What You Need to Know About FinCEN’s Ongoing Anti-Money Laundering Efforts
The Financial Crimes Enforcement Network (FinCEN), one of the U.S. Treasury's leading agencies in the fight against money laundering and financing of terrorism, has renewed and expanded the Geographic Targeting Orders (GTOs) that impose data collection and reporting requirements on title companies involved in certain residential real estate transactions, effective through May 15, 2019.
The GTOs cover the geographic areas listed below for residential, non-financed transactions of $300K and above (no longer only high-end transactions):
- California - San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara counties
- Florida - Miami-Dade, Broward and Palm Beach counties
- Hawaii - City and County of Honolulu
- Illinois - Cook County
- Massachusetts - Suffolk and Middlesex counties
- Nevada - Clark County
- New York - Brooklyn, Queens, Bronx, Manhattan and Staten Island
- Texas - Bexar, Tarrant and Dallas counties
- Washington - King County
While the GTOs do not impose any new obligations on real estate professionals, title companies subject to the GTO may seek help in obtaining information necessary to maintain their compliance with the order. GTO compliance should not affect the sales transaction or timeline for closing, as title companies must report GTO-covered transactions to FinCEN within 30 days of the closing.
The GTOs require certain title companies to identify natural persons with a 25 percent or greater ownership interest in a legal entity purchasing residential real property, such as a corporation, LLC, partnership, or other similar business entity, whether formed under the laws of a state, of the U.S., or a foreign jurisdiction. Title companies, and their agents, must file a report with FinCEN regarding covered purchases of residential real property meeting the requirements above when such purchases are made:
- Without a bank loan or similar external financing, and
- Are paid at least in part by using currency or a cashier's check, a certified check, a traveler's check, a personal check, a business check, a money order in any form, a funds transfer or virtual currency.
The National Association of REALTORS® (NAR) supports FinCEN's efforts to reduce money laundering, but opposes any mandatory reporting regulations on real estate professionals that are burdensome and unnecessary given the existing anti-money laundering regulations that already apply to financial institutions.
NAR collaborated with the U.S. Treasury to develop voluntary guidelines to increase awareness of money-laundering risks. The guidelines educate real estate professionals about red flags, such as large, unexplained distances between the location of the property and the buyer, unusual involvement by third parties, or a seller unreasonably under-valuing a property.
If red flags are present, a real estate professional may request additional information from the customer to confirm their identity and basis for the transaction. If a legal entity, such as an LLC, is involved, a real estate professional may try to identify who controls or owns the entity. Real estate professionals may also discuss with their senior management situations that raise red flags.
Real estate professionals may report suspicious activity to local law enforcement or the FBI. In addition, real estate professionals may also file a suspicious activity report, or SAR, directly to FinCEN.
The Treasury Department also recently released an updated strategy for combating money laundering threats to the U.S. financial system, which highlights actions by complicit professionals, including real estate agents. The report is helpful for understanding how to more effectively prevent, recognize and combat money-laundering schemes.