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Don't Get Spooked By AML Audits

Q: What types of anti-money laundering risks are most common with real estate and mortgage transactions?

A: In August, 2017, the Financial Crimes Enforcement Network ("FinCEN") issued an advisory to financial institutions and real estate firms and professionals warning of the dangers of money laundering and providing insight into the types of risks that exist in the industry. FinCEN explained that real estate transactions are particularly vulnerable to such abuse because they may involve high-value assets, opaque entities and processes that can limit transparency. FinCEN indicated that real estate transactions are an attractive vehicle for money laundering because they can assist in appreciating the value of the funds, while also "cleaning" the funds.

As part of the Advisory, FinCEN encouraged mortgage lenders and real estate professional to keep the following risks in mind when identifying and reporting suspicious activity:

  • Use of shell companies (i.e. non-publicly traded corporations, limited liability companies, or trusts that have no physical presence beyond a mailing address and generate little to no independent economic value)

  • All-cash real estate purchases.
In addition to these risks, mortgage lenders should be particularly alert to mortgage fraud schemes and concerns, such as altered or fraudulent documents and misrepresentations with regard to occupancy or employment.

Although not required to by regulation, FinCEN encourages real estate brokers, escrow agents, titles insurers and other real estate professionals to voluntarily report suspicious transactions.  Mortgage lenders should speak with their third party vendors and business partners about the dangers of money laundering and encourage them to report any suspicious activity to them if it involves a transaction that both parties are involved in.

It is important for mortgage lenders to maintain an AML Program that meets regulatory requirements.  This includes, but is not limited to, performing AML risk assessments and independent audits of the Program at least every 12-18 months.

The FinCEN Advisory (FIN-2017-A003) referenced in this article may be found at: https://www.fincen.gov/sites/default/files/advisory/2017-08-22/Risk%20in%20Real%20Estate%20Advisory_FINAL%20508%20Tuesday%20%28002%29.pdf   

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