November 9, 2021
Money Laundering in the U.S. Real Estate Sector
Global Trends and Domestic Concerns
range of U.S. and international financial transparency
Money laundering and other financial crimes in the real
advocacy organizations, reports that national security and
estate sector take many forms and continue to challenge
foreign policy gaps remain in U.S. efforts to stop REML.
real estate professionals, financial institutions, policy
makers, law enforcement authorities, and regulatory
International Standards
stakeholders. Domestic and international scrutiny of the real
Since 2003, FATF has recommended that real estate agents, as
estate market’s vulnerability to money laundering has
well as lawyers, notaries, accountants, and others categorized
grown in recent years. An issue Congress may consider is
as “designated non-financial businesses and professions,”
how to balance the money laundering risks posed by the
(DNFBPs) be subject to AML requirements when facilitating
real estate sector against differing views on how to
real estate purchase or sale transactions for clients. U.S. real
implement appropriate oversight.
estate agents and other DNFBPs involved in real estate
transactions, however, are not subject to comprehensive
According to various sources, real estate money laundering
AML/CFT measures. According to FATF’s most recent mutual
(REML) schemes can involve a wide range of conventional
evaluation report of the United States, this is inconsistent with
domestic criminals, as well as transnational criminals,
global AML recommendations.
including drug cartels and human traffickers, international
terrorists, and foreign kleptocrats (corrupt high-level
U.S. Policy
officials). The purchase of real estate, often combined with
methods to conceal a purchaser’s identity and source of
The U.S. AML/CFT regime is statutorily based on the BSA
funds, can allow criminals to integrate ill-gotten proceeds
and implemented through regulations in 31 C.F.R. Chapter
into the legal economy or park illicit wealth abroad. Real
X. The Treasury’s Financial Crimes Enforcement Network
estate transactions may intersect with banks and other
(FinCEN) administers the BSA. Unlike banks and certain
financial institutions that are subject to anti-money
other financial institutions, the U.S. real estate industry as a
laundering (AML) and countering the financing of
whole is not subject to the full application of all BSA/AML
terrorism (CFT) requirements. Some critics posit that
requirements; however, certain financial reporting and
current AML/CFT practices may not effectively deter
recordkeeping requirements do apply.
REML.
Establishing AML Programs
The U.S. Department of the Treasury’s 2018 National
Within the real estate sector, residential mortgage lenders
Money Laundering Risk Assessment identified five key
and originators (since 2012), as well as Fannie Mae and
risks and vulnerabilities within the U.S. real estate sector:
Freddie Mac (since 2014), are subject to the BSA’s
requirement that financial institutions establish AML
transactions involving luxury residential real estate;
programs. Pursuant to 31 U.S.C. 5318(h), such AML
real estate transactions involving opaque entities;
programs should encompass the development of AML
all-cash transactions that do not involve mortgage
policies, procedures, and controls; the designation of an
lenders;
AML compliance officer; the provision of ongoing
real estate transactions based on falsified loan
employee training; and the establishment of an independent
application information; and
audit function to test AML programs.
complicit professionals in the real estate industry.
Although “persons involved in real estate closings and
Congress has enacted legislation to address REML risks
settlements” are among the 26 categories of businesses or
and vulnerabilities. In 1988, Congress amended the Bank
sectors defined by 31 U.S.C. 5312 as a “financial
Secrecy Act (BSA; 12 U.S.C. 1829b, 1951-1959 and 31
institution,” such persons are exempt from establishing
U.S.C. 5311-5314, 5316-5366) by adding, “persons
involved in real estate closings and settlements” to the
AML programs. Persons involved in real estate closings
and settlements are also exempt from requirements to file
definition of a financial institution. In 2001, Congress
Suspicious Activity Reports (SARs or Form 111) and
further amended the BSA to require financial institutions,
Currency Transaction Reports (CTRs), and to maintain a
unless exempted, to establish AML programs. Over the past
customer identification program (CIP) for AML
decade, Treasury has taken other steps to regulate aspects of
recordkeeping purposes.
the real estate sector, particularly with respect to residential
mortgage lenders and originators and the government-
In issuing an Advance Notice of Proposed Rulemaking
sponsored enterprises Fannie Mae and Freddie Mac.
(ANPRM) in 2003 on AML program requirements for
Nevertheless, the Financial Action Task Force (FATF), the
persons involved in real estate closings and settlements,
intergovernmental AML/CFT standards-setting body (of
FinCEN expressed a desire to initiate a rulemaking that
which the United States is a member), along with a wide
would place additional AML requirements on persons
https://crsreports.congress.gov
Money Laundering in the U.S. Real Estate Sector
involved in real estate closings and settlements. FinCEN,
of GTOs on U.S. title insurance companies led to a 70%
however, has not finalized any further rulemaking. In 2017,
drop in corporate entities purchasing loan-free, luxury
the President’s Unified Agenda of Regulatory and
residential real estate in 2016. FinCEN also reported that, as
Deregulatory Actions included a listing that described
of May 2, 2017, over 30% of the real estate transactions
FinCEN’s plans to issue an ANPRM on AML program
reported under GTOs involved a beneficial owner or
requirements for persons involved in real estate closings
purchaser’s representative who was the subject of unrelated
and settlements. FinCEN withdrew the listing in February
SARs filed by U.S. financial institutions. In July 2020, the
2020, and it did not appear in the spring 2021 agenda.
U.S. Government Accountability Office reported that
FinCEN had not yet determined whether or how to address
Other Reporting Requirements
ongoing REML risks through more permanent regulatory
All U.S. persons engaged in trade or business, including
tools (GAO-20-546).
those engaged in the U.S. real estate industry, are required
to file “Form 8300” with FinCEN and the Internal Revenue
Voluntary AML Guidelines and Reporting
Service (IRS) on transactions involving the receipt of over
FinCEN worked with the National Association of Realtors
$10,000 in currency and certain monetary instruments,
to develop voluntary AML guidelines for real estate
pursuant to 31 U.S.C. 5331 and 26 U.S.C. 6050I (31 C.F.R.
professionals, first published in 2012 and most recently
1010.330). Filers may also submit Form 8300 on a
updated in February 2021. In August 2017, FinCEN also
voluntary basis for suspicious transactions that do not
issued a public Advisory to Financial Institutions and Real
exceed $10,000.
Estate Firms and Professionals, which outlines money
laundering risks posed by the real estate sector and
Individuals, including those employed in the real estate
encouraged real estate professionals—including real estate
industry, may also be required to file a Currency and
brokers, escrow agents, and title insurers—to voluntarily
Monetary Instrument Reports (CMIRs or Form 105) with
file a SAR if a real estate transaction seems suspicious.
Customs and Border Protection (CBP) on cross-border
movements into or out of the United States of currency or
Policy Outlook
monetary instruments totaling over $10,000, pursuant to 31
At the end of the 116th Congress, the Anti-Money
U.S.C. 5316 (31 C.F.R. 1010.340). Individuals and entities
Laundering Act of 2020 (AMLA) was enacted as Division
may also be required to keep certain records and file annual
F of the FY2021 National Defense Authorization Act (P.L.
Reports of Foreign Bank and Financial Accounts (FBARs
116-283). The AMLA contained multiple components,
or Form 114) with FinCEN, pursuant to 31 U.S.C. 5314 (31
including the Corporate Transparency Act (CTA), which
C.F.R. 1010.350).
mandated that FinCEN collect beneficial ownership
information directly from certain legal entities. On April 1,
Geographic Targeting Orders
2021, FinCEN issued an ANPRM to begin the regulatory
In 2016, FinCEN issued its first Geographic Targeting
process of implementing the CTA. AML experts widely
Order (GTO), pursuant to 31 U.S.C. 5326 (31 C.F.R.
recognize that the establishment of a nationwide beneficial
1010.370), requiring U.S. title insurance companies to
ownership registry of legal entities could be an important
identify the natural persons behind shell companies used in
step toward strengthening the U.S. AML/CFT regime.
all-cash purchases of residential real estate in certain
Other observers caution that implementation of the CTA
specified U.S. metropolitan areas. GTOs are geographically
may not be a panacea for combating REML.
limited, temporary orders (180 days) that require designated
businesses or sectors to maintain records and submit reports
Policy issues Congress may consider include oversight of
to FinCEN on certain specified transactions. Since 2016,
FinCEN’s progress in implementing the AMLA, including
FinCEN has continued to renew and expand the scope of its
the CTA. AMLA implementation may affect the timeline
GTOs on U.S. title insurance companies.
for AML rulemaking related to the real estate sector, as
well as future reissuance of GTOs for U.S. title insurance
As required by the GTOs, U.S. title insurance companies,
companies. Observers have further questioned how FinCEN
along with their subsidiaries and agents, must submit CTRs
intends to define the scope of “persons engaged in real
to FinCEN and retain related records involving certain
estate closings and settlements” in any potential AML
residential real estate purchases by legal entities and their
rulemakings—and how FinCEN may balance the benefits
beneficial owners (natural persons who directly or
of AML regulations against the potential compliance costs
indirectly own 25% or more of equity interests). The
to be absorbed by the real estate sector. Some have also
current GTO, effective through April 29, 2022, covers
advocated for making the GTOs permanent and extending
transactions involving nonfinanced purchases of high-value
them to commercial real estate transactions. Some analysts
($300,000 or more) residential real estate by legal entities
have urged Congress and FinCEN to explore further
(corporations, limited liability companies, partnerships, and
requirements to ensure that all types of legal entities and
other similar business entities) in specified cities, counties,
arrangements used in REML schemes, including trusts and
or boroughs of nine U.S. states (California, Florida, Hawaii,
foreign legal entities, are included in FinCEN’s beneficial
Illinois, Massachusetts, Nevada, New York, Texas, and
ownership registry.
Washington).
Liana W. Rosen, Specialist in International Crime and
Early reports suggest that the GTOs had a dampening effect
Narcotics
on the role of shell companies purchasing residential real
Rena S. Miller, Specialist in Financial Economics
estate. One study, for example, found that the introduction
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Money Laundering in the U.S. Real Estate Sector
IF11967
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