With IT modernization finished, FinCEN again raising cross-border funds transmittal initiative

The US Treasury is in the process of resurrecting a five-year-old proposal to capture information on all bank cross-border wires and non-bank remittances of $1,000 or more, along with other pending and potential rulemakings that could result in new regulations for those in real estate.

The Financial Crimes Enforcement Network (FinCEN), the nation’s financial intelligence unit and administrator of the country’s anti-money laundering (AML) framework, is revisiting these rules and others in a bid to bolster the US and international financial system from being abused by money launderers, tax evaders and corrupt political powerbrokers.

The agency is also working on finalizing beneficial ownership rules, aimed squarely at banks, and has stated publicly in recent months it is looking at expanding AML obligations to the facilitators involved in real estate transactions, including attorneys, and company formation agents.

Related to the cross-border project, in two documents, a US Treasury agency financial report for fiscal year 2014, released in November, and an October memo from the Treasury Office of Inspector General, officials brought up the need for FinCEN to address the cross-border electronic transmittal of funds (CBETF) issue, which they classified as a “challenge” for the bureau. An update could reportedly be released in the coming months.

One reason the proposal didn’t go forward in 2010 – it is still currently a pending rulemaking on the agency’s site – is because FinCEN stated it did not anticipate having the systems to be able to capture and manage the additional data by 2011. The cross-border proposal is itself a requirement pursuant to the Intelligence Reform and Terrorism Prevention Act of 2004.

The act required FinCEN to have the systems and information technology platforms in place prior to issuing finalized cross-border rules. That finally happened officially in March 2014, when FinCEN stated it had completed a broad update of its AML database started in 2009, including more sophisticated search tools and better access to state and local law enforcement.

As a result of the more than $100 million “IT Modernization Project” being completed, the bureau “finally has the framework to develop a new report to collect the large volume of cross-border electronic transmittals of funds.” Both documents confirmed that FinCEN is currently “working on a supplemental rule to implement reporting of cross-border electronic transmittals of funds.”

The cross-border initiative has several key pieces for banks and money services businesses (MSBs) and also could aid in better battling tax evasion, according to FinCEN:

  • The past proposed rule would have applied to those financial institutions in the United States that are either the first U.S. financial institution to receive an incoming reportable cross-border electronic transmittal of funds (CBETF), or the last U.S. financial institution to process an outgoing CBETF.
  • Regarding banks, there would have been no threshold on the amount of a CBETF that needed to be reported to FinCEN, meaning that all CBETFs must be reported. FinCEN stated that “It is believed that the imposition of a threshold on banks would actually increase the cost of compliance by requiring segregation of transactions.”
  • Regarding money transmitters, CBETFs of $1,000 or more would have needed to be reported to FinCEN. As well, FinCEN stated this would not be too challenging. “It is believed that this is an appropriate threshold for money transmitters as the industry, in large part, already observes this threshold and collects this information.” For those transactions of $3,000 or more, money transmitters must include the taxpayer identification number (TIN) if available.
  • To fulfill reporting requirements, financial institutions in the prior proposal would submit to FinCEN a copy of the funds transmittal order. FinCEN states in a fact sheet that the “process is expected to require little additional effort by the financial institution to report data that it currently maintains.” The draft rule allows for third party reporting.
  • FinCEN is also proposing to require an annual filing by all banks of a list of TINs of accountholders who transmitted or received a CBETF. This additional information “will facilitate the utilization of the CBETF data, in particular as part of efforts to combat tax evasion by those who would seek to hide assets in offshore accounts,” according to FinCEN

Beneficial ownership finalized rules still on the horizon

FinCEN in July proposed a beneficial ownership rule requiring banks to identify beneficial owners of legal entities at account opening using a two-pronged system after proposing a prior advanced notice two years prior. Key tenets of the FinCEN proposed rule are:

  • The bank must collect details on any person who owns 25 percent or more of the company. Must also be a real person.
  • Must also get information on any individual who has “significant responsibility” to control the entity.
  • Sidesteps prior problem in advanced notice of proposed rulemaking of requiring banks to independently verify the details, but allows institutions to let entities self-certify, while checking those details using standard customer due diligence details.
  • The proposal, though, still has a significant gap in that the bank has no other way, such as a national database of ownership details, to verify the information the firms provided.

More rules for real estate could be on the way

As for real estate, FinCEN head Jennifer Shasky Calvery stated last month there could be changes coming – some which could cause strife in the legal community – to ensure entities involved in real estate transactions, facilitators, aren’t tied to organized crime groups, drug kingpins or corrupt politicians.

FinCEN issued AML rules for non-bank residential mortgage lenders in 2012, has been considering rules around those involved in real estate closings and settlements for more than a decade.

In April 2003, the agency issued an advance notice of proposed rulemaking for the real estate sector, stating rules could cover settlement and closing attorneys and agents, appraisers, title search and insurance companies, escrow companies, and possibly mortgage servicers and corporate service providers.

The initiative was decried by attorneys and the lobbyists in the company formation area, with FinCEN later dropping the initiative because of comments from stakeholders and that it had not adequately analyzed and defined the specific money laundering risks of these entities.

But now, with more pressure from G20 and a growing nexus of crimes tied to illicit groups using shell entities and offshore jurisdictions to purchase real estate in the United States with dirty money, Calvery could get more support this time around if and when a formal proposal is released.

In an independent analysis of FinCEN and other data, Calvery stated the bureau “continues to see the use of shell companies by international corrupt politicians, drug traffickers, and other criminals to purchase luxury residential real estate in cash.”