Private lenders who maintain strong AML compliance protect more than just their portfolios; they safeguard their entire lending platform. Under FinCEN’s current guidance, private lenders are expected to maintain anti-money laundering programs that include due diligence, staff training, and reporting of suspicious activities.
Before examining how AML, or anti-money laundering laws, apply to private lenders, one must first understand what is defined as “money laundering” and why it poses significant risks within the lending industry.
Money Laundering and Its Role in Real Estate Transactions
Money laundering is the act of concealing the illegal origin of funds through a series of financial transactions. It typically involves three stages: placement, layering, and integration. Each placement is designed to move illicit money further away from its criminal source and into the legitimate economy.
In practice, these stages often overlap, and sophisticated actors may repeat or combine techniques to make detection more difficult.
Real estate has long been a preferred vehicle for money laundering because transactions are high in value, complex in structure, and historically less scrutinized than other financial activities. Properties can also appreciate or generate rental income, allowing illicit funds to blend seamlessly with legitimate revenue.
Common laundering techniques in real estate include:
- Using illicit cash to fund deposits or settle purchases.
- Concealing ownership through shell companies, trusts, or nominee buyers.
- Structuring transactions with both declared and undeclared (“off-books”) cash components.
- Using third parties to distance the true buyer from the property.
- Paying inflated or prepaid rent with criminally derived funds.
- Overvaluing property to disguise large sums of illicit money.
To address these vulnerabilities, regulators have tightened oversight of real estate transactions, particularly all-cash residential purchases involving legal entities or trusts.
Do Private Lenders Have AML Compliance Obligations?
Not only are all private lenders required to follow AML compliance obligations, but they are also required to establish an AML program. Since the enactment of the Bank Secrecy Act in 1970, numerous laws have been enhanced and amended by the BSA to aid regulatory agencies and law enforcement in the fight against money laundering.
Below is a list of AML compliance regulations that specifically impact private lenders.
- Residential mortgage lenders and originators (non-bank) were explicitly included under FinCEN’s 2012 rule requiring establishment of AML programs and Suspicious Activity Report (SAR) filing obligations.
- Under 31 CFR Part 1029, loan or finance companies (including nonbank mortgage originators) must implement AML programs by August 13, 2012.
- FinCEN has begun to interpret “loan or finance company” broadly, potentially encompassing additional classes of private lenders in future rulemaking.
- In regulatory practice, BSA definitions can extend to loan companies depending on their structure and connection to regulated institutions.
Even if a private lender does not currently fall under an express regulatory requirement, adopting AML compliance best practices helps guard against reputational, legal, and operational risks.
Designing an AML Program for a Private Lender
A private lender should structure its AML program based on risk, tailoring its policies, procedures, and controls to the specific clients, geographies, products, and transaction types it handles.
A best practice is to prepare a written risk assessment analyzing money laundering and terrorist financing risks and explaining how the lender’s AML compliance procedures mitigate them.
The American Association of Private Lenders provides a detailed seven-step guide on how to create an AML compliance risk assessment.
New Developments to Watch
- Delayed Real-Estate Reporting Rule: FinCEN has postponed the implementation of the Anti-Money Laundering Regulations for Residential Real Estate Transfers Rule until March 1, 2026. This rule mandates reporting of non-financed or privately financed residential property transfers involving entities or trusts, including detailed beneficial ownership disclosures.
- Expanded AML Rules for Investment Advisers/Private Funds Delayed: FinCEN has delayed the effective date of the AML rule for investment advisers from January 1, 2026, to January 1, 2028, giving the agency time to revisit the scope and substance of the rule through future rulemaking.
- FinCEN Evaluates AML Compliance Costs: In September 2025, FinCEN issued a Request for Information (RFI) seeking input from financial institutions on the costs and effectiveness of AML compliance programs. This highlights regulatory attention on ensuring that AML compliance measures are effective and proportional to their compliance burden, which is critical for private lenders seeking to maintain efficient and compliant operations.
Conclusion & Next Steps
Private lenders should treat AML compliance not merely as a regulatory burden but as a critical foundation for risk mitigation, reputation, and long-term viability. By adopting a tailored, risk-based AML compliance program, performing regular testing, and staying current with evolving regulatory landscapes, a private lender can credibly demonstrate commitment to lawful finance and defensibility in the face of inquiries.
If you’d like help assessing your lending business or enhancing your AML framework, contact the Fortra Law Banking & Finance team to learn more about our lending compliance services. Our attorneys assist private lenders in developing comprehensive compliance programs, ensuring licensing accuracy, and navigating complex regulatory requirements.
