FinCEN Renews Real Estate Geographic Targeting Order
Maybe It's Time to Make the Reporting Requirement Permanent?
The Financial Crimes Enforcement Network (FinCEN) today renewed geographic targeting orders (GTOs) that require US title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of more than $300,000 of residential real estate.
Once again, the GTOs cover certain jurisdictions within the following major metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.
The GTOs have been renewed every six months for the past five years, imposing additional recordkeeping and reporting requirements on title companies in covered jurisdictions, because scores of foreign oligarchs, sanctioned individuals, and other illicit actors were entering the real estate markets in major cities and using shell companies to obscure the luxury homes and condos they were purchasing.
A Global Financial Integrity report this year also noted how easy it is for kleptocrats and other illicit actors to use US real estate to launder billions of dollars in illicit profits and that GTOs are not a sufficient tool to stem the flow of dirty money into US real estate.
To better understand the extent of real estate money laundering in the U.S. and identify trends, Global Financial Integrity (GFI) analyzed 125 cases reported between 2015 – 2020 in the U.S., the UK and Canada. Through a combination of case analysis and regulatory analysis, GFI provides conclusive evidence that the current U.S. approach of using Geographic Targeting Orders (GTOs) is inadequate to address money laundering in the real estate sector.
While GTOs are a useful tool, facilitating a 70 percent decrease in all-cash purchases by legal entities in the period immediately following the first real estate GTO issued in 2016, Treasury admits it has limits, and a more comprehensive solution is needed.
Instead of renewing the GTO every six months and limiting it only to the jurisdictions well known for luxury real estate, why not make the requirement permanent and impose the standard on every locality?
Some would suggest that the requirement should be expanded to all purchases, not just ones of $300,000 or more, but I do not think that is practical. Too much reporting. Too much data. Too many normal, law-abiding people have access to small amounts of cash, and tracking each and every one would require a lot of resources and probably not sit well with privacy advocates.
But FinCEN could introduce a new rule, obligating not just title companies nationwide, but also real estate agents, attorneys, and other gatekeepers to gather critical information on beneficial owners, and not limit the rule to residential real estate, especially given how much commercial real estate has been bought up by the likes of US-designated Ukrainian oligarch Ihor Kolomoisky in the Midwest, using shell companies and cash to buy up properties. In addition, the United States could also obligate real estate agents to comply with AML regulations.
Renewing the GTOs every six months in only a few jurisdictions assumes that illicit actors will only purchase properties in posh, luxury localities, where real estate prices are high. GFI cites money-laundering cases in New Orleans (LA), Orange County (CA), Cameron County (TX) and the state of Utah. Anchorage (AL), Las Vegas, and Alabama are also on the list, among others.
It’s time to expand our aperture and stop allowing corrupt actors to buy up land in our country.