Treasury department cracks down on illicit finance with new rules for real estate and investment advisers

The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued two new rules on Aug. 28, 2024, aimed at preventing the misuse of the U.S. financial system for illicit activities, particularly in the residential real estate and investment advising sectors.

"The Treasury Department has been hard at work to disrupt attempts to use the United States to hide and launder ill-gotten gains," U.S. Treasury Secretary Janet Yellen said in a statement. "That includes by addressing our biggest regulatory deficiencies, including through these two new rules that close critical loopholes in the U.S. financial system that bad actors use to facilitate serious crimes like corruption, narcotrafficking, and fraud," she said. "These steps will make it harder for criminals to exploit our strong residential real estate and investment adviser sectors."

The rules, part of the Biden-Harris administration's broader strategy to combat corruption and illicit finance, are designed to enhance transparency and address vulnerabilities in the U.S. financial system.

FinCEN said it developed the rules after considering public feedback and consulting with industry groups, intergovernmental partners, and other stakeholders. The department said it sought to balance the need for effective regulation with the need to minimize burdens on businesses, including small businesses.

Real estate under the microscope

The final residential real estate rule, set to take effect on Dec. 1, 2025, requires reports and records on certain non-financed real estate transfers to legal entities and trusts. This rule doesn't apply to transfers to individuals.

The goal is to increase transparency and prevent illicit finance in the U.S. residential real estate sector, according to the main provisions. To do this, a "Real Estate Report" must be submitted for high-risk transactions, including details on the reporting person, property owner, beneficial owners, and transaction details. The reporting person can rely on information provided by others, as long as it is certified in writing.

Overall, the rule seeks to balance the need for useful information with minimizing the burden on reporting individuals, particularly small businesses, the text explains.

A new era of adviser accountability

The final investment adviser rule takes effect on Jan. 1, 2026. It requires investment advisers to have programs to prevent money laundering and terrorism financing, report suspicious activities, and follow certain reporting and record-keeping rules.

The goal is to stop bad actors from using investment advisers to launder money, finance terrorism, and engage in other illegal activities, according to the text of the provisions. The rule applies to certain investment advisers, including those registered with the SEC and those with offices outside the U.S. that operate in the U.S. or serve U.S. clients. It does not apply to state-registered advisers, foreign private advisers, or family offices. Despite this, FinCEN will continue to monitor state-registered advisers for any signs of illicit finance activities and take steps to mitigate risks as needed, the department said.

The department identified investment advisers as a potential entry point for illicit proceeds associated with foreign corruption, fraud, and tax evasion, text of the rule states. Specifically, investment advisers have been linked to billions of dollars controlled by sanctioned entities, including Russian oligarchs, and have been used by foreign states to access technology and services with long-term national security implications. By addressing these risks, the rule might deter money laundering, terrorist financing, and other illicit financial activities through the investment adviser industry.

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