Kleptocratic Regimes’ Illicit Activities in Real Estate and High-Value Assets Exposed

A recent advisory from the Financial Crimes Enforcement Network (FinCEN) has shed light on the alarming prevalence of kleptocracy and foreign public corruption, as well as the vulnerabilities of the US real estate market to money laundering and other illicit activities.

Red Flags Indicating Illicit Activities in High-Value Transactions

• Luxury goods and real estate purchases involving suspicious activity
• Involvement of foreign public officials or their family members in high-value transactions
• Unusual payment methods or currency exchanges
• Lack of transparency in beneficial ownership structures

FinCEN urges financial institutions to be vigilant in identifying and reporting suspicious activity to prevent the misuse of these assets by kleptocratic regimes.

Real Estate Geographic Targeting Order (GTO) Program

FinCEN’s GTO program requires title insurance companies to report beneficial ownership information for legal entities involved in non-financed residential real estate purchases above a certain threshold in designated metropolitan areas. Financial institutions are expected to implement procedures designed to ensure compliance with these requirements, including:

• Due diligence on legal entities
• Data collection and analysis of high-risk transactions

Treasury’s Efforts to Address Vulnerabilities

The US Treasury is currently assessing the money laundering risks posed by:

• Investment advisers
• Lawyers
• Commercial real estate sector
• Trusts

These efforts aim to address key vulnerabilities in these sectors through future regulations.

Enhanced Due Diligence for High-Risk Russian Individuals and Entities

In light of Russia’s threat to global stability, financial institutions are advised to implement enhanced due diligence procedures for private banking and correspondent accounts involving foreign persons from high-risk countries. This includes:

• Screening for suspicious activity
• Reporting any findings to the relevant authorities

State-Owned Enterprises (SOEs)

SOEs can be used as a mechanism of political control, allowing autocrats like Putin to enrich their allies while stifling political competition. FinCEN’s advisories emphasize the importance of conducting thorough due diligence on SOEs, including:

• Obtaining beneficial ownership information
• Applying additional anti-money laundering controls

Bank Secrecy Act (BSA) Obligations

The BSA requires covered financial institutions to:

• Establish appropriate and enhanced due diligence policies and procedures for private banking accounts and correspondent accounts involving non-US persons
• Conduct risk-based approaches to customer due diligence and transaction screening
• Apply enhanced scrutiny of foreign individuals identified as senior foreign political figures

By working together, we can prevent the misuse of high-value assets and protect the integrity of our financial systems.