Real Property, Probate and Trust Law Section takes issue with proposed anti-money laundering reporting requirements

Real Property, Probate and Trust Law Section takes issue with proposed anti-money laundering reporting requirements

‘I would say that I have a significant concern that FinCEN will move forward with a final rule that continues to have a wide-ranging impact on everyday transfers’

The Real Property, Probate and Trust Law Section is raising concerns about the U.S. Treasury Department’s proposed new anti-money laundering reporting requirements for “non-financed” real estate transfers.

“Money laundering is a real problem,” acknowledges Orlando attorney and former RPPTL Chair Melissa Jay Murphy. But “the proposed rule casts a very, very wide net.”

The Florida Bar’s largest section, with 11,000 members, is not alone.

Murphy says RPPTL and more than 400 interested parties submitted comments to the department’s Financial Crimes Enforcement Network, or “FinCEN,” by the April 14 deadline.

Lawyers and other professionals say they are concerned that some of the new reporting requirements would add unnecessary costs and delay to real estate transfers without enhancing the government’s ability to police money laundering.

“I would say that I have a significant concern that FinCEN will move forward with a final rule that continues to have a wide-ranging impact on everyday transfers,” she said.

Murphy notes that in 2016, FinCEN began issuing “GTOs” or geographic targeting orders, that temporarily required title insurance companies or their agents to identify principals behind high-end, cash real estate purchases in Miami-Dade County. It was soon expanded to Broward and Palm Beach counties.

Currently, GTOs cover residential real estate transactions with a purchase price of $300,000 or more in the same three counties, as well as Hillsborough, Pasco, Pinellas, Manatee, Sarasota, Charlotte, Lee, and Collier counties. The orders raise ethical concerns regarding attorney-client privilege.

“That remains a concern with the GTOs,” Murphy said. “Additionally, we have seen very little proof that the reporting requirements that have been in place for the last six years have yielded any prosecutions or enforcement mechanisms. We’re very concerned about that.”

Although attorney client privilege remains a concern, that was not the thrust of the RPTL’s 1,800-word comment that Murphy helped draft for the new proposed reporting requirements. The Board of Governors approved them in March.

“We applaud FinCEN’s efforts to combat illegal money laundering through residential real estate transactions and offer the following comments in order to ensure that the requirements of the proposed rule ‘match up’ with the realities of the marketplace,” the comment states.

One of the first concerns the comment identifies is a reporting requirement for transfers of “vacant or unimproved land, located in the United States, zoned, or for which a permit has been issued….”

The comment notes that “FinCEN is requiring information to which the reporting person does not have ready access.”

The reporting person would have to obtain a zoning certificate or zoning verification letter from the county or municipality where the property is located, the comment notes. The requirement could delay a closing transaction for weeks and add additional costs to the transferee.

For example, the comment notes that Nassau County charges $42 for a zoning certification that can take two weeks to obtain. A zoning verification letter in Collier County costs $100 and can take up to 20 business days to obtain.

“It is not a data point that a closing agent has at their fingertips, and it’s not something that we have to know in order to issue title insurance, and our staff people are not trained to do that,”
Murphy said. “How many municipalities’ and counties’ zoning departments do we have? Hundreds. And they all work at varying levels of efficiency and ease of access.”

The comment also says that the proposed regulations fail to anticipate that some parties may refuse to provide the required information.

“FinCEN should establish the obligation on the part of transferor/transferee/beneficial owners to provide requested information, but also allow for those situations in which the information is requested but still not provided. We recommend allowing for fields on the Real Estate Report to indicate ‘not provided,’” the comment states.

Also, “the authorization for the reporting person to rely on the certification provided by the transferor and transferee should be clarified.”

FinCEN should also consider carving out an exemption for “gratuitous transfers,” or real estate transfers to trusts where no money changes hands, according to the comment.

“Requiring information for certain transfers to trusts may increase the costs of the transfers without providing FinCEN with any useful information. Accordingly, FinCEN may wish to exclude the requirement to report transfers to and from trustees….”

FinCEN will be required to address the comments in a “white paper,” or written response that identifies why the proposed revisions were adopted or rejected, Murphy said.

The new regulations could be in place as early as next year. But in its comment, the section recommended that FinCEN wait a year to implement them until there is more public awareness.

In Florida, the Real Property, Probate and Trust Law Section will mount a robust education campaign, Murphy predicts, noting even some section members may not be aware of the scope of the reporting requirements.

“It touches both the real property side, and the estate planning and the tax side. That’s what struck me immediately once I really started to dig into the rule.”