FinCEN issues alert on CRE investments by sanctioned Russian elites
The US Financial Crimes Enforcement Network (‘FinCEN’) has issued an alert ‘to all financial institutions regarding potential investments in the U.S. commercial real estate (CRE) sector by sanctioned Russian elites, oligarchs, their family members, and the entities through which they act.’
Following its earlier alert in March 2022 ‘on the risk of sanctions evasion by sanctioned Russian elites and their proxies involving high-value assets, including both residential and commercial real estate,’ the new alert ‘specifically highlights sanctions evasion-related vulnerabilities in the CRE sector and is based on a review of Bank Secrecy Act (BSA) reporting indicating that sanctioned Russian elites and their proxies may exploit them to evade sanctions.’
It notes: ‘The CRE market presents unique challenges for financial institutions in detecting sanctions evasion. First, CRE transactions routinely involve highly complex financing methods and opaque ownership structures that can make it relatively easy for bad actors to hide illicit funds in CRE investments. For example, CRE transactions nearly always involve private companies or institutional investors as the buyer and/ or seller. As such, trusts, shell companies, pooled investment vehicles, or other legal entities are regularly used on both sides of CRE transactions.
‘The standard use of such legal entities in CRE deals is typically due to the high value of the properties (ranging from the low millions of dollars to the billions of dollars) and the need for buyers and sellers to limit their legal, tax, and financial liability. In addition, several layers of legal entities are frequently involved as CRE buyers or sellers, and they may be domiciled in offshore jurisdictions. Further, these legal entities often have a large number of investors behind them and, as a result, it can be difficult for a financial institution to identify all of the beneficial owners.’ .
