USA PATRIOT Act – Treasury Department Solicits Comment on Possible Anti-Money
Laundering Regulations That Might Affect Real Estate Agents, Mortgage Brokers,
Escrow Agents, Title insurance Agents, Real estate Appraisers and Real Estate
By Carl Fornaris and Ileana Gomez, Greenberg Traurig,
View or download the PDF version of this Alert
On April 10, 2003, the United States Department of the Treasury ("Treasury")
and the Financial Crimes Enforcement Network issued an "advance" notice
of proposed rulemaking that – if issued as a final regulation – might result
in a requirement that real estate agents, mortgage brokers, real estate
escrow agents, real estate attorneys, title agents and appraisers establish
their own internal anti-money laundering ("AML") programs. An AML program
consists of written policies and procedures, a compliance officer, ongoing
employee training, and an audit function to test the AML program.
|"Treasury solicits comment on
the extent to which AML program requirements for persons involved
in real estate closing and settlements should be structured."
Comments on the advance notice of proposed rulemaking are due on or before
June 9, 2003. The comments Treasury receives will enable it to determine
for purposes of drafting a proposed regulation precisely what real estate-related
firms and service providers should be subject to an AML program requirement.
Section 352 of the USA PATRIOT Act of 2001 requires "financial institutions"
to establish an AML program. While the Bank Secrecy Act, as amended by the
USA PATRIOT Act, defines the term "financial institution" to include "persons
involved in real estate closings and settlements," Treasury in April 2002
and again in November 2002 temporarily exempted "persons involved in real
estate closings and settlements" from the requirements of the USA PATRIOT
Act so it could study the money laundering risks inherent in the industry
and suggest which requirements should apply. The recently-issued advance
notice of proposed rulemaking is alarming because of the breadth of real
estate-related firms and service providers that Treasury conceivably could
require to adopt and implement AML programs.
Issues for Comment
First, Treasury solicits public comment on what money laundering
risks are inherent in real estate closings and settlements. According to
Treasury, "[t]he real estate industry could be vulnerable at all stages
of the money laundering process by virtue of dealing with high value products."
By way of example, Treasury notes that narcotics traffickers have purchased
real estate with monetary instruments that they purchased in structured
amounts and by laundering cash proceeds through the exchange of cash for
checks from real estate brokerage firms.
Second, and most significant, Treasury solicits comment on how "persons
involved in real estate closings and settlements" should be defined. Without
question, this is the most troubling portion of the advance notice of proposed
rulemaking. Treasury reasons that because the phrase "persons involved in
real estate closings and settlements" is broad, the universe of involved
persons in a typical residential real estate transaction could be:
- a real estate broker or brokers;
- one or more attorneys who represent the buyer or seller of real estate;
- a mortgage broker or other financing entity;
- a title insurance company;
- an escrow agent; and
- a real estate appraiser.
According to Treasury, the "guiding principle in defining the phrase
‘persons involved in real estate closings and settlements’ is to include
those persons whose services rendered or products offered in connection
with a real estate closing or settlement can be abused by money launderers.
Equally as important is indentifying those persons who are positioned to
identify the purpose and nature of the transaction."
Treasury specifically addressed whether real estate attorneys should
be subject to an AML program requirement. According to Treasury, "attorneys
often play a key role in real estate closings and settlements and thus merit
consideration along with all the other professionals involved in the closing
and settlement process. * * * When engaging in conduct subject to [AML]
regulations, attorneys, like other professionals, should take the basic
steps contemplated by Section 352 to ensure that their services are not
being abused by money launderers."
Treasury also specifically solicits comment addressing commercial real
Third, Treasury has asked whether any persons involved in real estate
closings or settlements should be exempted from coverage under Section 352.
Comments regarding possible exemptions should be designed to enable Treasury
to evaluate whether money laundering risk through a category of persons
is sufficiently small that a proposed AML program rule could be crafted
that would exempt the category and also provide adequate protection for
the industry from money laundering risk. Treasury has challenged service
professionals in the real estate industry to discuss possible exemptions
when it stated: "[t]he question of exemption is specifically directed to
real estate professionals . . . ."
Last, Treasury solicits comment on the extent to which AML program
requirements for persons involved in real estate closing and settlements
should be structured. Treasury specifically has asked what types of programs
are already in place to prevent and detect fraud and illegal activities,
including money laundering.
Treasury has stated publicly that it is moving cautiously in bringing
non-bank "financial institutions" under the AML umbrella. Barring sufficient
industry pressure or Congressional action, real estate agents, mortgage
brokers, real estate attorneys, title insurance agents, and the like very
well might be joining insurance companies, unregistered investment companies
such as certain REITs, venture capital funds and hedge funds, travel agencies,
automobile and boat dealers, casinos and jewelers to the list of non-bank
financial institutions that can expect to have some type of AML program
requirement in place before the end of 2003 or in 2004.
If you have any questions regarding this alert, or if you would like
assistance in preparing a comment letter to Treasury, please contact any
of the attorneys on the following page.
link to the notice may be found on the Treasury Department’s Web site.
© 2003 Greenberg Traurig
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