FinCEN Adopts AML Rules for Real Estate Agents and Investment Advisers
Commentary by Thomas Delaney
FinCEN adopted two rules to extend anti-money laundering regulations to real estate agents and investment advisers.
As to real estate transactions, FinCEN issued a final rule "to require certain persons involved in real estate closings and settlements to submit reports and keep records on certain non-financed transfers of residential real property to specified legal entities and trusts." (See previous coverage.) FinCEN said the required reports must include details such as (i) the beneficial ownership information of the legal entity or trust acquiring the property, (ii) details about the property being transferred and any payments made and (iii) information about the seller and the person filing the report. These new reporting requirements apply to various parties involved in the closing and settlement process, including real estate agents, attorneys, title insurers and escrow agents. FinCEN said that only one report per transaction is required, and that report must be filed within 30 days following the property transfer. The rule will go into effect on December 1, 2025.
As to investment advisers and exempt reporting advisers, FinCEN issued a final rule establishing "minimum standards for anti-money laundering and countering the financing of terrorism (AML/CFT) programs." (See previous coverage.) FinCEN said the new rule requires these parties to report suspicious activity to FinCEN under provisions of the Bank Secrecy Act effective January 1, 2026.
Commentary
For the first time since the enactment of the USA PATRIOT Act, FinCEN has expanded the definition of "financial institution" to include investment advisers. These IA regulations have been in the making for over 20 years. Though FinCEN has retreated from previously proposed rulemakings that would have extended AML program requirements to the IA sector, concern over the growth in private equity, venture capital and hedge funds and evidence that IAs have been the subject of over 15 percent of SARs filed between 2013–2021, prompted FinCEN to finally adopt the rules. Compliance with the new regulation will require covered IAs, including foreign-located IAs with significant US contacts, to adopt risk-based AML compliance programs and, among other things, to implement policies and procedures, designate an AML compliance officer and establish employee training programs. Covered IAs will be held to similar SAR filing obligations as other financial institutions and will be required to comply with the Recordkeeping and Travel Rules and to filing SARs in a timely manner.
Real Estate professionals will not be required to adopt full-scale AML compliance programs to the same extent as financial institutions, but they will be required to file Real Estate Report ("RER") on certain transactions. The Real Estate regulation is the outgrowth of several FinCEN advisories regarding potential money laundering vulnerabilities in the real estate sectors. (See e.g., FinCEN Alert, FIN-2023-Alert002, January 25, 2023). In order to be reportable, transfers must involve residential real estate that are not financed (all cash) or financed by private lenders that are not subject to AML program obligations, where the property is transferred to a legal entity or a trust. Reporting obligations can be satisfied by one of several actors that are typically involved in the real estate settlement process, to the extent agreed to by other covered professionals involved in the transaction.
The underlying purpose of both the IA regulation and the real estate reporting regulation is to make it more difficult for illegal actors to park funds derived from illegal activities in purchases of residential real property, vacant land or in fund investments. Both regulations will significantly increase the AML compliance burdens borne by IA and real estate professionals. Accordingly, both groups should begin to evaluate procedures that will need to be implemented well in advance of each effective date, to ensure timely compliance with the applicable regulatory requirements.