What is BSA/AML in Real Estate?
Disclaimer: This article is for educational purposes only and does not constitute legal, tax, or financial advice. Federal and state regulations change frequently. Consult a qualified attorney, CPA, or licensed professional before making decisions based on regulatory requirements discussed here.
The Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations are a framework of federal laws designed to detect and prevent money laundering, terrorist financing, and other financial crimes. While BSA/AML regulations primarily target financial institutions, real estate transactions have become an increasing focus because property purchases can be used to launder illicit funds, particularly through all-cash transactions and shell companies that obscure the beneficial owner.
Real estate is attractive to money launderers because property values are high (allowing large amounts of money to be placed in a single transaction), real estate transactions are complex (creating opportunities to obscure fund sources), and properties can be bought and sold to convert dirty money into apparently legitimate wealth. The Financial Crimes Enforcement Network (FinCEN) has taken steps to address this vulnerability through Geographic Targeting Orders and proposed beneficial ownership reporting requirements.
FinCEN Geographic Targeting Orders
Since 2016, FinCEN has issued Geographic Targeting Orders (GTOs) requiring title insurance companies to identify the natural persons (beneficial owners) behind shell companies used to make all-cash purchases of residential real estate above certain thresholds in specified metropolitan areas. Originally targeting Manhattan and Miami-Dade County, the GTOs have expanded to cover most major U.S. metros and have been made permanent.
Under the GTOs, title companies must collect and report beneficial ownership information for all-cash purchases above the applicable threshold (generally $300,000, lower in some areas). This information is filed with FinCEN and used to detect patterns of suspicious activity.
What this means for investors
If you purchase property through an LLC, trust, or other legal entity using cash (no institutional financing), you may be asked by the title company to disclose the beneficial owner(s) of the entity. This is a legal requirement, not an optional request. Providing accurate information is mandatory, and knowingly providing false information can result in criminal penalties.
For investors who use LLCs for liability protection (a common and legitimate practice), the GTO reporting requirement does not change the legality or advisability of LLC ownership. It simply requires transparency about who owns the LLC. Legitimate investors should have no concern about providing this information.
Corporate Transparency Act
The Corporate Transparency Act (CTA), which took effect in 2024, requires most LLCs and corporations to report their beneficial owners to FinCEN through the Beneficial Ownership Information (BOI) database. This is separate from real estate-specific rules and applies to most business entities regardless of whether they own real estate. Real estate investors with LLCs must file BOI reports or face penalties.
Suspicious Activity Reports
Financial institutions (banks, credit unions, mortgage companies) are required to file Suspicious Activity Reports (SARs) when they detect transactions that appear to involve money laundering, structuring, or other financial crimes. While individual real estate investors are generally not required to file SARs, your banks and lenders monitor your accounts for suspicious activity. Large cash deposits, rapid-fire property transactions, and unusual fund transfer patterns may trigger SAR filings and potential account restrictions.
Best practices: maintain clear documentation of fund sources for all property purchases, use bank transfers rather than cash for large transactions, and be prepared to explain the business purpose of your real estate activities to your bank's compliance department if asked.