access is not sufficiently centralized to be meaningfully usable for
purposes of market level risk-monitoring or swift investigation and
prosecution. The second phenomenon contributes to the first, making
money laundering and illicit activity through residential real property
more difficult to detect and prosecute, and thus can reduce the
appropriate disciplinary and deterrent effects of law enforcement.
FinCEN therefore expects that the reporting of non-financed residential
real estate transfers required by this rule would generate benefits by
mitigating those two phenomena. In other words, FinCEN expects that
benefits would flow from the rule's ability to make law enforcement
investigations of illicit activity and money laundering through
residential real estate less costly and more effective, and it would
thereby generate value by reducing the social costs associated with
related illicit activity to the extent that it is more effectively
disciplined or deterred.
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\50\ See FinCEN, NPRM, ``Anti-Money Laundering Regulations for
Residential Real Estate Transfers,'' 89 FR 12424 (Feb. 16, 2024).
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b. Consideration of Comments Received
In completing the analysis to accompany the final rule, FinCEN took
all submitted public comments to the NPRM into consideration. While the
NPRM received over six hundred comment letters, fewer than 25 percent
of those comments presented non-duplicate content and a smaller
fraction still provided comment specifically with respect to the NPRM
RIA. The proportion of comment letters with non-duplicate content
represents highly geographically concentrated and geographically unique
feedback, which may therefore limit the generalizability of those
responses regarding baseline and burden-related elements to other
regions of the country and other local real estate markets that do not
face the same general housing market trends or state-specific legal
constraints. Where FinCEN has declined to revise its original analysis
in response to certain comments, an attempt has been made to provide
greater clarification of the reasons underlying FinCEN's original
methodological choices and expectations.
i. Comments Pertaining to Burden Estimates
Numerous comment letters spoke to the anticipated burden of the
rule, though there was substantial variation in parties' expectations
about which participant in a reportable transfer would ultimately bear
the financial costs. Some commenters expressed concern that, if
required to serve as the reporting person, they would not be able to
absorb the related costs. The majority of these commenters, however,
did not offer any explanation for why they would therefore not opt to
designate to another cascade member, though presumably the assumption
may have been that no other cascade member might be willing to agree.
This assumption may or may not be consistent with countervailing
incentives other cascade members face in facilitating reportable
transfers. Other commenters suggested that certain reporting persons
might be forced to absorb a large proportion of the rule's costs due
simply to their considerable market share in their particular industry.
Additionally, a substantial fraction of those who commented on the
burden of the rule signaled their expectation that to some degree the
financial costs would ultimately be passed along to the transferee, the
transferee's tenants, or to all housing market clients served by that
potential reporting person.
For purposes of the economic analysis, FinCEN notes that there may
be a meaningful distinction between the concept of being burdened, or
affected, by the rule and bearing the cost of the
[[Page 70279]]
rule. A party may be the primary affected business in terms of needing
to undertake the most new burden or incremental, novel activity to
comply with the rule, but to the extent that that work is compensated,
that party, for purposes of the RIA is not considered to also bear the
cost of the rule. The comments FinCEN received in response to the NPRM
suggest that there may be considerable variation across states in the
distinction between where businesses may be primary affected businesses
only and where businesses may be both those primarily affected and
those that bear the majority of the rule's costs.
Separately, FinCEN notes that while the vast majority of comment
letters spoke to at least one element of burden as a concern, very few
provided competing estimates or alternative methods to quantify the
expected burden of the proposed rule in its entirety. Many commenters,
in fact, took FinCEN estimates as given when making their own
arguments, suggesting that at least on some level, they found the
estimates reasonably credible. In cases where commenters most strongly
disagreed with the magnitude of FinCEN estimates (suggesting that
FinCEN vastly underestimated the burden of the rule), it is unclear
whether the same differences would persist in light of the
clarifications and modifications to the proposed rule that have been
made in the process of finalization. Given the divergence between what
some commenters originally interpreted the rule to require of them and
what the final rule would entail, a number of those concerns--including
concerns related to the expected verification of information that are
addressed by the reasonable reliance standard adopted in the final
rule--may now be less pressing.
The primary revision that FinCEN has made to the RIA in response to
commenters is with respect to wage estimates for the industry
categories represented in the reporting cascade. In addition to
updating wages to incorporate the BLS's most recent annual figures,
FinCEN also elected to incorporate the 90th percentile wage values
instead of the national average index values used in the NPRM RIA. This
more conservative approach is meant to address certain commenter
concerns that FinCEN's expected costs might underestimate the market
wage rates reporting persons would need to pay, particularly because
more reporting might occur in geographic areas where skilled labor
commands higher compensation. Adopting this more conservative, higher
wage rate approach does not reflect any change in FinCEN's expectations
about the underlying burden of compliance with the rule.
ii. Comments Suggesting Additional Analysis
A few comment letters suggested that FinCEN's analysis may have
benefited from additional research activities, robustness tables, or
analyses of distributional effects. While in principle FinCEN does not
object to more, and more empirically robust, quantitative analysis of
any of its policies, it is nevertheless unpersuaded that the analyses
requested would have changed the conclusions those additional
analytical activities would have informed. In none of the enumerated
requests for additional analysis did the commenter convincingly
substantiate how the findings of their requested items might have
actionably changed the contours of the final policy without impairing
its expected efficacy.
2. Baseline and Affected Parties
To assess the anticipated regulatory impact of the rule, FinCEN
took several factors about the current state of the residential real
estate market into consideration. This is consistent with established
best practices and certain requirements \51\ that the expected economic
effects of a rule be measured against the status quo as a primary
counterfactual. Among other factors, FinCEN's economic analysis of
regulatory impact considered the rule in the context of existing
regulatory requirements, relevant distinctive features of groups likely
to be affected by the rule, and pertinent elements of current
residential real estate market characteristics and common practices.
Each of these elements, including additional details and clarifications
responsive to comments received, is discussed in its respective
subsection below.
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\51\ Office of Management and Budget, Circular A-4 (Nov. 9,
2023), available at <a href="https://www.whitehouse.gov/wp-content/uploads/2023/11/CircularA-4.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/11/CircularA-4.pdf</a>.
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a. Regulatory Baseline
While there are no specific Federal rules that would directly and
fully duplicate, overlap, or conflict with the rule, there are
nevertheless components of the rule that mirror, or are otherwise
consistent with, reporting and procedural requirements of existing
FinCEN rules and orders, as well as those of other agencies. To the
extent that a person would have previous compliance experience with
these elements of the regulatory baseline, FinCEN expects that some
costs associated with the rule would be lower because the incremental
changes in behavior from current practices would be smaller. FinCEN
reviews the most proximate components from these existing rules and
orders in greater detail below.
i. Residential Real Estate GTOs
Under the Residential Real Estate GTOs, covered title insurance
companies are required to report: ``(i) The dollar amount of the
transaction; (ii) the type of transaction; (iii) information
identifying a party to the transaction, such as name, address, date of
birth, and tax identification number; (iv) the role of a party in the
transaction (i.e., originator or beneficiary); and (v) the name,
address, and contact information for the domestic financial institution
or nonfinancial trade or business.''
As discussed above, FinCEN recognizes that the Residential Real
Estate GTOs collect beneficial ownership information for certain non-
financed purchases of residential real property by legal entities that
meet or exceed certain dollar thresholds in select geographic areas.
However, the Residential Real Estate GTOs are narrow in that they are
temporary, location-specific, and limited in the transactions they
cover. The rule is wider in scope of coverage and will collect
additional useful and actionable information previously not available
through the Residential Real Estate GTOs. As such, the nationwide
reporting framework for certain residential real estate transfers will
replace the current Residential Real Estate GTOs.
Some evidence suggests that, despite the restriction of reporting
persons under the existing Residential Real Estate GTOs to title
insurance companies only, certain additional categories of real estate
professionals may already be familiar--and have experience--with
gathering the currently required information. For example, FinCEN
observes that in some markets presently covered by the Residential Real
Estate GTOs, realtors and escrow agents often assist title insurance
companies with their reporting obligations despite not being subject to
any formal reporting requirements themselves. Some may even have
multiple years' worth of guidance and informational support by the
regional or national trade association of which they are a member in
how best to facilitate and enable compliance with existing FinCEN
requirements. For instance, in 2021, the National Association of
Realtors advised that while ``[r]eal estate professionals do
[[Page 70280]]
not have any affirmative duties under the Residential Real Estate
GTOs,'' such entities should nevertheless expect that ``a title
insurance company may request information from real estate
professionals to help maintain its compliance with the Residential Real
Estate GTOs. Real estate professionals are encouraged to cooperate and
provide information in their possession.'' \52\ Thus, the historical
Residential Real Estate GTOs' attempt to limit the definition of
reporting persons to title insurance companies does not seem to have
completely forestalled the imposition of time, cost, and training
burdens on other real estate transfer-related businesses. As such, the
cascading reporting approach might not mark a complete departure from
current practices and the related burdens of Residential Real Estate
GTO requirements, as they may already in some ways be functionally
applicable to multiple prospective reporting persons in the rule's
reporting cascade.
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\52\ See National Association of Realtors, ``Anti-Money
Laundering Voluntary Guidelines for Real Estate Professionals''
(Feb. 16, 2021), p. 3, available at <a href="https://www.narfocus.com/billdatabase/clientfiles/172/4/1695.pdf">https://www.narfocus.com/billdatabase/clientfiles/172/4/1695.pdf</a>.
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ii. BOI Reporting Rule
Furthermore, following the enactment of the CTA, beneficial
ownership information of certain legal entities is required to be
submitted to FinCEN. However, as set out in the NPRM preamble and also
discussed above,\53\ the information needed to ascertain money
laundering risk in the residential real estate sector differs in key
aspects from what is collected under the CTA, and, accordingly, the
information collected under this rule differs from that collected under
the CTA.
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\53\ See Section III.C.5.c.
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For example, FinCEN believes that a critical part of the rule is
that it will alert law enforcement to the fact that a residential real
estate transfer fitting within a known money laundering typology has
taken place. While beneficial ownership information collected under the
CTA may be available, that information concerns the ownership
composition of a given entity at a given point in time. As such
reporting does not dynamically extend to include information on the
market transactions of the beneficially owned legal entity, it would
not alert law enforcement officials focused on reducing money
laundering that any real estate transfer has been conducted, which
includes those particularly vulnerable to money laundering such as non-
financed transfers of residential property.
Furthermore, the scope of entities that are the focus of the real
estate rule is broader than the CTA, as certain types of entities,
including most trusts, are not required to report under the CTA.
Because non-excepted trusts under the residential real estate rule
generally do not have an obligation to report beneficial ownership
under the CTA, their incremental burden of compliance with the Real
Estate Report requirements may be moderately higher insofar as the
activities of collecting, presenting, or certifying beneficial
ownership information are less likely to have already been performed
for other purposes.
iii. Customer Due Diligence (CDD) Rule
The CDD Rule's \54\ beneficial ownership requirement addressed a
regulatory gap that enabled persons looking to hide ill-gotten proceeds
to potentially access the financial system anonymously. Among other
things, it required covered financial institutions to identify and
verify the identity of beneficial owners of legal entity customers,
subject to certain exceptions and exemptions; beneficial ownership and
identification therefore became a component of AML requirements.
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\54\ FinCEN, ``Customer Due Diligence Requirements for Financial
Institutions,'' 81 FR 29398 (May 11, 2016).
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Financial institutions subject to the CDD Rule are required to
collect some beneficial ownership information from legal entities that
establish new accounts. However, this rule covers non-financed
transfers of residential real estate that do not involve financial
institutions covered by the CDD Rule. The rule would also collect
additional information relevant to the real estate transfers that is
currently not collected under the CDD Rule.
iv. Other (Form 1099-S)
In the course of current residential real estate transfers, some
parties that might be deemed ``transferors'' under the rule already
prepare and report portions of the requisite information to other
regulators. For example, the IRS collects taxpayer information through
Form 1099-S on seller-side proceeds from reportable real estate
transfers for a broader scope of reportable real estate transfers than
this rule.\55\ This information, however, is generally unavailable for
one of the primary purposes of this rule, as there are significant
statutory limitations on the ability of the IRS to share such
information with Federal law enforcement or other Federal agencies. In
addition to these statutory limitations on IRS disclosure of taxpayer
information, details about the buyer's beneficial ownership (the focus
of this rule) largely fall outside the scope of transaction information
reported on the Form 1099-S.
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\55\ Reportable real estate for purposes of IRS Form 1099-S
includes, for example, commercial and industrial buildings (without
a residential component) and non-contingent interests in standing
timber, which are not covered under the rule.
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However, IRS Form 1099-S is nonetheless relevant to the rule's
regulatory baseline, given the process by which the Form 1099-S may be
prepared and submitted to the IRS. Similar to the Real Estate Report,
the person responsible for filing the IRS Form 1099-S can either be
determined through a cascade of the various parties who may be involved
in the closing or settlement process, or, alternatively, certain
categories of the involved parties may enter into a written agreement
at or before closing to designate who must file Form 1099-S for the
transaction. The agreement must identify the designated person
responsible for filing the form, but it is not necessary that all
parties to the transaction, or that more than one party even, enter
into the agreement. The agreement must: (1) identify by name and
address the person designated as responsible for filing; (2) include
the names and addresses of each person entering into the agreement; (3)
be signed and dated by all persons entering into the agreement; (4)
include the names and addresses of the transferor and transferee; and
(5) include the address and any other information necessary to identify
the property. The rule's designation agreement requires, and is limited
to, the same five components that may be included in a designation
agreement accompanying Form 1099-S. Therefore, the exercise of
designation, as well as the collection of information and signatures
that it involves, may already occur in connection with certain
transfers of residential real property and in these cases be leveraged
at minimal additional expense.
[[Page 70281]]
b. Baseline of Affected Parties
i. Transferees
Legal Entities
According to a recent study \56\ that analyzed Ztrax data \57\
covering 2,777 U.S. counties and over 39 million residential housing
market transactions from 2015 to 2019, the proportion of average
county-month non-financed residential real estate transactions
involving purchases by legal entities was approximately 11 percent
during the five-year period analyzed. When the sample is divided into
counties that, by 2019, were under Residential Real Estate GTOs versus
those that were never under Residential Real Estate GTOs, the
proportions of average county-month non-financed sales to total
purchases are approximately 13.6 percent and 11.2 percent,
respectively.
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\56\ See Matthew Collin, Florian Hollenbach, and David Szakonyi,
``The impact of beneficial ownership transparency on illicit
purchases of U.S. property,'' Brookings Global Working Paper #170,
(Mar. 2022), p. 14, available at <a href="https://www.brookings.edu/wp-content/uploads/2022/03/Illicit-purchases-of-US-property.pdf">https://www.brookings.edu/wp-content/uploads/2022/03/Illicit-purchases-of-US-property.pdf</a>.
\57\ Zillow, Transaction and Assessment Database (ZTRAX),
available at <a href="https://www.zillow.com/research/ztrax/">https://www.zillow.com/research/ztrax/</a>.
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Legal entities that own U.S. residential real estate vary by size
and complexity of beneficial ownership structure, and by some measures,
have increased market participation over time.\58\ FinCEN analysis of
the Department of Housing and Urban Development and Census Bureau's
Rental Housing Finance Survey (RHFS) data for 2018 found that micro
investors or small business landlords who owned 1-2 units owned 66
percent of all single family and multifamily structures with 2-4 units.
Conversely, investors in the residential rental market who owned at
least 1,000 properties owned only 2 percent of single-family homes and
multi-family structures.
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\58\ See Redfin, ``Investors Bought 26% of the Country's Most
Affordable Homes in the Fourth Quarter--the Highest Share on
Record,'' (Feb. 14, 2024), available at <a href="https://www.redfin.com/news/investor-home-purchases-q4-2023/">https://www.redfin.com/news/investor-home-purchases-q4-2023/</a>.
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FinCEN did not receive any comments, studies, or data that
meaningfully conflict with these estimates or the manner in which they
informed the NPRM RIA's initial estimates of the number of reportable
transfers per year.
Trusts
The final rule requires the reporting of certain non-finance
transfers of residential real property to transferee trusts.\59\
Residential real property purchases by transferee trusts have not
generally been reported under the Residential Real Estate GTOs and the
entities themselves are typically \60\ not subject to beneficial
ownership reporting requirements under the CTA. Therefore, FinCEN
expects that trusts would be more homogenously newly affected by the
rule than legal entities, discussed above, as a cohort of affected
parties.
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\59\ See Section III.C.2.e.
\60\ FinCEN notes that while most trusts are not reporting
companies under the BOI Reporting Rule, a reporting company would be
required to report a beneficial owner that owned or controlled the
reporting company through a trust.
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Establishing a baseline population of potentially affected
transferee trusts based on the existing population of legal trusts is
challenging for several reasons. These reasons include the general lack
of comprehensive and aggregated data on the number,\61\ value, usage,
and holdings of trusts formed in the United States, which in turn is a
result of heterogeneous registration and reporting requirements,
including instances where neither requirement currently exists. Because
domestic trusts are created and administered under State law, and
states have broad authority in how they choose to regulate trusts,
there is variation in both the proportion of potential transferee
trusts that are currently required to register as trusts in their
respective states as well as the amount of information a given trust is
required to report to its state about the nature of its assets or its
structural complexity. Thus, limited comparable information may be
available at a nationwide level besides what is reported for Federal
tax purposes, and what is available is unlikely to represent the full
population of potentially affected parties that would meet the
definition of transferee trust if undertaking the non-financed transfer
of residential real property.
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\61\ FinCEN notes that while the U.S. Census Bureau does produce
annual statistics on the population of certain trusts (NAICS 525--
Funds, Trusts, and Other Financial Vehicles), such trusts are
unlikely to be affected by the rule and thus their population size
is not informative for this analysis.
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International heterogeneity in registration and reporting
requirements for foreign trusts creates similar difficulties in
assessing the population of potentially affected parties that are not
originally registered in the United States. Further complicating this
assessment is the exogeneity and unpredictability of changes to foreign
tax and other financial policies, which studies in other, related
contexts have shown, generally affect foreign demand for real
estate.\62\
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\62\ See, e.g., Cristian Badrinza and Tarun Ramadorai, ``Home
away from home? Foreign demand and London House prices,'' Journal of
Financial Economics 130 (3) (2018), pp. 532-555, available at
<a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X18301867?via%3Dihub">https://www.sciencedirect.com/science/article/abs/pii/S0304405X18301867?via%3Dihub</a>; see also Caitlan S. Gorback and
Benjamin J. Keys, ``Global Capital and Local Assets: House Prices,
Quantities, and Elasticities,'' Technical Report, National Bureau of
Economic Research (2020), available at <a href="https://www.nber.org/papers/w27370">https://www.nber.org/papers/w27370</a>.
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While it is difficult to know exactly how many existing trusts
there are, and within that population how many own residential real
property (as a potential indicator of what proportion of new trusts
might eventually be used to own residential real property), there is
nevertheless a consistency in the limited existing empirical evidence
that would support a conjecture that proportionally few of the expected
reportable transfers would be likely to involve a transferee trust. A
recent study of U.S. single-property residential purchases that
occurred between 2015 and 2019 identified a trust as the buyer in 3.3
percent of observed transactions.\63\ FinCEN also conducted additional
analysis of publicly available data that might help to quantify the
proportion of trust ownership in residential real estate and more
clearly account for non-sale transfers for no consideration. Based on
the RHFS, identifiable trusts accounted for approximately 2.5 percent
of rental housing ownership and approximately 8.2 percent of non-
natural person ownership of rental housing.\64\
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\63\ See Matthew Collin, Florian Hollenbach, and David Szakonyi,
``The impact of beneficial ownership transparency on illicit
purchases of U.S. property,'' Brookings Global Working Paper #170,
(Mar. 2022), p. 14, available at <a href="https://www.brookings.edu/wp-content/uploads/2022/03/Illicit-purchases-of-US-property.pdf">https://www.brookings.edu/wp-content/uploads/2022/03/Illicit-purchases-of-US-property.pdf</a>.
\64\ See U.S. Census Bureau, Rental Housing Finance Survey
(2021), available at <a href="https://www.census.gov/data-tools/demo/rhfs/#/?s_year=2018&s_type=1&s_tableName=TABLE2">https://www.census.gov/data-tools/demo/rhfs/#/?s_year=2018&s_type=1&s_tableName=TABLE2</a>.
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To the extent that trusts' current residential real property
holdings are linear in the number of housing units and current holdings
is a reliable proxy for future purchasing activity, FinCEN does not
expect the proportion of reportable transfers involving a transferee
trust to exceed 5 percent of potentially affected transfers. No further
refinements to this upper-bound-like estimate, based on the number of
existing trusts that may be affected, would be feasible without a
number of additional assumptions about market behavior that FinCEN
declines to impose in the absence of better/more data.
While the majority of public comments pertaining to trusts
suggested that the number of affected trusts would be substantially
higher than the original RIA had anticipated, FinCEN is not revising or
updating its baseline
[[Page 70282]]
estimates at this stage because the final rule has adopted certain
broad exceptions that materially limit the reporting of transfers to
trusts.
Excepted Transferees
Exceptions to the general definitions of transferee entities and
transferee trusts apply to certain highly regulated entities and trusts
that are subject to AML/CFT program requirements or to other
significant regulatory reporting requirements.
For example, PIVs that are investment companies and registered with
the SEC under section 8 of the Investment Company Act of 1940 are
excepted, while unregistered PIVs engaging in reportable transfers are
not. Unregistered PIVs are instead required to provide the reporting
person with specified information, particularly including the required
information regarding their beneficial owners. FinCEN analysis of costs
below continues to assume that any such unregistered PIV stood up for a
reportable transfer would generally have, or have low-cost access to,
the information necessary for filing Real Estate Reports. FinCEN
expects that a PIV that is not registered with the SEC--which can have
at maximum four investors whose ownership percent is or exceeds 25
percent (the threshold for the ownership prong of the beneficial
ownership test for entities)--would likely either (1) be an extension
of that large investor, or (2) have a general partner who actively
solicited known large investors. In either case, the unregistered PIV
is likely to have most of the beneficial ownership information that
would be required to complete the Real Estate Report and access to the
beneficial owner(s) to request the additional components of required
information not already at hand. FinCEN did not receive any comments
indicating that these expectations are unreasonable and thus continues
to operate under these assumptions with respect to baseline costs.
Operating companies subject to the Securities Exchange Act of
1934's current and periodic reporting requirements, including certain
special purpose acquisition companies (SPACs) and issuers of penny-
stock, are also excepted transferees under this rule. FinCEN notes that
the percent ownership threshold for beneficial ownership for SEC
regulatory purposes is considerably lower than as defined in the CTA
and related Exchange Act beneficial ownership-related disclosure
obligations usually apply to more control persons at such a registered
operating company.\65\ Additionally, disclosures about the acquisition
of real estate, including material non-financed purchases of
residential property, are already required in certain periodic reports
filed with the SEC.\66\ Therefore, an incremental informational benefit
from not excepting SEC-registered operating companies as transferees
for the purposes of this rule's reporting requirements may either not
exist or, at best, be very low while the costs to operating companies
of reporting and compliance with an additional Federal regulatory
agency are expected to be comparatively high.
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\65\ See U.S. Securities and Exchange Commission, ``Officers,
Directors, and 10% Shareholders,'' available at <a href="https://www.sec.gov/education/smallbusiness/goingpublic/officersanddirectors">https://www.sec.gov/education/smallbusiness/goingpublic/officersanddirectors</a>.
\66\ See, e.g., U.S. Securities and Exchange Commission,
Instructions to Item 2.01 on Form 8-K; see also 17 CFR 210.3-14.
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Some commenters expressed concern that it might be difficult or
burdensome for reporting persons to determine if a transfer might be
exempt from reporting on the basis of the transfer being made to an
excepted transferee. However, the final rule adopts a reasonable
reliance standard, and therefore the reporting person may reasonably
rely on information provided by others as described in Section
III.B.2.4, including with respect to whether the transferee is exempt.
Furthermore, should a reporting person nevertheless want to verify the
excepted status of a transferee, FinCEN notes that the status of
transferees as excepted pursuant to being registered with the SEC
should be easily verifiable by a name search in the agency's Electronic
Data Gathering, Analysis, and Retrieval (EDGAR) system, which can be
queried using open access, publicly available search tools.
ii. Reporting Entities
Because the reporting cascade is ordered by function performed, or
service provided, rather than by defined occupations or categories of
service providers,\67\ attribution of work to the capacity in which a
person is primarily employed is necessarily imprecise. To account for
the need to map from services provided to entities providing such
services as a prerequisite to estimating the number of potentially
affected parties, FinCEN acknowledges, but abstracts from, the common
observation that title agents and settlement agents are ``often the
same entity that performs two separate functions in a real estat
[…truncated; see source link]Indexed from Federal Register on August 29, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.