Category: Beneficial Ownership

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

Beneficial Ownership 

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

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

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

FinCEN Efforts 

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

Industry Concerns  

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

• The coalition also stated that anti-money laundering rules and requirements should focus on mitigating criminal activity while not burdening legitimate actors with unnecessary or duplicative compliance, which will only increase costs without meaningfully combating money laundering.

• The coalition letter emphasizes three main recommendations for FinCEN:

1. Study the commercial and multifamily real estate markets to tailor future regulation to how those markets function;
2. Leverage the CTA and the beneficial ownership database to reduce the necessary scope of further action; and
3. Distinguish nonbank commercial real estate lenders from true all-cash transactions.

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

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

Industry Concerns

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

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

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

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

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

FinCEN Comments

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

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

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

Impact on Real Estate 

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

FINCEN Concerns 

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

CRE Industry Response 

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

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

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The Real Estate Roundtable and three other national real estate organizations on May 5 submitted detailed comments to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) on the development of a new federal registry that will contain beneficial ownership information. 

Corporate Transparency Act 

• The Roundtable, the National MultiFamily Housing Council (NMHC), National Apartment Association (NAA) and National Association of Home Builders (NAHB) submitted the comments in response to FinCEN’s effort to gather public input on the reporting, maintenance and disclosure of beneficial ownership information. 
• FinCEN solicited comments on a wide range of questions related to its implementation of the Corporate Transparency Act (CTA) – enacted on January 1, 2021 – that effectively bans the registration of anonymously owned shell companies in the United States. (JD Supra, April 26 and Lexology, April 28) 
• The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies). 

• FinCEN is required to develop a confidential, secure, and non-public database to maintain the reported beneficial ownership information. This new reporting requirement aims to enhance the national security of the United States by making it more difficult for malign actors to exploit opaque legal structures to launder money, finance terrorism, proliferate weapons of mass destruction, traffic humans and drugs, and commit serious tax fraud and other crimes that harm the American people. 

Real Estate Industry Concerns 

• The real estate coalition’s extensive comments emphasize, “The scope of the CTA is far reaching and will impact many commercial and residential real estate businesses who are frequent users of the LLC structure for conducting business. If not implemented with a clear set of rules and regulations, the CTA could result in an outcome of confusion, missteps, and ultimately fines on law-abiding businesses.”
• The coalition’s comments detail “concerns and recommendations for establishing regulations to implement reporting requirements – as well as provisions regarding FinCEN’s maintenance and disclosure of reported information effectively and fairly.”
• The coalition document addresses several specific implementation issues, including how small companies targeted by the CTA will face compliance burdens. The time-consuming and challenging process of gathering required information on all beneficial owners of a reporting company that may have been created years ago is also addressed. 

Congressional Intent 

• Reps. Patrick McHenry (R-NC), ranking member of the House Financial Services Committee, and Blaine Luetkemeyer (R-MO), ranking member of the Consumer Protection and Financial Institutions Subcommittee, sent a letter on April 7 to Treasury Secretary Janet Yellen on the development of the new beneficial ownership reporting regime.
• The McHenry-Luetkemeyer letter urged Secretary Yellen to adhere to the CTA’s congressional intent by ensuring “the new reporting paradigm is focused on fighting bad actors such as human traffickers, money launderers, and State actors such as China.” The letter also emphasized that FinCEN implement the statute as intended, with a particular focus on minimizing burdens on small businesses while retaining confidentiality, unless disclosure is authorized. 

FinCEN is mandated to issue regulations on the new registry for beneficial ownership information by January 1, 2022 – and specify a subsequent effective date. 

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