January 30, 2023

FinCEN urges vigilance against commercial real estate purchases by sanctioned Russian elites

The Financial Crimes Enforcement Network has issued an alert to help financial institutions detect attempts to evade US sanctions by sanctioned Russian elites, their family members, and entities operating on their behalves, and to remind financial institutions of their obligation to remain vigilant.  The alert builds on an alert published by FinCEN in March 2022 warning US financial institutions of potential sanctions evasions attempts involving high-value assets, including residential and commercial real estate.  Today’s alert focuses on vulnerabilities in the commercial real estate sector, and provides financial institutions with guidance to help them identify red flags and transaction types of concern.  The alert is based on information garnered from Bank Secrecy Act reports, law enforcement reports, and open source information.

Commercial real estate transactions may be particularly susceptible to exploitation by sanctioned elites due to several characteristics typical of the sector, including:

  • the highly complex financing methods and opaque ownership structures involved in such transactions;
  • the fact that several layers of legal entities are frequently involved as both buyers or sellers;
  • the offshore domiciles of many parties to commercial real estate transactions;
  • the difficulty of identifying all beneficial owners of complex entities encompassing multiple investors;
  • the fact that up to 10% of commercial real estate transactions may involve foreign parties.


Expanding on these areas of vulnerability, FinCEN points to the use of pooled investment vehicles in commercial real estate transactions, in which individual investors may hold less than 25 percent of the fund, and hence fall below the threshold for beneficial ownership screening by financial institutions; in order to escape scrutiny; investors may lower their interest to below the threshold for high-risk customer due diligence.  FinCEN also noted that bad actors often use trusts held by third parties as vehicles to launder money or evade sanctions; therefore, financial institutions analyzing such trusts should ensure that sanctioned persons do not have a present, future, or continent interest.  Another aspect of commercial real estate investment by would-be sanctions evaders is the decentralized nature of the market:  Russian elites may look to small and medium-sized urban centers for investment targets rather than high profile, luxury, or big-city properties.

Further complicating the matter is the range of financial institutions typically involved in commercial real estate transactions, including banks, insurance companies, and others.  The alert reminds all institutions subject to the Bank Secrecy Act of their obligations under the Act, and encourages them to share information about suspected money laundering or terrorist activities with one another under the safe harbor provision of the USA PATRIOT Act.

FinCEN lists specific red flags that financial institutions should consider, noting however that no single financial red flag indicator is determinative of illicit activity.  The nine red flags are summarized below:

  1. Use of a private investment vehicle based offshore if it includes as investors politically exposed persons or family members of sanctioned Russian elites.
  2. Refusal by customers to provide information about ultimate beneficial ownership.
  3. Use of multiple legal entities with ties to sanctioned Russian elites, sometimes with slight variations on the same name.
  4. Use of legal entities to purchase commercial real estate involving persons with close connections to sanctioned Russian elites.
  5. Ownership of commercial real estate by entities in multiple jurisdictions without a clear business purpose.
  6. The transfer of assets from a Russian elite to a family member or trusted associate within a short period of designation by the Office of Foreign Assets Control of the US Department of the Treasury, or arrest or indictment.
  7. Implementation of legal instruments such as deeds of exclusion that are designed to transfer interest in commercial real estate from a Russian elite to another person following designation or arrest.
  8. The submission of revised ownership disclosures in which a sanctioned person’s ownership is reduced from above 50 percent to below that threshold.
  9. There is no obvious business value in the investment, or the investment  is outside of the client’s normal business operations.


The final pages of the alert are devoted to recapping Bank Secrecy Act obligations, suspicious activity reporting, and appropriate risk-based procedures for conducting ongoing customer due diligence.

FinCEN news release | FinCEN alert