A provision of the U.S. Patriot Act that would require real estate brokers to set up anti-money laundering programs is being fought by the National Association of Realtors and the American Land Title Association, who say the laundering programs are unwarranted and would hurt small brokerages.
Signed into law following Sept. 11, the act requires a wide variety of financial institutions to establish programs to make them more vigilant in detecting suspicious activity, whether terrorist-related or not.
While real estate professionals have not been required to comply so far, the Treasury Department is looking at developing provisions that would affect the industry.
National Association of Realtors representatives have already met twice and plan to meet again with staff at the U.S. Treasury Department, said Jeanne Delgado, regulatory and industry relations manager for the National Association of Realtors. According to Delgado, the Treasury Department has indicated some reluctance to regulate the real estate industry.
A comment period also ended in June following the “advance notice of proposed rule making” by the Financial Crimes Enforcement Network, or FinCEN, the Treasury Department bureau that administers the anti-money-laundering provisions of the Patriot Act. There is no schedule for action by the agency following the comment period.
National Association of Realtors President Cathy Whatley said in a comment letter that the anti-money laundering programs “would be extremely burdensome to small companies,” which comprise 67 percent of the National Association of Realtors’ membership. The association has more than 900,000 members. The American Land Title Association also is comprised of around two-thirds small business owners.
The proposed rules would require those involved in real estate closings or settlements to designate or hire an anti-money laundering compliance officer, develop internal anti-money laundering policies, conduct employee training programs and implement independent audit functions.
FinCen has cited several criminal cases from the 1990s that involved proceeds from illegal drug sales and a report published in 1996 by the National Institute of Justice that says that real estate transactions offer excellent money-laundering opportunities.
In one case cited, an Atlanta real estate company bought several residential properties for cocaine dealers. They converted cash from the drug dealers into separate cashier’s checks, all below $10,000, and therefore not subject to reporting requirements.
Some in the real estate industry have said that a few case studies and one report don’t offer compelling evidence of a need for regulations.
Whatley admitted that there is “little doubt that real estate is subject to abuse by money launderers,” but there isn’t sufficient evidence supporting the need for more regulation, she said.
She also said real estate brokers shouldn’t be required to have anti-money laundering programs because the bulk of their duties have little to do with the closing or settlement process.
Realty transactions that involve a cash down payment of $10,000 or more already are subject to the Bank Secrecy Act, which requires the real estate licensee to file a report with the federal government that includes information about the buyer, the amount of money received, the date and the nature of the transaction, according to Whatley.
That report form includes contact information for the IRS Criminal Investigation Division and a box that the licensee can check if he or she believes the transaction contains suspicious activity.
Also, more regulation would be redundant because a large cash down payment assumes additional financing will be obtained, and financial intuitions already comply with anti-money laundering programs, Whatley said.
Ann vom Eigen of the American Land Title Association said most of the risk of money laundering comes from corrupt participants in the real estate industry, not from innocent brokers.
“The primary risk of money laundering in connection with real estate does not appear to result from the real estate closing process itself, but rather from the activities of corrupt participants in the real estate industry,” she said.