FinCEN Alerts FIs of Sanction Evasion by Russian Entities Implicated in U.S. Commercial Property Investments
FinCEN alerted all the Financial Institutions warning about the risk of investment from sanctioned Russian elites.
FinCEN (Financial Crimes Enforcement Network) issued an alert to financial institutions on 25th January 2023, mentioning the risk of investment by Russian oligarchs, elites and their families in real estate.
The report is an update to the previously published alert from March 2022 regarding the ongoing conflict in Ukraine. This alert marks the sector on notice that financial firms are monitoring the commercial real estate sector for instances of money laundering and evasion by the sanctioned Russians.
The report identifies several weak points that expose the US commercial real estate market to potential sanction evasion. Here are some vulnerabilities noted by FinCEN:
- The stability of the U.S. commercial real estate market and its high-value commercial real estate properties make such investments ripe for generating steady income and storing large volumes of illicit wealth.
- Commercial real estate transactions implicate complicated financing methods that lack transparent ownership structures.
- Lack of transparency can supply a conveyance for fraudsters to suppress illegal funds within commercial real estate investments.
In addition to mentioning the reasons for additional diligence, FinCEN also highlighted some red flags for real estate transactions.
- The buy, sale, contribution, or legal ownership transfer of a high-value real estate in place of a foreign legal entity, shell company or trust, especially if the transaction: (i) is far above or below fair market value, (ii) involves all-cash transfers, or (iii) is funded by a third party with a known nexus to sanctioned Russian elites and their proxies.
- Using permitted commodities or arrangements with a nexus to sanctioned Russian elites and their proxies to disguise the real beneficiary or fund’s roots or sources.
- Modifications, without an evident business reason, to the transaction patterns of a firm located in a country other than the United States, Russia, Belarus and Ukraine, where the new transactions involve convertible virtual currency and Russian-related investments or firms.
The latest alert from FinCEN focuses on these red flags; the Department of Justice’s OFAC (Office of Foreign Assets Control) has been tracking the channels since the Russian sanctions took effect last year. It also provides due diligence guidance for FIs, insurance firms, and other parties that perform commercial or real estate transactions.
Suggested Read:
FINCEN AND FDIC TO TEST THE EFFECTIVENESS OF DIGITAL ID VERIFICATION TOOLS
