In late January, FinCEN recently released Alert FIN-2023-Alert002, which addresses potential commercial real estate investments by sanctioned Russian elites and other leaders, as well as those acting on their behalf.
FinCEN urges institutions to remain watchful for potential efforts of Russian officials to evade sanctions. The Alert also shines a light on the need to increase transparency in the real estate market, as a whole, to counter corruption. It goes without saying that, once an area is identified where one can hide, it will attract those who want to hide.
Commercial real estate transactions, by nature, are fairly complex which makes transparency difficult. They can involve one or more legal entities, often backed by a number of investors. This makes it more difficult to identify all of an entity’s beneficial owners, especially as some have now caught on and learned to “structure” their ownership interests, so they fall below any reporting requirements. Further, commercial real estate has become an easy way to both store wealth and generate income and it already involves a large percentage of foreign investors.
The Alert gives the following financial red flags for sanctions evasions involving commercial real estate. FinCEN notes that these and other methods may be used by anyone looking to hide behind commercial real estate transactions:
- The use of a private investment vehicle that is based offshore to purchase CRE and that includes PEPs or other foreign nationals (particularly family members or close associates of sanctioned Russian elites and their proxies) as investors.
- When asked questions about the ultimate beneficial owners or controllers of a legal entity or arrangement, customers decline to provide information.
- Multiple limited liability companies, corporations, partnerships, or trusts are involved in a transaction with ties to sanctioned Russian elites and their proxies, and the entities have slight name variations.
- The use of legal entities or arrangements, such as trusts, to purchase CRE that involves friends, associates, family members, or others with a close connection to sanctioned Russian elites and their proxies.
- Ownership of CRE through legal entities in multiple jurisdictions (often involving a trust based outside the United States) without a clear business purpose.
- Transfers of assets from a PEP or Russian elite to a family member, business associate, or associated trust in close temporal proximity to a legal event such as an arrest or an OFAC designation.
- Implementation of legal instruments (e.g., deeds of exclusion) that are intended to transfer an interest in CRE from a PEP or Russian elite to a family member, business associate, or associated trust following a legal event such as an arrest or an OFAC designation of that person.
- Private investment funds or other companies that submit revised ownership disclosures to financial institutions showing sanctioned individuals or PEPs that previously owned more than 50 percent of a fund changing their ownership to less than 50 percent.
- There is limited discernable business value in the CRE investment or the investment is outside of the client’s normal business operations.
If filing a SAR on activity related to this alert, FinCEN requests that institutions include “FIN-2023-RUSSIACRE” in the Filing Institution Note (Field 2) and narrative.
In case you missed it, FinCEN also released FIN-2023-Alert001 in mid-January which addresses human smuggling along the Southwest border of the United States. It also provides several Red Flags to watch for and SAR filing instructions for such activity. See the February edition of our magazine, Banking on BCC, for more on this Alert.
For more on sanctions evasion and how that impacts BSA, be sure to check out our webinar, “BSA: Sanctions Evasion,” coming in May.
Published
2023/02/10
