Financial Crime World

Banking Regulations for Anti-Money Laundering (AML) in US Minor Outlying Islands

Financial Crime Risks in Real Estate

The US real estate sector, valued at $113.6 trillion in 2023, has faced numerous challenges due to inflation, high interest rates, and the rise of remote work, leading to vacant commercial properties. Additionally, authorities have expressed concerns about the increasing levels of illicit finance in high-end residential purchases.

Financial Crime Risks

  • Money laundering: criminals using property purchases to integrate illicit funds into the legitimate financial system
  • Sanctions risks: linked to money laundering, as many individuals and organizations liable for sanctions often use shell companies to buy real estate
  • Fraudulent activities: can facilitate money laundering and other criminal activities in the real estate sector

Banking Regulations for AML

Under US banking regulations, certain anti-money laundering (AML) requirements apply to real estate professionals. These include:

Conducting Customer Due Diligence (CDD)

  • Financial institutions providing credit must conduct CDD on their customers
  • Real estate professionals must also conduct CDD on their clients

Reporting and Record-Keeping Requirements

  • Transactions exceeding $10,000 must be reported
  • International currency movements must be recorded

Beneficial Ownership Regulations

The Corporate Transparency Act (CTA) of 2019 requires FinCEN to create a beneficial ownership (BO) registry that obliges over 32 million businesses to file details of their BO with the US government. This change aims to improve corporate transparency, making it harder for criminals to use shell companies to buy real estate.

Proposed Changes - Non-Financial Transactions

In February 2024, FinCEN issued a proposed rule that would 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. This rule focuses on “non-financed” - i.e., all-cash - deals, which currently avoid both AML and SAR filing scrutiny.

Proposed Requirements

  • Businesses, including attorneys, performing specified closing or settlement functions for the non-financed sale or transfer of residential real property to an entity or trust must:
    • Collect and report information to FinCEN
    • Provide BO information for the legal entity
    • Provide information about individuals representing the transferee entity
    • Provide information about the property being sold
    • Provide information about payments being made

Conclusion

The US minor outlying islands’ banking regulations for anti-money laundering (AML) are crucial in preventing financial crimes such as money laundering, sanctions risks, and fraud. The proposed changes to the rules aim to improve corporate transparency and reduce the volume of dirty money in real estate. Real estate professionals have a significant role to play in helping the federal government achieve this goal.