On April 29, 2022, the Financial Crimes Enforcement Network
(“FinCEN”) renewed and expanded geographic targeting
orders (“GTOs”) for certain “all-cash”
purchases of residential real estate (“April 2022
GTOs”).1 FinCEN has renewed and expanded the
geographic reach of these series of GTOs since 2016 and does so
again with the April 2022 GTOs. The April 2022 GTOs remain in
effect until October 26, 2022, but are likely to be renewed based
on FinCEN’s prior practices.
Background
The Bank Secrecy Act (“BSA”) authorizes FinCEN’s
director to issue GTOs2 that impose additional
recordkeeping and reporting requirements on domestic non-financial
institutions or a group of domestic non-financial trades or
businesses located in a specific geographic area to prevent evasion
of the BSA.3GTOs may be issued publicly or on a
confidential basis. Over the past 20+ years, only about a dozen
public GTOs have been issued.
Since 2016, FinCEN has issued a series of increasingly expansive
GTOs that require US title insurance companies to identify the
natural persons behind legal entities (US and non-US) used in
certain “all-cash” purchases of residential real estate
(“January 2016
GTOs”).4 “All-cash” residential real
estate transactions often do not involve the participation of a
financial institution that is required to maintain an anti-money
laundering (“AML”) compliance program, such as a bank or
mortgage lender, decreasing the likelihood that anyone will have
performed identity verification or due diligence on a purchaser or
will be monitoring the transaction for suspicious activity. To
mitigate the risk posed by this AML vulnerability, the GTOs require
title insurance companies to report such persons and purchases to
FinCEN.
While the January 2016 GTOs covered real estate transactions in
Manhattan and Miami-Dade County,5GTOs issued in November
2021 (“November 2021 GTOs”) expanded the numbers of
jurisdictions covered to certain counties in the areas of Boston,
Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles,
Miami, New York City, San Antonio, San Diego, San Francisco and
Seattle.6 Further, the dollar value for covered
transactions has been progressively lowered from $3 million for
Manhattan and $1 million for Miami in the January 2016 GTOs to
$300,000 for all covered jurisdictions in the November 2021 GTOs
and expanded to include transactions conducted using virtual
currency.7
FinCEN had previously noted that over 30 percent of the
transactions reported under the GTOs involve a beneficial owner or
purchase representative that has been the subject of a Suspicious
Activity Report.8
The April 2022 GTOs
The April 2022 GTOs further expand the scope of the earlier GTOs
in two important ways; they subject additional US jurisdictions to
the identification and reporting requirements for all-cash
transactions of a certain dollar value:
- $300,000 or more in certain counties within Northern Virginia
and Northern Maryland; the Hawaiian islands of Maui, Hawaii and
Kauai; Fairfield County, Connecticut; and the District of
Columbia - $50,000 or more in the City or County of Baltimore,
Maryland
Takeaway
FinCEN indicates in its April 2022 announcement that the GTOs
continue to provide helpful data on the purchase of residential
real estate by persons possibly involved in illicit activity. This
further extension of the real estate GTOs demonstrates that FinCEN
intends to continue to rely on this tool for combatting illicit
activities in certain US real estate markets. The expansion to
include new geographic areas, including smaller cities such as
Baltimore with a lower reporting threshold of $50,000, is an
indication that FinCEN will continue to cast a wider net to capture
more transactions.
In addition, FinCEN recently (on December 6, 2021) requested
public comment on how it should impose recordkeeping and reporting
requirements on certain persons involved in all-cash real estate
transactions (“2021 ANPRM”).9The 2021 ANPRM
indicates that FinCEN remains concerned about money laundering
vulnerabilities in the US real estate market, that these
vulnerabilities are not limited to the transactions covered by the
GTOs, and that the GTOs only apply to a relatively small subset of
localities. Accordingly, the 2021 ANPRM contemplates extending
recordkeeping and reporting requirements on certain persons
participating in transactions involving the non-financed purchase
of real estate nationwide, regardless of location or dollar
value.
We also note that FinCEN recently imposed its first penalty on a
GTO recipient (albeit not a real estate GTO recipient), putting
other GTO recipients on notice that FinCEN takes these requests to
non-financial entities as seriously as compliance obligations on
financial institutions.10
Footnotes
1. Press Release, FinCEN Renews and Expands Real
Estate Geographic Targeting Orders (Apr. 29,
2022), https://www.fincen.gov/news/news-releases/fincen-renews-and-expands-real-estate-geographic-targeting-orders.
2. 31 U.S.C. § 5326(a).
3. Id.
4. See e.g., Press Release, FinCEN
Takes Aim at Real Estate Secrecy in Manhattan and
Miami (Jan. 13, 2016), https://www.fincen.gov/news/news-releases/fincen-takes-aim-real-estate-secrecy-manhattan-and-miami.
5. Id.
6. See e.g., Press
Release, FinCEN Renews Real Estate Geographic Targeting
Orders for 12 Metropolitan Areas (Oct. 29,
2021), https://www.fincen.gov/news/news-releases/fincen-renews-real-estate-geographic-targeting-orders-12-metropolitan-areas.
7. For more information, please refer to our previous
Legal Update: FinCEN Adds Virtual Currency to High-End
Real Estate Reporting Regime (Nov. 20, 2018), https://www.mayerbrown.com/en/perspectives-events/publications/2018/11/fincen-adds-virtual-currency-to-highend-real-estat.
8. See e.g., FinCEN
Advisory, Advisory to Financial Institutions and Real
Estate Firms and Professionals (Aug. 22, 2017), https://www.fincen.gov/sites/default/files/advisory/2017-08-22/Risk
in Real Estate Advisory_FINAL 508 Tuesday
%28002%29.pdf
9. For more information, please refer to our previous
Legal Update: New Real Estate Reporting Requirements Under
Consideration by FinCEN, (Dec. 8, 2021): https://www.mayerbrown.com/en/perspectives-events/publications/2021/12/new-real-estate-reporting-requirements-under-consideration-by-fincen.
10. For more information, please refer to our previous
Legal Update: US FinCEN’s First Enforcement Action for
Violation of a Geographic Targeting Order, (April 8,
2022), https://www.mayerbrown.com/en/perspectives-events/publications/2022/04/us-fincens-first-enforcement-action-for-violation-of-a-geographic-targeting-order.
Visit us at
mayerbrown.com
Mayer Brown is a global legal services provider
comprising legal practices that are separate entities (the
“Mayer Brown Practices”). The Mayer Brown Practices are:
Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited
liability partnerships established in Illinois USA; Mayer Brown
International LLP, a limited liability partnership incorporated in
England and Wales (authorized and regulated by the Solicitors
Regulation Authority and registered in England and Wales number OC
303359); Mayer Brown, a SELAS established in France; Mayer Brown
JSM, a Hong Kong partnership and its associated entities in Asia;
and Tauil & Chequer Advogados, a Brazilian law partnership with
which Mayer Brown is associated. “Mayer Brown” and the
Mayer Brown logo are the trademarks of the Mayer Brown Practices in
their respective jurisdictions.
© Copyright 2020. The Mayer Brown Practices. All rights
reserved.
This
Mayer Brown article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein.