# Anti-Money Laundering Regulations for Residential Real Estate Transfers

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-02565

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** February 16, 2024
- **Citation:** 89 FR 12424

## Text

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:

Notice of proposed rulemaking.

SUMMARY:

FinCEN is issuing a proposed rule to require certain persons involved in real estate closings and settlements to submit reports and keep records on identified non-financed transfers of residential real property to specified legal entities and trusts on a nationwide basis. Transfers made directly to an individual would not be covered by this proposed rule. The proposed 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; Federal, State, and local 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 the purchase of residential real property, which threatens U.S. economic and national security.

DATES:

Written comments on this proposed rule must be submitted on or before April 16, 2024.

ADDRESSES:

Comments may be submitted by any of the following methods:

•
Federal E-Rulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. Refer to Docket Number FINCEN-2024-0005 and RIN 1506-AB54.

•
Mail:
Policy Division, Financial Crimes Enforcement Network, P.O. Box 39, Vienna, VA 22183. Refer to Docket Number FINCEN-2024-0005 and RIN 1506-AB54.

Please submit comments by one method only.

FOR FURTHER INFORMATION CONTACT:

The FinCEN Regulatory Support Section at 1-800-767-2825 or electronically at
frc@fincen.gov.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

The U.S. Department of the Treasury (Treasury) has long recognized the illicit finance risks posed by abuse of the U.S. real estate market and of legal entities and trusts by criminals and corrupt officials to launder ill-gotten gains through transfers of residential real estate. The abuse of U.S. residential real estate markets threatens U.S. economic and national security and can disadvantage individuals and small businesses that seek to compete fairly in the U.S. economy. The proposed rule is designed to enhance transparency nationwide in the U.S. residential real estate market and to assist Treasury, law enforcement, and national security agencies in protecting U.S. economic and national security interests by requiring certain persons involved in real estate closings and settlements to file reports and maintain records related to identified non-financed transfers of residential real estate to specified legal entities and trusts on a nationwide basis, including information regarding beneficial owners of those entities and trusts.

Among the persons required by the Bank Secrecy Act (BSA) to maintain anti-money laundering (AML) programs are “persons involved in real estate closings and settlements.”
1

Yet, for many years, FinCEN has exempted such persons from comprehensive regulation under the BSA and has issued a series of time-limited and geographically focused “geographic targeting orders” (GTOs) to the real estate sector in lieu of more comprehensive regulation. Information received in response to FinCEN's GTOs relating to non-financed transfers of residential real estate (Residential Real Estate GTOs) have demonstrated the need for increased transparency and further regulation of this sector. This notice of proposed rulemaking (NPRM) thus proposes a new reporting requirement for non-financed residential real estate transactions, consistent with the BSA's longstanding directive to impose AML requirements on persons involved in real estate closings and settlements. At the same time, FinCEN has carefully considered the comments received in response to an advance notice of proposed rulemaking (ANPRM) on Anti-Money Laundering Regulations for Real Estate Transactions, and FinCEN appreciates the burdens that traditional AML program and SAR requirements may impose on persons involved in real estate transactions. This NPRM therefore proposes a streamlined reporting framework designed to minimize unnecessary burdens while also enhancing transparency. Although certain information collected under this proposed rule may also be available to law enforcement, in some instances, through the new beneficial ownership reporting requirements imposed by the Corporate Transparency Act (CTA), the CTA's reporting regime and this proposed rule serve different purposes.

1
31 U.S.C. 5312(a)(2)(U).

In contrast to the beneficial ownership reporting requirements outlined in the CTA, this proposed rule is a tailored reporting requirement that would capture a particular class of activity that Treasury deems high-risk and that warrants reporting on a transaction-specific basis. More specifically, the proposed rule would require certain persons involved in residential real estate closings and settlements to file, and to maintain a record of, a streamlined version of a Suspicious Activity Report (SAR), referred to here as a “Real Estate Report.” The persons subject to these reporting and recordkeeping requirements would be deemed reporting persons for purposes of the proposed rule and would be determined through a “cascading” approach based on the function performed by the person in the real estate closing and settlement. The “cascade” is designed to minimize burdens on persons involved in real estate closings and settlements while avoiding gaps in reporting and incentives for evasion. To provide some flexibility in this cascade approach, real estate professionals would also have the option to designate a reporting person from among those in the cascade by agreement.

The information required to be reported in the Real Estate Report would identify the reporting person, the legal entity or trust to which the residential real property is transferred, the beneficial owners of that transferee entity or transferee trust, the person that transfers the residential real property, and the property being transferred, along with certain transactional information about the transfer. The reporting person would be required to file the Real Estate Report no later than 30 days after the date of closing. Because of the streamlined nature of these Real Estate Reports compared to traditional SARs, as well as the flexible “cascade” framework, persons subject to this reporting requirement would not need to maintain the types of AML programs otherwise required of financial institutions under the BSA.
2

2
31 U.S.C. 5318(h).

II. Background

A. Illicit Finance Risks in the U.S. Real Estate Sector

As Secretary of the Treasury (Secretary) Yellen noted at the 2023 Summit for Democracy, “[c]orrupt actors have for decades anonymously stashed their ill-gotten gains in real estate. Those looking to exploit our system have been able to—with anonymity—store illicit proceeds in an appreciating asset . . . Treasury is working to remove that anonymity[.]”
3

The Secretary has made increasing transparency in the domestic and international financial system a national priority, noting that “illicit proceeds . . . equaling an estimated two percent of U.S. gross domestic product (GDP) flow through the U.S. financial system each year. Permitting illicit actors to benefit from the stability and security of the U.S. financial system weakens financial transparency, distorts markets, and hurts ordinary Americans.”
4

Treasury's Strategic Plan for 2022 to 2026 makes clear that one indicator of success in combatting illicit actors' abuse of the U.S. financial system is achieving an “updated regulatory framework for real-estate [sic] to effectively cover cash transactions.”
5

3
U.S. Department of the Treasury, Remarks by Secretary Janet L. Yellen on Anti-Corruption as a Cornerstone of a Fair, Accountable, and Democratic Economy at the Summit for Democracy (Mar. 28, 2023),
available at https://home.treasury.gov/news/press-releases/jy1371.

4

Id;
U.S. Department of the Treasury, Strategic Plan 2022-2026 (2022), p. 23,
available at https://home.treasury.gov/system/files/266/TreasuryStrategicPlan-FY2022-2026.pdf.

5

Id.
at p. 24.

The United States' stable real estate market and strong property rights protections make U.S. residential real estate attractive to illicit actors looking to launder the proceeds of crime and corruption. This is particularly the case for non-financed transfers that are currently outside the purview of the due diligence requirements imposed on regulated financial institutions pursuant to the BSA. For purposes of this rule, a non-financed transfer is any transfer that does not involve an extension of credit to the transferee secured by the transferred residential real property
6

and extended by a financial institution that has both an obligation to maintain an AML program and an obligation to report suspicious transactions. Money launderers exploit the absence of an obligation on any party to a non-financed transfer to conduct due diligence.

6
For the purposes of this proposed rule, “residential real property” means: (1) real property located in the United States containing a structure designed principally for occupancy by one to four families; (2) 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; or (3) shares in a cooperative housing corporation.

As a result, and as the Administration's 2021 U.S. Strategy for Countering Corruption notes, the United States' real estate market is a significant destination for the laundered proceeds of illicit activity. Treasury's 2022 National Money Laundering Risk Assessment (2022 NMLRA) also reflects this. The 2022 NMLRA identifies a lack of transparency in non-financed real estate transfers in particular as a key weakness in the U.S. Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regulatory regime.
7

7
The White House, United States Strategy for Countering Corruption (Dec. 2021), p. 22,
available at https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf;
U.S. Department of the Treasury, National Money Laundering Risk Assessment (Feb. 2022), p. 5,
available at https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf.

International bodies, such as the Financial Action Task Force (FATF) and non-government organizations, have likewise noted the sector's appeal for illicit actors intent on laundering funds.
8

In particular, the FATF has recommended that the United States take appropriate action to address money laundering risks in relation to non-financed transfers of real estate.
9

Furthermore, open-source investigative reports have demonstrated that criminal actors frequently employ legal entities, such as limited liability companies (LLCs), to launder money, including through real estate. In August 2021, Global Financial Integrity (GFI), a non-governmental organization, published a study estimating that at least $2.3 billion had been laundered through the U.S. real estate market from 2015 to 2020 and the “use of anonymous shell companies and complex corporate structures continue[d] to be the number one money laundering typology” involving real estate.
10

Additionally, over 50 percent (30 of the 56 cases the study examined) involved politically exposed persons (PEPs), which the FATF has found “may be able to use their political influence for profit illegally [and] . . . thus may present a risk higher than other customers.”
11

GFI also highlighted that legal entities and trusts are frequently used to make such purchases, and that purchases are rarely made in the name of the PEP. For example, a 2020 forfeiture complaint filed by the Department of Justice (DOJ) alleged that a former president of a country in Africa and his spouse used funds derived from corruption to purchase U.S. residential properties worth millions of dollars via a trust.
12

Such crimes undermine the national security goals of the United States, one pillar of which is countering corruption.
13

FinCEN's own December 2022 analysis revealed that between March and October 2022—the eight months following the invasion of Ukraine—Russian oligarchs sent millions of dollars to their children to purchase residential real estate in the

United States, often via legal entities, demonstrating the appeal of residential real estate even to the potential targets of U.S. sanctions.
14

8
The FATF is a global standard-setter of anti-money laundering and counter terrorist financing guidelines. The FATF has noted that “[c]riminals gravitate towards sectors that apply or are believed to apply less comprehensive regulation and mitigation measures or where supervision is found to be lacking,” and that “[t]he purchase of real estate allows for the movement of large amounts of funds all at once in a single transaction as opposed to multiple transactions of smaller values.”
See
Financial Action Task Force, Guidance for a Risk Based Approach: Real Estate Sector (July 2022), p. 18,
available at https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/RBA-Real-Estate-Sector.pdf.coredownload.pdf.

9

See
Financial Action Task Force, United States Mutual Evaluation Report (Dec. 2016), p. 1,
available at https://www.fatf-gafi.org/content/dam/fatf-gafi/mer/MER-United-States-2016.pdf.coredownload.inline.pdf.

10
Global Financial Integrity
, “
Acres of Money Laundering: Why U.S. Real Estate is a Kleptocrat's Dream” (Aug. 2021), pp. 13-16,
available at

https://gfintegrity.org/report/acres-of-money-laundering-why-u-s-real-estate-is-a-kleptocrats-dream/.
According to its website, GFI 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 https://gfintegrity.org/about/.

11
Financial Action Task Force, Guidance for a Risk Based Approach: Real Estate Sector (July 2022), pp. 29-30,
available at https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/RBA-Real-Estate-Sector.pdf.coredownload.pdf;

see e.g.,
U.S. Department of Justice, Press Release, Over $1 billion in misappropriated 1MDB Funds Now Repatriated to Malaysia (Aug. 5, 2021),
available at https://www.justice.gov/opa/pr/over-1-billion-misappropriated-1mdb-funds-now-repatriated-malaysia.
The term “PEP” generally includes a current or former senior foreign political figure, their immediate family, and their close associates.
See
Federal Financial Institutions Examination Council, FFIEC BSA/AML Examination Manual, Politically Exposed Persons—Overview (v5 2015), p. 290;
see also
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, National Credit Union Administration, and Office of the Comptroller of the Currency, Joint Statement on Bank Secrecy Act Due Diligence Requirements for Customers Who May Be Considered Politically Exposed Persons (Aug. 21, 2020),
available at https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200821a1.pdf.

12

See
Complaint for Forfeiture,
U.S.
v.
Real Property Located in Potomac, Maryland, Commonly Known as 9908 Bentcross Drive, Potomac, MD 20854
(D. Md. July 15, 2020) (Case No. 20-cv-02071).

13
The White House, National Security Strategy (Oct. 2022), p. 36,
available at https://www.whitehouse.gov/wp-content/uploads/2022/10/Biden-Harris-Administrations-National-Security-Strategy-10.2022.pdf.

14

See
FinCEN, Financial Trend Analysis—Trends in Bank Secrecy Act Data: Financial Activity by Russian Oligarchs in 2022 (Dec. 2022).

As numerous public law enforcement actions illustrate, non-financed purchases of residential real estate by certain legal entities and trusts are acutely vulnerable to exploitation by illicit actors, due to a general lack of AML regulations covering or applicable to transfers conducted in this manner.
15

While many non-financed residential real estate transfers may involve no illicit funds, a substantial proportion of such non-financed transactions are conducted by persons also engaged in activity characterized by other financial institutions as suspicious, and reporting on such non-financed residential real estate transactions is of significant value to law enforcement. For example, the individuals and entities identified in Residential Real Estate GTO reports correlate with traditional SAR filings by financial institutions: FinCEN has found that approximately 42 percent of non-financed real estate transfers captured by the Residential Real Estate GTOs are conducted by individuals or legal entities on which a SAR has been filed. In other words, persons of potential interest to law enforcement due to their engagement in suspicious activity are also engaging in a type of transaction known to be used as a method of money-laundering: the non-financed purchase of residential real estate through a legal entity.

15

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,
Cr. No. 22-432 (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,
Case No. 22-2-306-CR-Gayles/Torres (S.D. Fla. July 12, 2022) (bribery, money laundering);
U.S.
v.
Jimenez,
2022 U.S. Dist. LEXIS 77685, 2022 WL 1261738 (S.D.N.Y. Apr. 28, 2022) (Case No. 1:18-cr-00879) (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,
Case No. 20-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,
2019 U.S. Dist. LEXIS 141157, 2019 WL 3934684 (M.D. Tenn. Aug. 20, 2019) (Case No. 3:15-cr-00037-2) (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);
see also
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 https://www.justice.gov/opa/pr/united-states-reaches-settlement-recover-more-700-million-assets-allegedly-traceable;
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 https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-59-million-settlement-civil-money-laundering-and;
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 https://www.justice.gov/usao-sdny/pr/associate-sanctioned-oligarch-indicted-sanctions-evasion-and-money-laundering.
Moreover, as the 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[.]” Financial Action Task Force, Guidance for a Risk Based Approach: Real Estate Sector (July 2022), p. 17,
available at https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/RBA-Real-Estate-Sector.pdf.coredownload.pdf.

In addition to the law enforcement and national security concerns regarding abuse of the residential real estate sector, money laundering through residential real estate can distort real estate prices and potentially make it more difficult for legitimate buyers and sellers to participate in the market. In particular, the presence of illicit funds in the real estate sector can affect housing prices.
16

Legitimate buyers are also adversely affected by illicit actors' preference to avoid financing, as sellers generally favor such “all-cash” offers due to the speed with which a sale can be closed.
17

16

See, e.g.,
Richard Vanderford, “Fraudulent Covid Aid Drove Up U.S. House Prices, Report Says,”
The Wall Street Journal
(June 22, 2023).

17

See
The White House, United States Strategy for Countering Corruption (Dec. 2021), p. 7,
available at https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf;
Financial Action Task Force, Guidance for a Risk Based Approach: Real Estate Sector (July 2022), p. 19,
available at https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/RBA-Real-Estate-Sector.pdf.coredownload.pdf.

Due to the illicit finance risks presented and the attendant economic burdens of market abuse, FinCEN's public efforts to counter money laundering in the real estate sector have focused on the use of legal entities by illicit actors to obfuscate ownership of residential real property.
18

The reasoning behind this focus on legal entities is discussed extensively in FinCEN's December 2021 Anti-Money Laundering Regulations for Real Estate Transactions ANPRM (2021 ANPRM), which highlighted how, as evidenced by open source investigative articles, law enforcement actions, and feedback from FinCEN's Residential Real Estate GTOs program, individuals intent on laundering money through residential real estate frequently take advantage of the opacity of shell companies or other legal entity structures to mask true beneficial ownership of a property and their involvement in real estate transfers.
19

18

See, e.g.,
FinCEN, Press Release, FinCEN Renews and Expands Real Estate Geographic Targeting Orders (Apr. 21, 2023),
available at https://www.fincen.gov/news/news-releases/fincen-renews-and-expands-real-estate-geographic-targeting-orders-1
(announcing the renewal of an effort to combat illicit finance by collecting information on legal entity purchases of real estate); FinCEN, FIN-2017-A003, Advisory to Financial Institutions and Real Estate Firms and Professionals (Aug. 22, 2017), p. 2 (noting that high-value residential real estate markets are vulnerable to penetration by foreign and domestic criminal organizations and corrupt actors, especially those misusing otherwise legitimate LLCs or other legal entities to shield their identities).

19
86 FR 69589 (Dec. 8, 2021).

B. FinCEN's Prior Regulation of the Real Estate Sector

1. Current Law

Enacted in 1970, the Currency and Foreign Transactions Reporting Act, generally referred to as the BSA, is designed to combat money laundering, the financing of terrorism, and other illicit financial activity.
20

The Secretary is authorized to administer the BSA and to require 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.”
21

The Secretary delegated the authority to implement, administer, and enforce compliance with the BSA and its implementing regulations to the Director of FinCEN.
22

20

See
31 U.S.C. 5311. Certain parts of the Currency and Foreign Transactions Reporting Act, its amendments, and the other statutes relating to the subject matter of that Act, have come to be referred to as the BSA. The BSA is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1960, and 31 U.S.C. 5311-5314 and 5316-5336, and includes notes thereto, with implementing regulations at 31 CFR Chapter X. The Anti-Money Laundering Act of 2020, Section 6003(1) (Definitions), 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.

21
31 U.S.C. 5311(1).

22
Treasury Order 180-01, Paragraph 3(a) (Jan. 14, 2020),
available at https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01.

The BSA requires each covered financial institution 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.”
23

The BSA also authorizes the Secretary to require covered financial institutions to report any suspicious transaction relevant to a possible violation of law or regulation (a “suspicious activity report” or “SAR”).
24

Among the financial institutions subject to those requirements under the BSA are “persons involved in real estate closings and settlements.”
25

23
31 U.S.C. 5318(h)(1)(A)-(D).

24
31 U.S.C. 5318(g).

25
31 U.S.C. 5312(a)(2)(U).

FinCEN's regulations implementing the BSA require banks, non-bank residential mortgage lenders and originators (RMLOs), and housing-related Government Sponsored Enterprises (GSEs) to file SARs and establish AML/CFT programs.
26

However, FinCEN's regulations exempt other persons involved in real estate closings and settlements from the requirement to establish AML/CFT programs, and the regulations do not impose a SAR filing requirement on such persons.
27

26
31 CFR parts 1020, 1029, 1030.

27
31 CFR 1010.205(b)(1)(v).

2. FinCEN's Real Estate Exemption

In 2002, FinCEN temporarily exempted certain financial institutions, including “persons involved in real estate closings and settlements” and “loan and finance companies,” from the requirement to establish an AML/CFT program. FinCEN explained that it would “continue studying the money laundering risks posed by these institutions in order to develop appropriate AML program requirements.”
28

That additional time was needed to consider the businesses that would be subject to such requirements, as well as the nature and scope of the AML/CFT risks associated with those businesses.
29

FinCEN also explained its concern that many of these financial institutions were sole proprietors or small businesses, and FinCEN intended to avoid imposing “unreasonable regulatory burdens with little or no corresponding anti-money laundering benefits.”
30

28
67 FR 21110, 21111 (Apr. 29, 2002).

29

Id.
FinCEN initially exempted persons involved in closings and settlements for six months, and then subsequently extended the temporary exemption indefinitely.
Id.;
67 FR 67547, 67548 (Nov. 6, 2002).

30
67 FR 21110, 21112 (Apr. 29, 2002).

In 2003, FinCEN issued an ANPRM regarding the AML/CFT program requirement for “persons involved in real estate closings and settlements” (2003 ANPRM). The 2003 ANPRM solicited comments on the money laundering risks in real estate closings and settlements, how to define “persons involved in real estate closings and settlements,” whether any persons involved in real estate closings and settlements should be exempted from the AML/CFT program requirement, and how to structure the requirement in light of the size, location, and activities of persons in the real estate industry.
31

FinCEN received 52 comments on the 2003 ANPRM from individuals, various institutions and associations of interested parties, law firms, state bar associations, an office within DOJ, and an office within the Internal Revenue Service (IRS).
32

Many comments suggested that the threat of money laundering through real estate warranted appropriate regulation, but commenters disagreed over the specific businesses that should be covered. FinCEN did not propose regulations in response to these comments, and persons involved in real estate closings and settlements continue to be exempt from the AML/CFT program requirement.

31
68 FR 17569 (Apr. 10, 2003).

32

See
FinCEN's website to review comments submitted,
available at https://www.fincen.gov/comments-advance-notice-proposed-rule-anti-money-laundering-programs-persons-involved-real-estate.

3. FinCEN's Targeted Actions in the Real Estate Sector

While maintaining the exemption for persons involved in real estate closings and settlements, FinCEN has taken targeted action to address certain vulnerabilities in the real estate sector. In a 2012 final rule, FinCEN eliminated an exemption for “loan and finance companies,” and required such companies—defined as RMLOs—to file SARs and comply with AML/CFT program obligations.
33

In a 2014 final rule, FinCEN extended similar requirements to the housing-related GSEs—Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
34

In a 2020 final rule, FinCEN also imposed additional AML/CFT obligations on banks lacking a federal functional regulator, ensuring that such entities would be subject to requirements to have an AML/CFT program and meet Customer Identification Program (CIP) and Customer Due Diligence (CDD) requirements, including the verification of beneficial owners of legal entity accounts, in addition to their existing SAR obligations (which would include reporting on transactions involving suspicious real estate transactions).
35

33
77 FR 8148 (Feb. 14, 2012) (codified at 31 CFR part 1029).

34
79 FR 10365 (Feb. 25, 2014) (codified at 31 CFR part 1030).

35
85 FR 57129 (Sept. 15, 2020) (codified at 31 CFR 1020.210).

To address non-financed transfers of residential real estate that do not involve a bank or other lender, FinCEN also began to issue Residential Real Estate GTOs in 2016.
36

The Residential Real Estate GTOs require title insurance companies to file reports and maintain records concerning non-financed purchases of residential real estate above a certain price threshold by certain legal entities in select metropolitan areas of the United States.

36

See
31 U.S.C. 5326; 31 CFR 1010.370; Treasury Order 180-01 (Jan. 14, 2020),
available at https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01.
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.

Information received in response to the Residential Real Estate GTOs has confirmed the money laundering risks involved in non-financed transfers of residential real estate and provided FinCEN and its law enforcement partners with additional data about that money laundering typology. The data obtained through the Residential Real Estate GTOs has connected non-financed residential real property purchases by certain legal entities with the true beneficial owners making the purchases, thereby decreasing the ability of criminals to hide their identities while laundering money through real estate. 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. Taking that input into account, FinCEN has renewed the time-limited Residential Real Estate GTOs multiple times and has expanded them to cover additional metropolitan areas and methods of payment, yielding additional insight into the risks in both the luxury and non-luxury residential real estate markets.
37

The information on real estate purchases thus enables investigators to connect real estate transactions with other suspicious financial activity. Although the Residential Real Estate GTOs have been effective, they were intended to be a temporary information collection measure that is limited in duration, not a permanent solution to a nationwide problem.
38

The proposed nationwide reporting framework for certain residential real estate transfers, if finalized, would replace the current Residential Real Estate GTOs.

37
FinCEN found that money laundering risks existed at lower price thresholds, and thus the current Residential Real Estate GTOs set a $300,000 threshold for all covered jurisdictions, except for the City and County of Baltimore, for which the threshold is $50,000.

38

See supra
note 36.

4. The 2021 Real Estate ANPRM

On December 8, 2021, FinCEN published an ANPRM requesting comment on potential AML regulations for certain real estate professionals.
39

The 2021 ANPRM solicited public comment on whether and how to address money laundering vulnerabilities in the U.S. real estate market, including whether a transactional reporting requirement, triggered when a real estate purchase meets certain conditions, should be imposed on real estate professionals under the BSA. The 2021 ANPRM also solicited comment on whether, in lieu of a transactional reporting requirement, FinCEN should promulgate AML/CFT program requirements and SAR filing requirements for persons involved in real estate closings and settlements, similar to those that are in place for banks and other financial institutions. The 2021 ANPRM further sought comment concerning many aspects of real estate transfers, including: views on the scope of potential regulation of non-financed residential and commercial real estate transfers by legal entities and legal arrangements such as trusts; the sector's vulnerability to money laundering; differences in residential and commercial real estate transfers; due diligence best practices present in the industry; and the costs of any potential regulations.

39

See
86 FR 69589 (Dec. 8, 2021).

In response to the 2021 ANPRM, FinCEN received 151 public comments from a wide variety of stakeholders, including real estate industry associations, law firms and associations, non-governmental organizations, credit unions, Members of Congress, academics, and members of the public. Approximately 41 were unique comments and 110 were uniform statements submitted by members of the title insurance industry.

In general, commenters were split in their opinions on whether FinCEN should require transactional reports
40

or require persons involved in real estate closings and settlements to have full AML/CFT program obligations.
41

One commenter wrote that if FinCEN were to apply new reporting measures, it should work with the IRS to amend IRS Form 1099-S to include buyer-side information, along with the seller-side information it already collects.
42

Still other commenters suggested expanding the Residential Real Estate GTOs program to cover the entire nation either all at once or incrementally.
43

FinCEN has considered all the comments that it received in response to the 2021 ANPRM in drafting this proposed rule.

40
National Association of Realtors, ANPRM Comment (Feb. 18, 2022), pp. 1, 14,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0128.

41

See
Transparency International U.S., ANPRM Comment (Feb. 18, 2022), p. 9,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0115;
The FACT Coalition, ANPRM Comment (Feb. 18, 2022), p. 3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0122;
California Reinvestment Coalition, ANPRM Comment (Feb. 18, 2022), p. 2,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0126;
Coalition for Integrity, ANPRM Comment (Feb. 21, 2022), pp. 3-4,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0127;
Louise Shelley and Ross Delston, ANPRM Comment (Feb. 21, 2022), p. 2,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0151.

42
American Escrow Association, ANPRM Comment (Feb. 18, 2022), pp. 13-17,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0124.

43

See
Prosperus Title, ANPRM Comment (Feb. 18, 2022), p. 1,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0125;
Marisa N. Bocci, ANPRM Comment (Feb. 21, 2022), p. 3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0150;
RESPRO, ANPRM Comment (Feb. 21, 2022), p. 2,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0152.

III. FinCEN's Proposed Approach to a Real Estate Reporting Requirement

A. Streamlined SAR Requirement

FinCEN has considered the extent to which non-financed residential real estate transactions should be subject to the standard AML program and SAR-filing requirements that the BSA applies to other financial institutions. By subjecting financial institutions to those requirements and expressly including “persons involved in real estate closings and settlements” among the types of financial institutions specified in the statute, the BSA appears to indicate an expectation that such persons comply with the same AML/CFT rules currently applicable to other types of financial institutions. Although FinCEN originally issued an exemption in 2002 that relieved persons involved in real estate closings and settlements from that obligation, that exemption was intended to be only temporary while FinCEN continued to study money laundering risks in the real estate sector.
44

44

See
67 FR 21110 (Apr. 29, 2002).

After many years of study and several targeted and temporary actions to enhance transparency in the real estate sector, FinCEN is of the view that the money laundering risks for non-financed residential real estate transactions warrant comprehensive AML/CFT regulations. As explained above, such transactions can be used to facilitate and obscure illicit activity. And, as several commenters on the ANPRM have urged, AML programs and SAR-filing obligations would provide highly useful information to law enforcement about those transactions. FinCEN recognizes, however, that the standard AML program and SAR-filing requirements may be especially burdensome to persons involved in real estate transactions, as many of them may be small businesses or individuals who cannot easily implement an AML program designed to identify and report suspicious activity. Such programs, which require financial institutions to make risk-based judgments about transactions and suspicious activity, may also be ineffective if small businesses and individuals in the real estate sector have difficulty implementing them.

For these reasons, FinCEN is proposing a streamlined reporting requirement that differs from the requirements typically imposed on other financial institutions. 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.”
45

But 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 relevant “burdens,” “efficiency,” and “benefits.”
46

A new 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[.]”
47

45
31 U.S.C. 5318(g)(1)(A).

46
31 U.S.C. 5318(g)(5)(B)(i)-(iii).

47

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 proposed in this NPRM.

Based on that authority, FinCEN is proposing to streamline the SAR reporting requirement for purposes of this rule and to create a new form—the Real Estate Report—to reflect this streamlined approach. FinCEN believes that a streamlined reporting requirement, without an accompanying AML/CFT program, is appropriate, as the proposed rule would impose a requirement to report basic, standardized information about all relevant transactions, nationwide.

FinCEN believes the proposed streamlined reporting requirement would enhance the usefulness of BSA reporting to Federal law enforcement agencies, national security officials, and the intelligence community for combating financial crimes. The information collected would contain crucial details about a typology of real estate transfers that present acute illicit finance risks and for which there is broad consensus that regulation is needed—information that would not otherwise be routinely identified and reported in a traditional SAR.

FinCEN also believes that a streamlined filing requirement would reduce the potential burden on reporting persons. The filing requirement would be triggered when the conditions set forth in the proposed rule are met, which FinCEN believes will reduce the overall burden for most filers, compared to those that would be required when implementing a traditional AML program. The streamlined filing requirement, unlike the requirements for filing a traditional SAR, would entail no risk-based judgment about when to file and no narrative assessment. Thus, similar to a Currency Transaction Report (CTR), Form 8300, or report filed under the Residential Real Estate GTOs, the proposed Real Estate Report would not require filers to make discretionary decisions.
48

Because of this, while FinCEN's traditional SAR authority mandates that SARs be guided by a financial institution's AML/CFT program designed to ensure that those discretionary decisions are made appropriately, FinCEN believes that an AML/CFT program is not necessary for reporting persons to accurately prepare and file useful reports under the proposed rule.
49

For this reason, the proposed rule would exempt persons involved in real estate closings and settlements from the BSA's requirement to establish AML/CFT programs—effectively maintaining the current exemption for such persons under 31 U.S.C. 5318(h)(1), in light of the new reporting requirement.
50

48
Under the BSA and its implementing regulations, “each financial institution other than a casino shall file a [CTR] of each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to such financial institution which involves a transaction in currency of more than $10,000[.]” 31 CFR 1010.311;
see also
31 U.S.C. 5313. Under the BSA, relevant IRS statutes, and associated implementing regulations, “[a]ny [individual, trust, estate, partnership, association, company or corporation] who, in the course of a trade or business . . . receives currency in excess of $10,000 in 1 transaction (or 2 or more related transactions) shall . . . [file a Form 8300] with respect to the receipt of currency.” 31 CFR 1010.330(a)(1)(i);
see also
31 U.S.C 5331; 26 U.S.C. 7701(a)(1).

49

See
31 U.S.C. 5318(g)(5)(C).

50

See
31 CFR 1010.205(b)(v).

The proposed rule would also exempt reporting persons from the confidentiality provisions that the BSA applies to suspicious activity reporting.
51

These confidentiality provisions typically serve to ensure that banks and other such financial institutions do not alert SAR subjects to the fact that a SAR is being filed based on a suspicion with respect to the subject, potentially inducing a behavior change and reducing the utility of the SAR. However, as the triggering criteria for the filing of the proposed streamlined filing (a non-financed transfer to certain legal entities and trusts) would be known by all parties to the transfer, including those whose information will be collected and reported to FinCEN, the same confidentiality considerations do not apply.
52

51

See
31 U.S.C. 5318(g)(2).

52
31 U.S.C. 5318(a)(7).

B. The Corporate Transparency Act

FinCEN notes that certain information collected under this proposed rule—most notably the beneficial ownership information of certain legal entities—will be collected and available to law enforcement in certain instances by virtue of the new beneficial ownership reporting requirements imposed by the CTA and implemented through the Beneficial Ownership Information Reporting Requirements Rule (BOI Reporting Rule).
53

However, the CTA's reporting regime and this proposed rule would serve different purposes. This proposed rule is designed as a tailored reporting requirement that would capture a particular class of activity that Treasury deems high-risk—namely, non-financed residential real estate transfers to certain legal entities and trusts—and that, given the risk, warrants reporting on a transaction-specific basis. The resulting reports could readily alert law enforcement to the persons involved in a transfer of assets that carries significant illicit finance risk. Indeed, as with traditional SARs, reports under this proposed rule would require reporting on specific real estate transactions and allow Treasury and law enforcement to connect money laundering through real estate with other types of potentially illicit activities and to conduct broad money laundering trend analysis. In contrast, the BOI Reporting Rule requires companies to file reports about the beneficial ownership of certain legal entities; however, this information is unlikely to shed light on purchases of real estate by criminal actors or allow law enforcement to map out purchases of residential real estate by individual criminals and money launderers as well as their networks. Although some information about real estate purchases may in some cases be separately available through other sources such as state land registries (as discussed

below), the inclusion of both beneficial ownership information and real estate transaction information in a single report as proposed in this NPRM will enable law enforcement to access information about potential criminal activity in a more timely and efficient manner.

53
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
87 FR 59498 (Sept. 30, 2022). Access by authorized recipients to BOI collected under the CTA are governed by other FinCEN regulations.
See
88 FR 88732 (Dec. 22, 2023).

In addition, the information to be reported under this proposed rule would differ from the information to be reported under the CTA in several ways. For instance, the proposed rule would require reporting of certain information about beneficial owners that is not required to be reported under the CTA reporting regime.
54

A discussion of the content of the proposed Real Estate Report is included in Section IV.E. Furthermore, reports filed pursuant to the BOI Reporting Rule—Beneficial Ownership Information Reports—and reports filed pursuant to this proposed rule—Real Estate Reports—would be housed in different databases with differing access privileges. The proposed Real Estate Reports would be stored electronically in the same database as traditional SAR and other BSA reports, in keeping with the nature, purposes, and use of those reports.

54
For example, the CTA reporting regime will only indirectly require trusts to report their beneficial owners if an individual indirectly owns or controls a reporting company through a trust.

Nevertheless, although they serve different purposes, the proposed rule adopts or adapts certain definitions from the BOI Reporting Rule where appropriate. These definitions are discussed in more detail in Section IV.B.

C. Lack of Alternative Sources of Relevant Information

While other investigative methods and databases may be available to law enforcement seeking information on persons involved in non-financed transfers of residential real property, such sources of information are often incomplete, unreliable, and diffuse, resulting in a misalignment between these sources and the potential risks posed by the transfers.
55

Furthermore, 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. An investigator could spend months or even years going through the electronic or physical property records databases of the over 3,000 counties in the United States, only some of which have digitized their records. Furthermore, although certain data about non-financed transfer could be obtained through the Residential Real Estate GTOs, those GTOs currently cover only 68 cities and counties are currently covered by the Residential Real Estate GTOs. In order to verify how many non-financed purchases of residential real estate a known illicit actor has made, law enforcement may have to issue subpoenas to each jurisdiction and potentially travel in-person to many counties to find the relevant information. Law enforcement is also likely to experience difficulty in finding beneficial ownership information for non-financed transfers of residential real estate to legal entities or trusts not registered in the United States. This is particularly key as international buyers contributed approximately $59 billion to the existing-home U.S. residential real estate market from April 2021 to March 2022 and 44 percent of international purchases were non-financed, compared to 24 percent for all existing-home buyers.
56

55

See generally
Sarah Mancini, Kate Lang, and Chi Wu, “Mismatched and Mistaken: How the Use of an Inaccurate Private Database Results in SSI Recipients Unjustly Losing Benefits,” National Consumer Law Center (Apr. 2021),
available at https://www.nclc.org/wp-content/uploads/2022/08/RptMismatchedFINAL041421.pdf.

56

See
National Association of Realtors, 2022 International Transactions in U.S. Residential Real Estate (July 2022), pp. 4-5,
available at https://cdn.nar.realtor/sites/default/files/documents/2022-international-transactions-in-us-residential-real-estate-07-18-2022.pdf?_gl=1*3orrzx*_gcl_au*MTc4MTk3NTgzOS4xNjg3OTg1MTYy.
The overall dollar value of international investment in residential real estate was comparatively low from 2021-2022 compared to the prior ten years due, in part, to investment and travel restrictions accompanying the COVID-19 pandemic. FinCEN believes this dollar value, in the absence of pandemic conditions, may therefore experience some mean reversion.

The disjointed nature of existing local databases also poses a significant obstacle to a common investigative methodology employed by law enforcement when it searches for perpetrators of money laundering and other criminal activity—namely, identifying networks of individuals that have potentially engaged in suspicious activity. A search of the proposed Real Estate Reports would be far more efficient than searching incomplete commercial databases or potentially visiting thousands of county-level deed offices. FinCEN assesses that law enforcement would benefit from access to information about transfers that reflect an identified money laundering typology in one central location managed and hosted by the U.S. government. Finally, existing commercial databases do not collect important information that is the focus of this rule, including funds transfer information.

IV. Section-by-Section Analysis

The proposed rule would impose reporting and recordkeeping requirements related to certain transfers of residential real property (reportable transfers). The reporting and recordkeeping obligations would primarily apply to “reporting persons,” who are certain persons involved in real estate closings and settlements. Generally, the reporting person would be identified on the basis of their order in a “cascade” of specific functions performed by various persons involved in facilitating the closing or settlement of a real estate transaction. The proposed rule would also allow persons in the cascade to designate the reporting person amongst themselves.

The reporting person would be required to report information identifying the transferee entity or trust, the beneficial owners of the transferee entity or trust, and certain individuals signing documents on behalf of the transferee entity or transferee trust (signing individual), as well as information concerning the reporting person, the transferor, the real estate transferred, and certain payment information. The reporting person would be required to file a Real Estate Report with FinCEN and maintain a copy of that report, along with a certification by the transferee's representative as to the identities of the beneficial owner(s) of the transferee, for a period of five years. If the persons involved in facilitating the closing or settlement enter into a designation agreement with regard to the reporting person, then the parties to the agreement would also be required to retain that agreement for a period of five years.
57

57

See
31 CFR 1010.430(d).

A. Residential Real Property in Reportable Transfers

1. Reportable Residential Real Property

The proposed rule is meant to broadly capture residential real property such as single-family houses, townhouses, condominiums, and cooperatives, as well as apartment buildings designed for one to four families. These properties would be captured even if there is also a commercial element to the property, such as a single-family residence that is located above a commercial enterprise. The proposed rule would also include certain types of land on which a residence is not yet built. The criteria for whether property falls within the parameters of the rule can be met in one of three ways: (1) it is real property that includes a structure

designed principally for occupancy by one to four families; (2) it is land that is vacant or unimproved, and that is zoned, or for which a permit has been issued, for occupancy by one to four families; or (3) it is a share in a cooperative housing corporation. This definition modifies and expands the definition of “residential real property” used in the Residential Real Estate GTOs.

Although shares of a cooperative are generally treated under state law as personal property rather than real property, FinCEN believes that the money laundering risks for residential cooperatives are similar to those of condominiums and other residential real property. A cooperative is a corporation, and the owners of the cooperative are the corporation's shareholders. Receiving ownership of shares in a cooperative therefore differs from receiving ownership of real property, as it does not include the filing of a deed specifying that ownership of a piece of real property has been transferred. However, the fundamental purpose of owning shares in a cooperative is to possess a piece of real property—generally a unit in an apartment owned by the cooperative. As the primary purpose for owning shares in a cooperative is to occupy real property, and because the market for cooperatives overlaps with the market for condominiums and other types of real property, FinCEN believes that it is appropriate to treat shares of a cooperative as residential real property for purposes of this rule. Without this treatment, money laundering risks may be unduly incentivized to shift investments to this segment of the real estate market.

The proposed rule also makes clear that reportable residential real property includes property located in the United States, which is defined in the BSA implementing regulations to mean any State, the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and territory or possession of the United States.
58

FinCEN believes this geographical scope is appropriate and that more limited coverage would likely push illicit activity into non-covered areas. Furthermore, a uniform national approach will provide consistency and predictability for businesses required to maintain records and make reports under this proposed rule.

58
31 CFR 1010.100(hhh).

2. Ownership Interests in Reportable Residential Real Property

For purposes of the proposed rule, a person may hold an ownership interest in residential real property if the person has rights to the property that are demonstrated through a deed or, for an interest in a cooperative housing corporation, through stock, shares, membership, a certificate, or other contractual agreement evidencing ownership.

Deeds are documents demonstrating title over property and recording changes in ownership and are effective when signed by the transferor and delivered to the transferee. They are generally publicly recorded, and although not all deeds are filed as such, the majority are, and there are benefits to doing so, such as preempting disputes over ownership and effecting the ability to sell the property.

The ownership interests of a cooperative housing corporation are not reflected on a deed and are instead typically demonstrated through stock or shares. The holder of each ownership interest has the right to dispose of that stock or share, the value of which primarily reflects the value of the residence attached to the interest.

B. Transferees in Reportable Transfers

1. Transferee Entities

The proposed regulation would require reporting only if a transferee of an ownership interest in residential real property is a transferee entity or a transferee trust, as those terms are defined. Such a transfer would be reportable even if one or more other transferees (
i.e.,
those that are neither a transferee entity nor transferee trust) also receive an ownership interest in the same property as part of the same transaction. Generally, the proposed rule provides that a “transferee entity” is any person other than a transferee trust or an individual. For example, a transferee entity may be a corporation, partnership, estate, association, or limited liability company. However, the definition of a “transferee entity” contains exceptions for certain highly regulated entities.
59

59
For example, as discussed further below, individuals and trusts (outside of statutory trusts) are excepted from the definition of “transferee entity.” In addition, certain types of legal entities that are exempt from the requirement to report beneficial ownership information under the CTA are also excepted. Trusts are considered “transferee trusts” rather than “transferee entities” to ensure the proposed rule differentiates between legal entities and legal arrangements.

The proposed definition

is informed by comments submitted in response to the 2021 ANPRM. In general, the 2021 ANPRM commenters recognized the money laundering risks presented by transfers of residential real estate to certain legal entities and supported coverage of them in any potential regulation.
60

Some commenters stated that only legal entities that are not covered by the CTA should be covered by any potential regulation of the real estate sector, as their beneficial ownership information will not be collected under the BOI Reporting Rule.
61

However, as discussed below, FinCEN believes that this would leave a serious regulatory gap that would prevent the proposed rule from achieving its purpose of addressing illicit finance risk in the residential real estate sector. One commenter suggested that FinCEN use the definition of “legal entity” that appears in FinCEN's 2020 CDD Rule.
62

60

See
Global Financial Integrity, ANPRM Comment (Feb. 17, 2022), pp. 10, 24, 30, 39,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0102;
American Land Title Association, ANPRM Comment (Feb. 17, 2022), p. 1,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0020;
Transparency International U.S., ANPRM Comment (Feb. 18, 2022), pp. 3, 5,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0115;
The FACT Coalition, ANPRM Comment (Feb. 18, 2022), pp. 2, 4,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0122;
California Reinvestment Coalition, ANPRM Comment (Feb. 18, 2022), pp. 2-3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0126;
Coalition for Integrity, ANPRM Comment (Feb. 21, 2022), p. 4,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0127;
Anti-Corruption Data Collective, ANPRM Comment (Feb. 18, 2022), p. 3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0153.

61

See
American Land Title Association, ANPRM Comment (Feb. 17, 2022), p. 2,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0020.

62
Financial & International Business Association, ANPRM Comment (Feb. 21, 2022), p. 2,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0142.

a. Regulated Entities

Although this rule does not rely on the CTA for its legal authority, FinCEN is proposing to adopt many of the CTA's exemptions for purposes of this proposed definition, insofar as the policy rationales for those exemptions align with the goals of this proposed rule. The exemptions that FinCEN proposes to adopt would apply to legal entities that FinCEN believes have sufficient AML/CFT compliance obligations in the real estate context, and which are already subject to more government supervision, or have disclosure requirements that obviate the need for inclusion in this proposed rule.

The exclusions in the proposed rule that align with the CTA's exemptions largely turn on whether the entity in question is supervised by a government agency, is a government agency, or has disclosure requirements that may diminish illicit finance risk in the context of residential real property.
63

63

See
31 U.S.C. 5336(a)(11)(B)(xxi).

Specifically, the proposed rule would exclude U.S. governmental authorities, securities reporting issuers, and certain banks, credit unions, depository institution holding companies, money service businesses, brokers or dealers in securities, securities exchange or clearing agencies, other Exchange Act registered entities, insurance companies, state-licensed insurance producers, Commodity Exchange Act registered entities, public utilities, financial market utilities, and registered investment companies, as well as any legal entity whose ownership interests are controlled or wholly owned, directly or indirectly, by any of the above.

For example, in the residential real estate context, FinCEN assesses that the illicit finance risk of non-financed transfers is adequately diminished when a business must register its securities with the Securities and Exchange Commission (SEC) under Section 12 of the Securities Exchange Act of 1934 or must file Forms 10-K or other supplementary and periodic information under section 15(d) of the Securities Exchange Act of 1934. Persons who beneficially own more than five percent of a covered class of equity securities for these businesses must publicly file with the SEC certain information relating to such beneficial ownership.
64

Persons who are a director or an officer or who beneficially own more than 10 percent of such registered equity security (insiders) also must publicly report their ownership and transactions.
65

64

See
15 U.S.C. 78m(d)(1), (g)(1); 17 CFR 240.13d-1.

65

See
U.S. Securities and Exchange Commission, “Officers, Directors, and 10% Shareholders,”
available at https://www.sec.gov/education/smallbusiness/goingpublic/officersanddirectors.

b. Non-Profit Organizations

The definition of transferee entity in the proposed rule should be read to include non-profit organizations.
66

66
Under U.S. tax law, non-profit organizations include tax-exempt organizations: charitable organizations, churches and religious organizations, private foundations, and other non-profits such as civic leagues, social clubs, labor organizations, and business leagues, under Internal Revenue Code Section 501(c)(3), as well as political organizations subject to Section 527 to the Internal Revenue Code.
See
IRS, “Exempt Organization Types,”
available at https://www.irs.gov/charities-non-profits/exempt-organization-types.

FinCEN and at least four major federal financial institution regulators (the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency have made clear that the U.S. government does not view the charitable sector as a whole as presenting a uniform or unacceptably high risk of being used or exploited for money laundering, terrorist financing, or sanctions violations. The agencies have also recognized that the vast majority of charities and other non-profit organizations comply with the law and properly support charitable and humanitarian causes.
67

The FATF also has made clear that only a small subset of non-profits sending funds cross-border should be considered high risk as it relates to serving as potential vehicles of terrorist financing.
68

67
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, FINCEN, National Credit Union Administration, and Office of the Comptroller of the Currency, Joint Fact Sheet on Bank Secrecy Act Due Diligence Requirements for Charities and Non-Profit Organizations (Nov. 19, 2020),
available at https://www.fincen.gov/sites/default/files/shared/Charities%20Fact%20Sheet%2011_19_20.pdf.

68
Financial Action Task Force, Risk of Terrorist Abuse of Non-Profit Organisations (June 2014), p. 8,
available at https://www.fatf-gafi.org/content/dam/fatf-gafi/reports/Risk-of-terrorist-abuse-in-non-profit-organisations.pdf.coredownload.pdf.

However, non-profit organizations (a subset of which are often referred to as charities), have proven vulnerable to abuse by certain illicit actors and have been implicated in illicit finance schemes, including fraud, money laundering, tax evasion, and terrorist financing.
69

FinCEN's consultations with law enforcement indicate that charities are routinely the subjects of investigations involving fraud and money laundering, and a review of criminal cases involving illicit finance crimes and non-profit organizations shows that such organizations are vulnerable to exploitation by illicit actors. Indeed, charities purporting to support such causes as AIDS research, police and firefighters, disabled youth, childhood hunger, and veterans' issues have been investigated and prosecuted for fraud and money laundering.
70

Further, non-profit organizations have been used by corrupt governmental officials to extort money from individuals seeking zoning approvals and permits;
71
manipulated to engage in bribery of corrupt foreign officials;
72
and exploited to finance terrorism.
73

69

See
U.S. Department of the Treasury, “Protecting Charitable Organizations,”
available at https://home.treasury.gov/policy-issues/terrorism-and-illicit-finance/protecting-charitable-organizations
(noting that “terrorists have exploited the charitable sector to raise and move funds, provide logistical support, encourage terrorist recruitment, or otherwise support terrorist organizations and operations”); U.S. Department of Justice, Press Release, Charity Founders Sentenced to Prison for Using Non-Profit to Steal from Donors and Cheat on Their Taxes (Nov. 6, 2020),
available at https://www.justice.gov/usao-sdca/pr/charity-founders-sentenced-prison-using-non-profit-steal-donors-and-cheat-their-taxes; see generally
Organization for Economic Cooperation and Development, Report on Abuse of Charities for Money-Laundering and Tax Evasion (Feb. 2009),
available at https://www.oecd.org/tax/exchange-of-tax-information/42232037.pdf;
World Bank, Combatting the Abuse of Non-Profit Organizations (June 2015),
available at https://elibrary.worldbank.org/doi/pdf/10.1596/978-0-8213-8547-0;
Financial Action Task Force, Combating the Terrorist Financing Abuse of Non-Profit Organisations (Nov. 2023),
available at https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/BPP-Combating-TF-Abuse-NPO-R8.pdf.coredownload.inline.pdf.

70

See U.S.
v.
Lyons,
472 F.3d 1055, 1061-1065 (9th Cir. 2007);
Dhafir
v.
U.S., 2015 U.S. Dist. LEXIS
197346, 2015 WL 13727329 (N.D.N.Y. June 25, 2015).

71

See generally U.S.
v.
Hairston,
46 F.3d 361 (4th Cir. 1995).

72

See generally U.S.
v.
Chi Ping Patrick Ho,
984 F.3d 191 (2d Cir. 2020) (in which a Chinese think tank registered in Hong Kong and in the United States as a public charity exploited a charity in Uganda to engage in money laundering and bribery under the Foreign Corrupt Practices Act).

73

See Sotloff
v.
Qatar Charity,
2023 U.S. Dist. LEXIS 93911, 2023 WL 3721683 (S.D. Fla. May 30, 2023) (financial support for Hamas, Al Qaeda, and ISIS);
In re Terrorist Attacks on September 11, 2001,
U.S. Dist. LEXIS 247199*, *344 (S.D.N.Y. Apr. 27, 2020) (financial support for Al Qaeda);
Strauss
v.
Credit Lyonnais, S.A.,
925 F. Supp. 2d 414, 415 (E.D.N.Y. 2013) (financial support for Hamas); U.S. Department of the Treasury, Press Release, Treasury Targets Hizballah Finance Official and Shadow Bankers in Lebanon (May 11, 2021),
available at https://home.treasury.gov/news/press-releases/jy0170
(highlighting a non-profit providing funding for Hizballah).

Illicit funds funneled through non-profit organizations are often invested in residential real estate. For instance, in July 2021, the 11th Circuit affirmed the conviction and forfeiture judgments involving multiple non-profit organizations in Florida.
74

The defendants that exploited the non-profits were convicted of conspiracy to commit wire fraud, operation of an illegal gambling business, conspiracy to commit money laundering, and money laundering.
75

The court found that funds laundered through the non-profits were used to purchase three residential real estate properties in Florida, which were subsequently forfeited.
76

74

U.S.
v.
Masino,
2021 U.S. App. LEXIS 22615, 2021 WL 3235301 (11th Cir. July 30, 2021);
U.S.
v.
Masino,
2019 U.S. Dist. LEXIS 34862, 2019 WL 1045179 (N.D. Fla. Mar. 5, 2019).

75

U.S.
v.
Masino,
2021 U.S. App. LEXIS 22615, 2021 WL 3235301 (11th Cir. July 30, 2021).

76

U.S.
v.
Masino,
2019 U.S. Dist. LEXIS 34862, 2019 WL 1045179 (N.D. Fla. Mar. 5, 2019),
aff'd U.S.
v.
Masino,
2021 U.S. App. LEXIS 22615, 2021 WL 3235301 (11th Cir. July 30, 2021).

One 2021 ANPRM commenter specifically stated that FinCEN should

cover purchases by non-profits.

77
Another commenter detailed the regulations that cover non-profits and advocated against covering them.
78

Having considered the circumstances and comments in totality, FinCEN believes that non-profit organizations are vulnerable to abuse by illicit actors seeking to launder illicit proceeds through residential real estate. Accordingly, they would be captured under the proposed definition of transferee entity.

77

See
The FACT Coalition, ANPRM Comment (Feb. 18, 2022), p. 4,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0122.

78

See
Kirton McConkie, ANPRM Comment (Feb. 7, 2022), pp. 1-8,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0017.

c. Unregistered Pooled Investment Vehicles

Pooled investment vehicles (PIVs) that are not registered with the SEC may be transferee entities for purposes of the proposed rule. Broadly, PIVs can include investment companies registered with the SEC, such as mutual funds and exchange-traded funds, as well as unregistered investment companies, such as private real estate investment trusts, certain real estate funds, special purpose financing vehicles, and private funds (which are usually categorized by their sponsors according to the investment strategy they pursue, and include funds such as hedge funds, private equity funds, and venture capital funds).
79

Under the proposed rule, PIVs that are investment companies and are registered with the SEC would be exempt from the definition of a transferee entity. The difference between registered and unregistered PIVs turns in part on whether the PIV is or is not excluded from registration requirements as an investment company under the Investment Company Act of 1940.
80

PIVs that meet these exclusion requirements, and are therefore not registered with the SEC, do not have disclosure and reporting requirements that govern similar but public PIVs, such as mutual funds or exchange-traded funds.

79
The term “pooled investment vehicle” has a particular definition in Rule 206(4)-8 under the Investment Advisers Act of 1940.
See
17 CFR 275.206(4)-8. However, the term is used more broadly in this NPRM. For information on private funds,
see
U.S. Securities and Exchange Commission, “Private Fund Adviser Overview,”
available at https://www.sec.gov/divisions/investment/guidance/private-fund-adviser-resources.
Section 202(a)(29) of the Advisers Act defines the term “private fund” as an issuer that would be an investment company, as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3), but for section 3(c)(1) or 3(c)(7) of that Act. Section 3(c)(1) excludes a privately-offered issuer having fewer than a certain number of beneficial owners. Section 3(c)(7) excludes a privately-offered issuer the securities of which are owned exclusively by “qualified purchasers” (generally, persons and institutions owning a specific amount of investments).
See
U.S. Securities and Exchange Commission, “Investment Company Registration and Regulation Package,”
available at https://www.sec.gov/investment/fast-answers/divisionsinvestmentinvcoreg121504#P84_14584.

80

Id.

Furthermore, unregistered PIVs are not subject to comprehensive AML/CFT regulation and are therefore vulnerable to abuse by illicit actors. The risks they present may be significant—the private fund sector, for example, holds approximately $20 trillion assets under management—a number that has more than doubled over the past decade and is comparable to the holdings of highly regulated U.S. banks.
81

In recent years, private funds have been used by sanctioned persons, corrupt officials, tax evaders, and other criminal actors as a gateway to the U.S. financial system. This includes funds stolen from Malaysia's sovereign wealth fund, 1MDB;
82

Venezuela's state-owned oil and natural gas company, PDVSA;
83

and funds from a large-scale cryptocurrency fraud scam.
84

81

See
U.S. Securities and Exchange Commission, “Private Fund Statistics,”
available at https://www.sec.gov/divisions/investment/private-funds-statistics.
This figure reflects the assets of private funds managed by registered investment advisers only. Form PF is filed by certain investment advisers registered with the SEC to report confidential information about the private funds they advise. Form PF is not filed by investment advisers that advise private funds but that are not registered with the SEC. Form PF provides the SEC and Financial Stability Oversight Council (FSOC) with important information about the basic operations and strategies of private funds and has helped establish a baseline picture of the private fund industry for assessing systemic risk.

82
Peter Grant, “1MDB probe may be good news for Park Lane Hotel Investors,”
The Wall Street Journal
(July 26, 2016),
available at https://www.wsj.com/articles/1mdb-probe-may-be-good-news-for-park-lane-hotel-investors-1469554543.

83

See generally
Criminal Complaint,
U.S.
v.
Guruceaga,
Case No. 1:18-cr-20685 (S.D. Fla. July 23, 2018).

84
U.S. Department of Justice, Press Release, Former Partner of Locke Lord LLP Convicted in Manhattan Federal Court Of Conspiracy To Commit Money Laundering And Bank Fraud In Connection with Scheme To Launder $400 Million Of OneCoin Fraud Proceeds (Nov. 21, 2019),
available athttps://www.justice.gov/usao-sdny/pr/former-partner-locke-lord-llp-convicted-manhattan-federal-court-conspiracy-commit-money#:~:text=SCOTT%2C%20a%20former%20equity%20partner,and%20operated%20for%20that%20purpose.

Unregistered PIVs have also been used to hide criminal proceeds in real estate. In one particular example, a criminal actor had a substantial ownership interest in a private fund and used it to both obfuscate and provide a veneer of legitimacy to illicit funds to make U.S. real estate purchases.
85

Illicit actors may also hold a minority, non-controlling interest in an unregistered PIV, resulting in the unregistered PIV channeling that investor's illicit funds into real estate, as unregistered PIVs are not generally required to establish the identities of investors or look into the investor's source of funds.
86

85

See, e.g.,
Peter Grant, “1MDB probe may be good news for Park Lane Hotel Investors,”
The Wall Street Journal
(July 6, 2016),
available at https://www.wsj.com/articles/1mdb-probe-may-be-good-news-for-park-lane-hotel-investors-1469554543;
Complaint,
U.S.
v.
“The Wolf of Wall Street” Motion Picture,
Case No. 2:16-cv-05362-DSF-PLA (C.D. Cal. 2016); Will Parker, “Meet the secretive Kazakh company backing the Upper West Side's latest skyscraper,” The Real Deal: Real Estate News (Apr. 14, 2018),
available at https://therealdeal.com/new-york/2018/04/13/meet-the-secretive-kazakh-company-backing-the-upper-west-sides-latest-skyscraper/;
Miranda Patrucic, Vlad Lavrov, and Ilya Lozovsky, “Kazakhstan's Secret Billionaires,” OCCRP (Nov. 5, 2017),
available at https://www.occrp.org/en/paradisepapers/kazakhstans-secret-billionaires.

86

See., e.g.,
U.S. Department of Justice, Press Release, Acting Manhattan U.S. Attorney Announces Settlement of Civil Forfeiture Claims Against Over $50 Million Laundered Through Black Market Peso Exchange (Nov. 12, 2020),
available at https://www.justice.gov/usao-sdny/pr/acting-manhattan-us-attorney-announces-settlement-civil-forfeiture-claims-against-over.

Outside of the real estate sector, the lack of comprehensive AML/CFT coverage for unregistered PIVs has posed major national security challenges, enabling U.S. adversaries to invest in, and thereby gain access to, sensitive and emerging U.S. technologies.
87

In fact, according to a 2018 Department of Defense report, unregistered PIVs such as private funds and special purpose vehicles have allowed jurisdictions whose interests compete with the United States to “access the crown jewels of U.S. innovation,” including in the realms of artificial intelligence, sensors, virtual reality, self-driving vehicles, robotics, microchips, and facial and other image recognition technologies, without such activity being reviewed by the Committee on Foreign Investment in the United States or other relevant government authority, where required.
88

87
Cory Bennett and Bryan Bender, “How China acquires `The Crown Jewels' of U.S. technology,” Politico (May 22, 2018),
available at https://www.politico.com/story/2018/05/22/china-us-tech-companies-cfius-572413.

88
Michael Brown and Pavneet Singh, “China's Technology Transfer Strategy: How Chinese Investments in Emerging Technology Enable A Strategic Competitor to Access the Crown Jewels of U.S. Innovation,” Defense Innovation Unit Experimental (Jan. 2018),
available at https://nationalsecurity.gmu.edu/wp-content/uploads/2020/02/DIUX-China-Tech-Transfer-Study-Selected-Readings.pdf;
Paul Mozur and Jane Perlez, “China Tech investment flying under the radar, Pentagon warns,” The New York Times (Apr. 7, 2017).

FinCEN therefore believes that unregistered PIVs generally present sufficient illicit finance risk to warrant inclusion in the definition of a transferee entity. These unregistered PIV may include entities such as private funds,
89

certain market intermediaries,
90

certain companies that primarily engage in the business of acquiring mortgages,
91

certain funds maintained by charitable organizations,
92

and certain church plans.
93

89
Private funds often are excluded from the definition of “investment company” under 15 U.S.C. 80a-3(c)(1) and/or 15 U.S.C. 80a-3(c)(7).

90
Certain market intermediaries are excluded from the definition of “investment company” under 15 U.S.C. 80a-3(c)(2).

91
Certain investment vehicles that are primarily engaged in “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate” are excluded from the definition of “investment company” under 15 U.S.C. 80a-3(c)(5)(C).

92
Certain investment vehicles maintained by certain charitable organizations are excluded from the definition of “investment company” under 15 U.S.C. 80a-3(c)(10).

93
Certain church plans are excluded from the definition of “investment company” under 15 U.S.C. 80a-3(c)(14).

d. Large Operating Companies

The proposed definition would capture certain legal entities that are known as “large operating companies” in the CTA and BOI Reporting Rule context. Within that framework, a large operating company is an entity that: “employs more than 20 employees on a full-time basis in the United States;” “filed in the previous year Federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales in the aggregate;” and “has an operating presence at a physical office within the United States[.]”
94

When explaining why this exemption was added to the CTA, Senator Sherrod Brown noted:

94
31 U.S.C. 5336(a)(11)(B)(xxi).

The justification for the exemption of entities that have both physical operations and at least 20 employees in the United States is that those entities' physical U.S. presence will make it easy for U.S. law enforcement to discover those entities' true owners. Like other exemptions in the bill, this exemption should be narrowly construed to exclude entities that do not have an easily located physical presence in the United States, do not have multiple employees physically present on an ongoing basis in the United States, or use strategies that make it difficult for U.S. law enforcement to contact their workforce or discover the names of their beneficial owners.
95

95
Senator Sherrod Brown, “National Defense Authorization Act,” Congressional Record 166: 208, p. S7311 (Dec. 9, 2020),
available at https://www.congress.gov/116/crec/2020/12/09/CREC-2020-12-09-pt1-PgS7296.pdf.

Senator Brown cautioned however, that “[t]his exemption should be subject to continuous, careful review by Treasury . . . to detect and prevent its misuse.”
96

96

Id.

One of the primary purposes of the proposed rule is to identify transferee entities that engage in non-financed residential real estate transfers. While it may be easier for law enforcement to identify beneficial owners behind large operating companies in comparison to shell companies, the very fact that a legal entity has engaged in activity that FinCEN has identified as presenting an illicit finance risk—the use of identity obfuscating vehicles in a non-financed residential real estate transfer—is valuable information for law enforcement, both to support individual investigations and to allow for aggregated analysis of money laundering in the U.S. real estate sector.

However, certain large operating companies may fall within other exclusions provided for in the proposed rule. For example, a company required to register its securities with the SEC under section 12 of the Securities Exchange Act of 1934 would be excluded.

2. Transferee Trusts

The proposed rule defines “transferee trust” as any legal arrangement created when a person (generally known as a settlor or grantor) 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 proposed rule further notes that a trust is deemed to be the transferee trust regardless of whether residential real property is titled in the name of the trust itself or in the name of the trustee in their capacity as the trustee of the trust. However, the proposed rule excludes trusts that are securities reporting issuers, which includes companies that must register securities with the SEC and become subject to periodic reporting and disclosure requirements. FinCEN considers these trusts to be more tightly supervised and, because they are required to make certain public disclosures, they present a lower illicit finance risk. For similar reasons, trusts that have a trustee that is a securities reporting issuer are not covered by the proposed rule. Furthermore, the proposed rule excludes statutory trusts from being transferee trusts; instead, a statutory trust could be considered to be a transferee entity, unless one of the exemptions to the definition of “transferee entity” applies.

Multiple 2021 ANPRM commenters highlighted the use of trusts to facilitate exploitation of the real estate market for the purpose of laundering money, were largely supportive of including them in any regulation, and suggested that transfers to trusts be covered, particularly since the CTA did not explicitly provide for reporting of beneficial ownership information from trusts.
97

Other commenters recognized that trusts can present illicit finance risks but were only supportive of covering certain types.
98

As discussed in detail above, FinCEN believes that non-financed residential real estate transfers to trusts present a high risk for money laundering. The reporting of all non-financed transfers of residential real estate in which the transferee is a trust would provide data relevant to a possible violation of law or regulation.

97

See,
Global Financial Integrity, ANPRM Comment (Feb. 17, 2022), pp. 3, 30,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0102;
Coalition for Integrity, ANPRM Comment (Feb. 21, 2022), p. 4,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0127;
The FACT Coalition, ANPRM Comment (Feb. 18, 2022), p. 4,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0122;
Transparency International U.S., ANPRM Comment (Feb. 18, 2022), pp. 3, 8,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0115;
American College of Trust and Estate Counsel, ANPRM Comment (Feb. 4, 2022), pp. 1-22,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0013;
Anti-Corruption Data Collective, ANPRM Comment (Feb. 18, 2022), p. 3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0153;
California Reinvestment Coalition, ANPRM Comment (Feb. 18, 2022), p. 1,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0126.

98

See
American College of Trust and Estate Counsel, ANPRM Comment (Feb. 4, 2022), pp. 1-22,
available at https://www.regulations.gov/docket/FINCEN-2021-0007/comments?filter=ACTEC;
National Association of Realtors, ANPRM Comment (Feb. 18, 2022), p. 13,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0128.

3. Beneficial Owners of Transferee Entities and Transferee Trusts

The proposed Real Estate Report would collect information about the beneficial owners of transferee entities and transferee trusts. Where possible, FinCEN has aligned the proposed rule's definitions of beneficial ownership with those contained in the CTA and its implementing regulations.

a. Determining the Beneficial Owners of Transferee Entities

Consistent with the CTA, the proposed rule provides that a beneficial owner of a transferee entity is “any

individual who, directly or indirectly, either exercises substantial control over the transferee entity or owns or controls at least 25 percent of the ownership interests of the transferee entity.” However, as the owners or directors of tax-exempt organizations do not hold a direct ownership stake in the organization, the reportable beneficial owners would be limited only to the individuals who exercise substantial control.

Comments on the 2021 ANPRM were generally supportive of using the CTA's definition of the beneficial owner in any potential regulation. However, one commenter suggested FinCEN use the definition of beneficial owner set out in the Residential Real Estate GTOs.

FinCEN considered that definition as well as other definitions for beneficial ownership for transferee entities. However, FinCEN believes that the BOI Reporting Rule's definition would be best suited to capture potentially obfuscated ownership of residential real property in high-risk non-financed transfers, particularly since it will always result in the identification of at least one beneficial owner via the “substantial control” component of the definition, even if no individual meets the 25 percent “ownership interests” threshold. In addition, the use of consistent definitions of beneficial ownership across regulations would reduce the potential for confusion.

b. Determining the Beneficial Owners of Transferee Trusts

The proposed rule would collect information about the beneficial owners of trusts, defined as any individual who, at the time of the real estate transfer to the trust: (1) is a trustee; (2) otherwise has authority to dispose of transferee trust assets, such as may be the case with a trust protector;
99

(3) is a beneficiary who is the sole permissible recipient of income and principal from the transferee trust or who has the right to demand a distribution of, or to withdraw, substantially all of the assets of the transferee trust; (4) is a grantor or settlor of a revocable transferee trust; or (5) is the beneficial owner of a legal entity or trust that holds one of the positions described in (1)-(4), taking into account the exceptions that apply to transferee entities and transferee trusts.

99
A trust protector is a person given power within the trust to take certain types of significant actions, such as the right to oversee the trustee's decisions, to remove the trustee, or to amend or terminate the trust.
See
section 808 of the Uniform Trust Code (2003),
available at https://www.uniformlaws.org/viewdocument/committee-archive-76?CommunityKey=193ff839-7955-4846-8f3c-ce74ac23938d&tab=librarydocuments;
Andrew T. Huber, “Trust Protectors: The Role Continues to Evolve,” American Bar Association (Jan.-Feb. 2017),
available at https://www.americanbar.org/groups/real_property_trust_estate/publications/probate-property-magazine/2017/january_february_2017/2017_aba_rpte_pp_v31_1_article_huber_trust_protectors/.

This proposed definition leverages the BOI Reporting Rule's approach to ascertaining the beneficial owners of a trust. Although the BOI Reporting Rule does not require reporting of beneficial ownership information by most trusts, as most trusts are not “reporting companies” for purposes of the CTA, the rule does require certain information to be reported about the beneficial owners of trusts when an individual is considered to own or control a reporting company through a trust. In line with that approach, each of the defined beneficial owners of a transferee trust has either ownership or control over trust assets, including over any real property transferred to the trust. For example, an individual who is the sole permissible recipient of both income and principal from the trust, or has the right to demand a distribution of, or withdraw, substantially all of the assets from the trust, has an ownership or controlling interest in the assets held in trust. Other individuals with authority to dispose of trust assets, such as trustees and grantors or settlors that have retained the right to revoke the trust, will be considered as controlling the assets held in trust. In the case of legal entities or trusts with ownership or control of trust assets, the beneficial owners of those legal entities or trusts also would be beneficial owners of the trust.

c. Beneficial Ownership as a Transactional Reporting Requirement

The proposed rule would not require reporting persons to report changes to beneficial ownership of a transferee entity or transferee trust on an ongoing basis. The proposed rule is concerned only with real estate transfers, and it is not within the scope or intention of these regulations to require reporting persons to conduct ongoing monitoring of ownership of residential real property. While at least one 2021 ANPRM commenter supported the introduction of ongoing monitoring for change of ownership, most commenters did not address this issue. FinCEN assesses that it would likely represent a large and impractical burden to place an obligation on reporting persons that would require them to investigate changes to beneficial ownership of residential real estate that continues to be owned by a client transferee entity or trust, or to require transferee entities or transferee trusts to report changes in beneficial ownership to a real estate professional involved in their transfer of residential real property after the transfer has been concluded.

C. Reportable Transfers

The proposed rule would define a reportable transfer as a transfer of any ownership interest in residential real property to a transferee entity or transferee trust, with certain exceptions. These proposed exceptions are meant to reflect FinCEN's intent to capture only higher risk transfers and therefore the definition exempts most financed transfers, as well as certain types of other low-risk transfers. Under the proposed rule, transfers would be reportable irrespective of the value of the property or the dollar value of the transaction; there is no dollar threshold for a reportable transfer. As such, gifts and other similar transfers of property may be reportable. Importantly, 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.

1. Exception for Financed Transfers

First, certain financed transfers would be excepted. Specifically, the exception would apply to transfers involving an extension of credit to the transferee, but only if the credit is secured by the transferred residential real property and is extended by a financial institution that has both an obligation to maintain an AML program and a requirement to file SARs. Transfers financed by a private lender or the seller, neither of which are likely to have AML/CFT compliance programs and SAR filing obligations, would not fall within this exception. The purpose of the exception is to avoid duplication of required due diligence, as banks and other financial institutions subject to AML/CFT program requirements and SAR filing obligations must already extend them to any mortgages offered in a financed residential real estate transfer. Unlike in the non-financed space, these due diligence obligations of covered financial institutions mitigate the risks of money laundering through real estate for financed transactions and lead to reporting on suspicious transactions.

Some commenters on the 2021 ANPRM highlighted that non-financed purchases make up a significant portion of the residential real estate market.

100

Most commenters who addressed the issue were supportive of FinCEN covering non-financed transfers.
101

Some explicitly stated that only non-financed transfers should be covered, but two comments stated that FinCEN should cover both non-financed and financed transfers.
102

Two commenters were not supportive of covering non-financed transactions, either because they believe real estate professionals are already reporting on potential financial crimes through other FinCEN forms, such as the Form 8300, or because they believe most settlement agents already force funds through financial institutions that have traditional AML/CFT program requirements.
103

However, FinCEN believes that further regulation is needed and its experience with the Residential Real Estate GTOs program has shown that existing reporting through Form 8300s and the minimal involvement of financial institutions subject to AML/CFT program requirements are not sufficient to obviate the illicit finance threat posed by non-financed transfers of residential real property.

100

See
Global Financial Integrity, ANPRM Comment (Feb. 17, 2022), p. 15,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0102;
Transparency International U.S., ANPRM Comment (Feb. 18, 2022), p. 3,

available at https://

www.regulations.gov/comment/FINCEN-2021-0007-0115.

101

See
Global Financial Integrity, ANPRM Comment (Feb. 17, 2022), p. 15,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0102;
Transparency International U.S., ANPRM Comment (Feb. 18, 2022), p. 3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0115;
League of Southeastern Credit Unions & Affiliates, ANPRM Comment (Feb. 7, 2022), pp. 1-4,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0011;
Illinois Credit Union League, ANPRM Comment (Feb. 21, 2022), p. 1,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0137.

102

See
Louise Shelley and Ross Delston, ANPRM Comment (Feb. 21, 2022), p. 1,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0151;
Anti-Corruption Data Collective, ANPRM Comment (Feb. 18, 2022), p. 3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0153.

103

See
Morgan, Lewis, & Bockius, ANPRM Comment (Feb. 18, 2022), pp. 2-3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0123;
Prosperus Title, ANPRM Comment (Feb. 18, 2022), 1-2,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0125.

2. Exceptions for Low-Risk Transfers

Exceptions also would exist for transfers that are the result of a grant, transfer, or revocation of an easement; transfers that occur as a result of the death of an owner of the residential real property; transfers that are the result of divorce or dissolution of marriage; or transfers to a bankruptcy estate. FinCEN views easements, which involve rights to use land for a specified purpose, as presenting little illicit finance risk. Transfers incidental to death, divorce, or bankruptcy are governed by preexisting legal documents, such as wills, or generally involve the court system through probate, divorce, or bankruptcy proceedings. FinCEN believes these circumstances present a relatively low risk for purposes of laundering money.

3. No Exceptions Based on the Property's Value or Purchase Price

Residential real properties with a wide range of values are used by illicit actors to launder money, including residential real properties transferred for no consideration.
104

Criminal networks interested in cleaning funds do not exclusively invest in luxury or high-value property, but also launder money through low-value real estate. FinCEN believes that any dollar threshold would enable money launderers to structure payments to avoid reporting requirements. Accordingly, the proposed rule does not provide exceptions for transfers above or below a set dollar value. Furthermore, it is meant to capture both sales and non-sale transfers, such as gifts and transfers to trusts. The transfer of residential real property to a trust by the settlor or grantor may therefore be reportable, although FinCEN expects that such reporting will be significantly limited by the exception for transfers of financed residential real property and by the exception for transfers occurring as a result of death. The latter, in particular, would exempt transfers by an executor of the grantor or settlor's property to a testamentary trust.

104
For example, whereas the Residential Real Estate GTOs utilize a $300,000 threshold for most covered jurisdictions, a $50,000 threshold applies for the City and County of Baltimore to take into account local money laundering trends.

FinCEN believes that the inclusion of low dollar value transfers in the proposed rule is unlikely to significantly increase the burden on potential reporting persons versus a scenario in which a dollar threshold is imposed. For example, according to the U.S. Census Bureau, residences costing less than $125,000 accounted for less than 0.5 percent of all new residences sold in 2022, and residences costing less than $300,000 accounted for 7 percent of all new residences sold in 2022.
105

The American Land Title Association (ALTA) has indicated to FinCEN that a uniform reporting threshold, regardless of what the threshold is, would decrease compliance burdens for industry compared to thresholds that vary across jurisdictions. With respect to non-sale transfers made for no consideration, such as transfers made to a trust, FinCEN notes that the proposed rule provides the previously discussed exception for transfers that most often involve no consideration, such as those that occur due to death or divorce, which substantially narrows the scope of coverage. However, FinCEN welcomes comments on the potential burdens related to the reporting of non-sale transfers.

105
U.S. Census Bureau, “Table Q1. New Houses Sold by Sales Price: United States,”
available at https://www.census.gov/construction/nrs/pdf/quarterly_sales.pdf.

4. No Application to Transfers Without a Reporting Person

FinCEN believes that the proposed rule would capture the majority of sale and non-sale transfers of residential real estate. However, transfers that do not involve a typical real estate-related professional as reflected in the cascade of potential reporting persons would not be captured.

5. No Application to Transfers to Natural Persons

Transfers made directly to individuals would not be reportable under this regulation. Therefore, if the transferred property's title is in the name of one or more individuals, with no ownership interests held by a transferee entity or a transferee trust, the transfer would not be reportable under the rule.

Some 2021 ANPRM commenters recognized that non-financed transfers of residential real estate to individuals present money laundering risk and supported their coverage by any potential regulation.
106

Other commenters, however, stated that the burden of covering natural person purchases would be too large for the industry to bear and expressed privacy concerns.
107

106

See
Global Financial Integrity, ANPRM Comment (Feb. 17, 2022), p. 24,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0102;
The FACT Coalition, ANPRM Comment (Feb. 18, 2022), p. 3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0122;
California Reinvestment Coalition, ANPRM Comment (Feb. 18, 2022), pp. 2-3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0126;
Coalition for Integrity, ANPRM Comment (Feb. 21, 2022), p. 4,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0127;
Anti-Corruption Data Collective, ANPRM Comment (Feb. 18, 2022), p. 3,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0153.

107

See
National Federation of Independent Business, ANPRM Comment (Dec. 22, 2021), p. 1,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0007;
American Land Title Association, ANPRM Comment (Feb. 17, 2022), p. 2-5,
available at https://www.regulations.gov/comment/FINCEN-2021-0007-0020.

All non-financed transfers of residential real estate are less regulated than financed transfers and are inherently more vulnerable to money

laundering. However, FinCEN has not yet conducted a review of residential real estate purchases by natural persons sufficient to conclude that those transactions present a high risk for money laundering. To be sure, illicit actors often use natural person nominees or straw purchasers—such as a spouse, relative, or employee—to acquire real estate while obscuring beneficial ownership.
108

Such nominees or straw purchasers are unlikely to disclose that they are receiving ownership of real estate on behalf of the illicit actor. Requiring the reporting of information about transfers to individuals would significantly increase the number of reports filed and significantly increase burden on industry. Although the BSA would provide privacy protections for reports filed under the proposed rule, for the reasons stated above, FinCEN is not proposing to cover residential real estate purchases by natural persons at this time.

108

See, e.g.,
U.S. Department of the Treasury, National Strategy for Combatting Terrorist and Other Illicit Financing (2020), pp. 17-18,
available at https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf.

D. Reporting Persons

The proposed rule would impose a filing and recordkeeping obligation on certain persons involved in real estate closings and settlements. The proposed rule would designate only one reporting person for any given reportable transfer. The reporting person would be identified in one of two ways: by way of a cascading reporting order or by way of a written agreement between the real estate professionals described in the cascading reporting order.

1. The Reporting Cascade

Through the 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 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 cascade includes only persons engaged as a business in the provision of real estate closing and settlement services within the United States.

For any reportable transfer, a potential reporting person would need to determine whether there is another potential reporting person involved in the transfer who sits higher in the cascade. Although potential reporting persons will likely communicate with each other regarding the need to file a report, there would be no requirement to verify that any other potential reporting person in fact filed it.

The proposed cascade is as follows:
109

109
The types of businesses involved in a real estate closing or settlement vary depending on the type of transaction and on the jurisdiction. As such, the reporting cascade (
see
Proposed amendments
infra
31 CFR 1031.320(c)) is itemized to capture a broad array of potential businesses. However, FinCEN believes that, for any transaction, the functions described in first three tiers of the reporting cascade would be performed by only one business, with no other separate business performing the other two functions. FinCEN therefore treats the reporting cascade as having five functional groupings.

First,
real estate professionals providing certain settlement services in the settlement process
—In the first instance, the reporting obligation would rest with real estate professionals providing certain settlement services at the termination of the settlement process. Specifically, the cascade first designates as a reporting person the person listed as the closing or settlement agent on a settlement (or closing) statement, which is common to the vast majority of residential real property transfers. This ensures that a potential reporting person familiar with the intricacies of the transfer, including transactional information and details about the parties involved, will be the most frequent reporting person. This, in turn, will ensure that the reports are more accurate and useful to law enforcement and will lessen the burden on reporting persons. In the event that no person is directly identified as a closing or settlement agent on the statement, the reporting obligation would fall on the person that prepared the closing or settlement statement. If no person prepared a closing or settlement statement, the reporting obligation falls to the person that files the deed or other instrument that transfers ownership of the residential real property.

Second,
the person that underwrites an owner's title insurance policy for the transferee
—If no person executes the specific settlement functions in the first tier of the cascade, the reporting obligation would then fall upon the person that underwrites the title insurance policy associated with the real property transfer. Such policies are typically underwritten by large title insurance companies that issue policies providing indemnity in the event the title of the transferred property is later determined to have a defect or encumbrance.
110

Title insurance companies have been the reporting persons for the Residential Real Estate GTOs since 2016 and have demonstrated the ability to gather information and file reports containing information similar to that which would be collected under the proposed rule. Given that the underwriting function is further removed from the termination of the settlement process than the settlement services described in the first tier of the cascade, and so further removed from information to be collected, FinCEN assesses that persons underwriting such policies should be second line reporting persons. Title insurance agents may serve as settlement agents and if serving such a first-tier function, would have easier access to the necessary information in that capacity.

110
The U.S. title insurance market is concentrated, with four national underwriters accounting for approximately 81 percent of total industry premiums as September 2022. Fitch Rating, U.S. Title Insurance Outlook 2023 (Dec. 2, 2022),
available at https://www.fitchratings.com/research/insurance/us-title-insurance-outlook-2023-02-12-2022.

Third,
the person that disburses the greatest amount of funds in connection with the reportable transfer
—In the event that no person executes the specific settlement functions in the first tier of the cascade, and no person underwrites a title insurance policy, the third tier of the cascade would require reporting by the person that disburses the greatest amount of funds in connection with residential real property transfer. The proposed rule notes that such disbursement may be in any form, including from an escrow account (which is frequently used to settle real estate transfers), from a trust account, or from a lawyer's trust account. Such reporting persons will have visibility into funds transfer information associated with the residential real property transfer and FinCEN believes that, by virtue of this, they should be able to obtain the information this proposed rule would collect with relatively little burden. However, this tier of the cascade would only cover persons involved in real estate settlements and closings who are disbursing funds via third-party accounts and excludes direct transfers from transferees to transferors and disbursements coming directly from banks.

Fourth,
the person that prepares an evaluation of the title status
—In the event that no person participates in the transfer who falls within the first three tiers of the cascade, the reporting person would be the person who prepares an

evaluation of the status of the title. Such an evaluation may take the form of a title check, which is typically performed by title insurance companies in lieu of providing actual insurance or an opinion letter, which is rendered by attorneys.

Fifth,
the person who prepares the deed
—Finally, should no person identified in the first four tiers of the cascade participate in the real property transfer, the reporting obligation would fall to the preparer of the deed associated with the transfer. A deed is typically prepared by an attorney, but it may also be prepared by a non-attorney settlement or closing agent or by the transferee itself.

2. Capturing Both Sale and Non-Sale Transfers

The reporting cascade is designed to capture both sales of residential real estate and non-sale transfers of residential real estate. It assigns a reporting obligation based on the functions fulfilled by the various real estate professionals involved in the closing and settlement process, regardless of whether the transfer is a sale or non-sale. FinCEN believes that it is necessary to capture non-sale transfers to ensure uniform coverage of non-financed transfers and to ensure that nominees do not purchase homes for criminal actors and then transfer the title on free of charge to a legal entity or trust.

During a typical closing and settlement for a non-financed transfer of residential real estate, a transferee will offer to purchase a residential real property for a given price. This offer can occur through a representative, such as a real estate agent, attorney, or registered agent, or it may come directly from the transferee itself. If the transferor accepts the offered price, either directly or through a representative, the parties can proceed toward the settlement process, normally through a sales contract. It is at this point that title agencies or companies and escrow agents or companies typically become involved in the process. Title agencies will conduct an examination of the title to ensure it is free from defects, such as liens or other encumbrances. Escrow companies may at this point hold a deposit or “earnest money” from the transferee that the transferee would forfeit should it be responsible for breaking the purchase contract.
111

A transferee may also, and usually does, purchase a title insurance policy, which ensures that the title of the property is free from defects and indemnifies the transferee should a title defect later come to light. As noted above, a transferee may opt, in lieu of title insurance, to obtain a title check from the title insurance company or an opinion letter from an attorney.
112

However, neither title insurance nor a title check is required to close or settle non-financed transfers of residential real property.

111
“Escrow is [a] transaction in which an impartial third-party acts in a fiduciary capacity for all or some of the parties . . . in performing [s]ettlement services according to local practice and custom.” American Land Title Association, ALTA Best Practices 4.0 (May 23, 2023), p. 4,
available at https://www.alta.org/best-practices/download.cfm?bestPracID=97&type=pdf.

112
DarrowEverett LLP, “Are Attorney Opinion Letters a Viable Alternative to Title Insurance” (Feb. 23, 2023),
available at https://www.darroweverett.com/attorney-opinion-letter-advantages-risks-title-insurance/;
Fannie Mae, B7-2-06, Attorney Title Opinion Letter Requirements: Attorney Title Letter Opinion Requirements (Dec. 13, 2023),
available at https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B7-Insurance/Chapter-B7-2-Title-Insurance/2522435591/B7-2-06-Attorney-Title-Opinion-Letter-Requirements-04-06-2022.htm.

The transfer can then move toward settlement, which is also sometimes referred to as “closing.” According to ALTA, settlement is “[t]he process of completing a real estate transaction in accordance with written instructions during which deeds, mortgages, leases, and other required instruments are executed and/or delivered, an accounting between the parties is made, the funds are disbursed, and the appropriate documents are recorded in the public record.”
113

At settlement, a closing or settlement agent—which is most often a title agent but can be a representative of an escrow company or an attorney—will prepare a “settlement statement,” which normally contains an itemized list of all of the fees or charges that the buyer and seller will pay during the settlement portion of the transfer.
114

At settlement, the settlement statement and other closing documents are signed by the parties to the transfer and, if applicable, funds are disbursed to the transferor. This typically occurs via an escrow account, but also occurs at times via a trust account or attorney trust account or via a direct transfer of funds between the transferee and transferor (though, due to its risky nature, this practice is not common). Following the execution of the settlement statement and other closing documents and the disbursal of funds, the settlement agent will file the deed (the instrument which effects the transfer of ownership of the property) with the relevant local land registry or recordation office. Deeds are typically prepared by attorneys, but may be prepared by the settlement agent, escrow officer, or the transferee itself.
115

113
American Land Title Association, ALTA Best Practices 4.0 (May 23, 2023), p. 4,
available at https://www.alta.org/best-practices/download.cfm?bestPracID=97&type=pdf.

114
“The title agent and settlement agent are often the same entity that performs two separate functions in a real estate transaction. The terms title agent and settlement agent are often used interchangeably.” American Land Title Association, “ALTA Urges CFPB to Preserve Role of Independent Third-party Settlement Agents” (Nov. 8, 2012), p. 26,
available at https://www.alta.org/news/news.cfm?20121108-ALTA-Urges-CFPB-to-Preserve-Role-of-Independent-Third-party-Settlement-Agents;

see, e.g.,
American Land Title Association, “ALTA Model Settlement Statements,”
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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2024-02565. Public record. Not legal advice.