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Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Proposed Rules A. Nature of Recordkeeping and Reporting Requirements As explained above, FinCENs existing regulations require banks, RMLOs, and GSEs to comply with the BSAs general recordkeeping and reporting requirements, including the requirement to file SARs and to establish AML/CFT programs. In contrast, FinCENs GTOs have subjected title insurance companies in the nonfinanced real estate market to a more specific reporting requirement applicable to all covered transactions.
FinCEN seeks comment on promulgating a similar specific reporting requirement, either as an alternative or addition to the BSAs general requirements. Such a specific reporting requirement could be imposed under 31 U.S.C. 5318a2, as amended by Section 6102a of the AML Act, which authorizes the Secretary to require a class of domestic financial institutions . . . to maintain appropriate procedures, including the collection and reporting of certain information as the Secretary of the Treasury may prescribe by regulation, to . . . guard against money laundering, the financing of terrorism, or other forms of illicit finance. A specific reporting requirement issued under this authority may be an appropriately tailored way to increase the transparency of the nonfinanced sector of the real estate market and provide law enforcement, national security agencies, and financial institutions with highly useful information In the alternative, FinCEN could promulgate more general requirements for certain persons involved in nonfinanced real estate closings and settlements by requiring such persons to file SARs pursuant to FinCENs authority under 31 U.S.C. 5318g1 and by requiring them to establish AML/CFT
programs under 31 U.S.C. 5318h1
2. Such an approach would involve the application of AML/CFT program rules that traditionally include four requirementsadoption of AML/CFT
policies and procedures, designation of an AML/CFT compliance officer, establishment of an AML/CFT training program for appropriate employees, and independent testing of the program to ensure compliance.72 FinCEN seeks comments on how such requirements, as well the fifth requirement, CDD
rules 73 containing beneficial ownership 72 See, e.g., Rules for Loan or Finance Companies, 31 CFR 1029.210.
73 81 FR 29398 May 11, 2016 codified at 31 CFR
1010.230 and other sections in chapter X. For certain categories of financial institutions, FinCEN
has included explicit requirements to conduct
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requirements, would affect the real estate industry.74 In evaluating any potential imposition of general AML/
CFT requirements, FinCEN must consider the extent to which the standards for AML/CFT programs are commensurate with the size, location, and activities of persons in this industry. Accordingly, FinCEN is especially interested in comments that would allow it to consider such factors.
FinCEN is also particularly interested in the costs, burdens, and benefits associated with the implementation of AML/CFT programs, SAR reporting, and other FinCEN regulatory requirements.
Commenters are urged to address the ability of various real estate-related businesses to gather this information for greater transactional transparency, as well as to support the effective administration of a SAR reporting program.
FinCEN seeks comment on the approach that would most effectively address money laundering concerns and minimize burdens for persons involved in non-financed real estate transactions.
B. Scope of Persons Subject to a Reporting Requirement FinCEN seeks comment on which persons should be required to collect information, maintain records, and report information regarding nonfinanced purchases of real estate. Thus far, the Real Estate GTOs have required reporting from title insurance companies. However, title insurance is not mandatory in every jurisdiction within the United States, and declining to purchase title insurance could enable evasion of a reporting requirement limited to title insurance companies.
FinCEN therefore seeks comment on whether there are other persons involved in non-financed real estate closings and settlements who should be considered.
Typical closing transactions may involve several participants, performing distinct, but complementary, functions, in addition to the buyer and seller. A
typical real estate transaction, for example, may involve real estate brokers and agents representing sellers and buyers; one or more attorneys who represent the buyer or the seller; a title or title insurance company representative, which may include an attorney; a closing agent title or escrow; an appraiser, who may assess the value of the real estate; and an customer due diligence and to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and conditions. See generally id.
74 See generally 86 FR 17557 Apr. 5, 2021.

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inspector to identify code violations and needed repairs before closing.
Certain transaction participants may also be better positioned than others to understand the nature and purpose of the transaction, the source of funds, and the identity of the buyer, particularly natural persons or the beneficial owners behind any legal entity purchaser. Other transaction participants may have greater importance to the successful completion of a transaction or face different incentives, which may suggest that they could be well-positioned and motivated to identify owners behind legal entities in the transaction.
In addition, the participants and the nature of their involvement can vary depending on a variety of factors, including state and local laws, the contemplated use of the real estate, the location of the property, the location and nationality of the buyer, the nature of the rights to be acquired, and how such rights are to be held or transferred upon resale of the property or via terms of an investor agreement. Real estate may also be held directly, through one or more shell holding companies, through trusts, or through other investment vehicles. Real estate may be acquired for a number of purposes, including residential or commercial use, portfolio investment, or development purposes, among other reasons. As to the nature of the rights to be acquired, the real estate may be held in fee simple, under a lease agreement, or as security for indebtedness. In addition, real estate transactions can involve the transfer of title, legal ownership, or equitable ownership, or a combination thereof.
Each of the variables may influence the participants involved in such real estate transactions.
Real estate professionals may have different roles in different transactions that affect their exposure to money laundering. Some professionals may be directly involved in marketing and structuring a real estate deal and are thus able to identify all relevant parties to the transaction. Other participants may have business roles that may not be customer-facing or may focus specifically on the details of the property without any knowledge of the financing or lack thereof, and therefore are not in a position to identify parties for recordkeeping and reporting purposes. Finally, it may be relevant to identify those financial institutions or nonfinancial trades or businesses that are primarily involved in the transfer and presentation of purchase funds in exchange for title or other rights.
To address money laundering concerns, it may be necessary to ensure that a recordkeeping and reporting
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