Reported by  Dylan Tokar

Instances where private funds and real-estate purchases were used to launder illicit funds have garnered attention in recent years, but many industry participants feel the problem isn’t a systemic one. In letters to FinCEN, industry proponents questioned whether the threat warranted costly new processes and paperwork.

Andreessen Horowitz, one of the largest venture-capital firms in the U.S., said in a letter that the proposed rule for investment advisers likely would result in “expensive and duplicative regulation with no material benefit to law enforcement or reduction in the risk of illicit financial activity.”

The firm has asked FinCEN to exclude venture-capital firms from its rule, arguing that there is little evidence that the firms are a target for money launderers. 

The Managed Funds Association, an industry group, said it supported FinCEN’s goal of combating money laundering and that the latest version of its investment adviser rule was an improvement over its 2015 proposal. 

But it said it was concerned how FinCEN had designed the rule and urged the bureau to issue a completely new proposal for further comment by industry players. In particular, the group said clarification was needed around how the rule would apply to investment advisers that manage pooled investment vehicles. These firms have an advisory relationship with the funds they manage and not with the investors themselves. In such cases, the advisers should be allowed to shift the anti-money-laundering reporting obligations to the fund administrator, the group said.

The MFA’s remarks echoed comments from players in the real-estate industry, where a large number of professionals are often involved in the purchase or transfer of property. FinCEN’s proposal would require at least one party in a residential real estate sale to file a report when the purchase is made with cash or is financed by a lender that isn’t already subject to anti-money-laundering laws, and when the recipient is a legal entity or trust.

FinCEN has proposed a “cascade” method to determine who would be shouldered with the new regulations, depending on the types of people involved. At the top of the list are professionals who provide settlement services, followed by those who underwrite the new owner’s title insurance policy.

In no circumstance should real-estate agents or brokers be shouldered with the responsibility, the National Association of Realtors argued in a letter to FinCEN this week. Having to obtain the required information from their clients about the source of their funds would put agents and brokers in a precarious and dangerous situation, the group said.

But the American Land Title Association, which represents the title and settlement industry, in a letter to FinCEN said the proposed rule would be overly burdensome and costly to its members. More than 90% of title companies are small-business owners, the group added, citing data from the Small Business Administration. It has recommended FinCEN make changes that shift the onus of the reporting rules to escrow agents or attorneys.

Read full report: https://www.wsj.com/articles/real-estate-agents-investment-advisers-chafe-at-new-anti-money-laundering-rules-1a194fa0