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Anti-Money Laundering Rule

NEW ANTI-MONEY LAUNDERING RULE APPLIES TO NON-FINANCIAL TRADES AND BUSINESSES

Effective Jan. 1, 2002, a new rule issued by the federal government requires non-financial trades and businesses to report certain information regarding cash transactions involving currency over $10,000 to the Financial Crimes Enforcement Network (“FinCEN”), a bureau within the U.S. Treasury Department, in order to aid intelligence and law enforcement agencies in their battle against money laundering. However, this new rule does not impose any new recordkeeping or reporting requirements because the Internal Revenue Service (“IRS”) has required reporting of the same information since 1985, and thus the new rule will likely have a limited affect on real estate licensees.

Congress Passes Anti-Terrorism Legislation

On Oct. 26, 2001, the USA PATRIOT Act of 2001 (H.R. 3162) (the “Act”) was signed into law as a legislative measure in the war against terrorism. Title III of the Act, contains several provisions to combat money laundering. On December 20, 2001, FinCEN issued an interim rule to implement new reporting provisions found in section 365 of the Act. To see the full text of the interim rule, click here.

Under the interim rule, a person who, while conducting a non-financial “trade or business,” receives more than $10,000 in currency (i.e., cash) in one transaction (or two or more related transactions involving more than $10,000), must file a report of the transaction with FinCEN. The interim rule specifies that “trade or business” has the same meaning that appears in section 162 of the Internal Revenue Code ("Code") and is broad enough to cover real estate transactions.

Reports required by the interim rule must be in the form prescribed by the Secretary of the Treasury and must contain: (1) information to identify the person from whom the currency was received; (2) the amount of currency received; (3) the date and nature of the transaction; and (4) information to identify the person filing the report. Click here to download the form.

The new reporting provisions will benefit U.S. law enforcement and intelligence agencies by allowing access to information that is confidential under the Code. The Act adds new legislation and amendments to the Bank Secrecy Act, which provides for greater sharing of information between agencies. The goal of the new legislation is to help law enforcement and intelligence agencies mount effective counter-measures to money laundering and aid in prosecution efforts.

No Change in Reporting Requirements

According to FinCEN, the interim rule “applies only to persons already required to report information concerning transactions under the [Code] and imposes no new reporting or recordkeeping requirements on those persons.” Basically, the interim rule requires reporting of the same transactions that must be reported to the IRS under 26 U.S.C. § 6050I and IRS regulations.

Due to the substantial similarity between the interim rule and the IRS requirements, transactions subject to both provisions must be reported by filing a joint FinCEN/IRS form 8300 with the IRS. Also because of the similarity between the provisions, “FinCEN believes it is appropriate that the proposed rule adopt the same rules for multiple payments, monetary instruments, and designated reporting transactions as appear in the [IRS] regulations.”

FinCEN issued the interim rule without prior notice and public procedure because it “imposes no new burden on the public” and aids in the collection of information that may be integral in fighting terrorism.

More Changes May Be Ahead

Section 352 of the Act requires each “financial institution” to establish an “anti-money laundering program” that includes, at a minimum, the development of internal policies, procedures, and controls; the designation of a compliance officer; an ongoing employee training program; and an independent audit function to test programs. Under the Bank Secrecy Act, the term “financial institution” includes “persons involved in real estate closings and settlements.” Businesses subject to the Act do not need to develop these internal policies and controls yet, but may be required to do so in the near future.

The Act gives the Secretary of the Treasury the authority to exempt certain trades and professions from the requirements of section 352, which includes any person “involved in real estate closings and settlements.” Under the current timeline set forth in the Act, any such exemptions must be made by late April, 2002, or the provisions of section 352 will become effective. Stay tuned for further developments.

TO COMPLY WITH CERTAIN U.S. TREASURY REGULATIONS, WE INFORM YOU THAT, UNLESS EXPRESSLY STATED OTHERWISE, ANY U.S. FEDERAL TAX ADVICE CONTAINED IN THE TEXT OF THIS COMMUNICATION, IS NOT INTEDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY PERSON FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER THE INTERNAL REVENUE CODE.