In its efforts to further curb money laundering in the United States, the Financial Crimes Enforcement Network (“FinCen”) of the U.S. Treasury Department has proposed a rule that would require real estate professionals involved in closings to disclose the names of people behind anonymous limited liability companies and trusts involved in all cash residential property transactions, regardless of price. This proposed rule would affect settlements and closings nationwide.
Why target LLCs that have cash buyers?
Typically, home buyers and real estate investors form LLCs (limited liability companies) when purchasing real estate to protect their privacy and potentially guard against lawsuits. However, the federal government is concerned that some of these LLCs are shell companies designed to launder money through real estate property purchases, paying in cash to avoid scrutiny from banks obligated to detect and report alleged incidents of money laundering.
Have there been residential real estate targeting orders?
The Treasury Department has had in effect targeting orders require title insurance companies file reports identifying beneficial owners of LLCs in all cash real estate transactions above certain monetary limits in selected areas in the U. S., including Miami and Manhattan.
The proposed rule would replace “area specific targeting orders” with nationwide reporting requirements. Since this new rule is a proposal, the public would have 60 days to submit comments on the proposed rule after it is published.
Who, in the residential real estate transaction, would have to report?
The proposed rule would require settlement agents, title insurance agents, escrow agents, and attorneys; however, only one person involved in the real estate transaction would need to file the report.
Where would the reported information be stored?
FinCen would hold the reported information in a “secure” database to which law enforcement will have access.
What else has FinCen recently implemented?
As stated more in-depth in our recent blog, FinCen has implemented the Corporate Transparency Act, creating a new corporate ownership information database, and requiring businesses, with some exceptions, to file reports detailing their beneficial ownership information. Beneficial ownership refers to identifying information about the individuals who directly or indirectly own or substantially control a company. Substantial control includes a senior officer, or individual that has authority to appoint or remove certain officers or a majority of directors, or an individual that is an important decision maker for the company.
The government stance is that, by having this reporting requirement, it would make it easier to identify bad actors that may hide behind or benefit from questionable gains through shell or other questionable corporate entities.
If a business is created or registered to do business before January 1, 2024, that company has until January 1, 2025, to file its initial beneficial ownership information report. However, a company created or registered on or after January 1, 2024, will have 90 days to file its initial beneficial ownership information report.
There is much more information regarding the Corporate Transparency Act which can be found in our blog or by contacting us either by phone at 954-280-9102 or contactus@oppenheimlaw.com
What does this all mean?
FinCen is determined to root out bad actors not only regarding corporate ownership but also residential all cash deals. At some point, the real estate proposed rules may also affect commercial real estate transactions. While the government is trying to control criminals from hiding monies derived from residential real estate cash purchases as well as from shell companies via the Corporate Transparency Act, more work and reporting will be required from all of us.
