Anti-Money Laundering Update

Real estate money laundering continues to be a growing concern among governments around the world. By some estimates, the problem has reached $1.6 trillion a year globally.

While financial institutions are on the front lines of efforts to combat criminals and terrorist organizations engaged in money laundering schemes, real estate professionals are increasingly called upon to support the battle.

In the U.K., for example, regulations enacted in 2017 require real estate agents to carry out due diligence on their customers, including identifying the beneficial owners of shell companies, before entering into a business relationship with them, as well as monitoring buyer/seller activities throughout the transaction.

In the U.S., the Financial Crimes Enforcement Network (FinCEN) is one of the U.S. Treasury’s leading agencies in the fight against money laundering and  the financing of terrorism.

While real estate firms and professionals engaged in brokerage or property management activities are not required to implement formal anti-money laundering programs like regulated financial institutions, Treasury has the ability to expand coverage of these requirements.

NAR works closely with FinCEN to support its efforts combating money laundering while also defending against unnecessary or duplicative regulation on the real estate industry.

U.S. Geographic Targeting Orders

Starting in 2016, FinCEN began imposing data collection and reporting requirements upon title companies for certain all-cash high-end purchases via shell companies in Manhattan, New York and Miami-Dade County, Florida under Geographic Targeting Orders (GTOs).

Subsequently, FinCEN has repeatedly extended and expanded the GTOs, with the latest requirements lowering the reporting thresholds and requiring reporting in counties in nine different states.

The latest extension became effective last November and is set to conclude on May 15, 2019. It is expected the GTOs will be extended again at that time and potentially expanded to more jurisdictions.

What’s New?

FinCEN’s most recent targeting orders are notable in three key areas:

1. No longer limited to high-end transactions. Threshold lowered to $300,000 for all jurisdictions.
2. Broader geographic coverage. Twelve areas now included in the targeting order. (See map)
3. Virtual currencies. All-cash payments¹ now include non-traditional virtual currency sources.

Qualifying Purchases

FinCEN's current GTO applies to transactions meeting these conditions:

• What: Residential real estate
• Where: Designated metropolitan areas in nine states (see map)
• When: Title companies must report beneficial ownership information within 30 days of closing
• Who: Purchased by a legal entity (i.e., corporation, LLC, partnership)
• How: Purchased without external financing
• Amount: $300,000+

Join the Fight

Real estate money laundering can manifest itself in any market around the world. In the U.S., such financial crimes are not limited to the areas covered by FinCEN’s GTOs. Therefore, every real estate professional should assist their respective law enforcement agencies and financial institutions to keep criminal activity out of the real estate market.

Potential Red Flags

Know the warning signs. The presence of one or more of the following risk factors does not automatically translate into money laundering. Exercise sound judgment and take proper action if you spot substantial red flags:

Geographic Risk²

Buyer or funds are coming from a jurisdiction with:

• Weak anti-money laundering systems
• Support for terrorism
• Significant political corruption

Customer Risk

• Considerable, unexplained distance between buyer and property
• Unusual third-party involvement
• Use of shell corporations to hide identity
• High-ranking foreign political official/family

Transaction Risk

• Under- or over-valued properties
• Use of large amounts of cash
• Purchase is inconsistent with buyer's means
• Immediate resale of the property
• Speed of transaction (without reasonable explanation)
• Unusual source of funding
• No interest in property details or viewing the property

Taking Action

Your obligation to report suspicious activities varies by jurisdiction. Consult your managing broker and an attorney before proceeding.

U.S. agents have two options:

• File a suspicious activity report using FinCEN's Bank Secrecy Act (BSA) e-filing system at bsaefiling.fincen.treas.gov/main.html. Call 800-949-2732 for assistance.
• Report your concerns to local law enforcement or the Federal Bureau of Investigations (FBI).

Form 8300

Note that U.S. real estate agents are also obligated to file a Form 8300 with the Internal Revenue Service (IRS) if they receive more than $10,000 in cash in the course of a single transaction or two or more related transactions.

Learn More

The best way to combat money laundering schemes is to learn more about the issue and your obligations as real estate professionals. NAR provides numerous resources for U.S.-based members at www.nar.realtor/money-laundering-and-terrorism-financing.

¹Such as currency, checks, money orders, and wire transfers.

²Risky jurisdictions appear in the U.S. Treasury Department's Office of Foreign Asset Control (OFAC) list of Specially Designated Nationals and Blocked Persons, also called the SDN List.