Geographic Targeting Order (GTO)

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On January 25, the Financial Crimes Enforcement Network (“FinCEN”) issued an “Alert on Potential U.S. Commercial Real Estate Investments by Sanctioned Russian Elites, Oligarchs, and Their Proxies” (the “Alert”).  The Alert defines “commercial real estate,” which the Alert refers to as “CRE,” as “property that is used for investment or income-generating purposes rather than as a residence by the owner.”  The Alert “specifically highlights sanctions evasion-related vulnerabilities in the CRE sector and is based on a review of Bank Secrecy Act (BSA) reporting indicating that sanctioned Russian elites and their proxies may exploit them to evade sanctions.”

The Alert seeks to assist financial institutions with identifying potential sanctions evasion activity in the CRE sector by providing potential red flags and typologies related to this activity.  As we discuss, the Alert also may represent a step towards BSA regulations for the CRE sector.…

Continue Reading  Russia Sanctions Evasion and Commercial Real Estate: An Alert

FinCEN announced yesterday that, once again, it is extending the Geographic Targeting Order, or GTO, which requires U.S. title insurance companies to identify the natural persons behind so-called “shell companies” used in purchases of residential real estate not involving a mortgage.  FinCEN also has expanded slightly the reach of the GTOs.

The new GTO is …

As we have repeatedly blogged, concerns about perceived anti-money laundering (“AML”) risks in the real estate industry are rising globally.  Consistent with this concern, the Financial Action Task Force (“FATF”) has updated its AML guidance for the real estate sector in a document entitled “Guidance for a Risk-Based Approach: Real Estate Sector,” (“FATF Guidance” or “the Updated Guidance”).  The FATF Guidance urges a variety of players in the real estate industry to adopt a risk-based approach (“RBA”) to mitigate AML risks and sets forth some high-level recommendations.  The Updated Guidance notably coincides with FinCEN’s advanced notice of proposed rulemaking to impose reporting and perhaps other requirements under the Bank Secrecy Act (“BSA”) for persons involved in real estate transactions to collect, report, and retain information, and the  recent extension of Geographic Targeting Orders for U.S. title insurance companies.

The FATF Guidance appears to be driven, at least in part, by FATF assessments showing that the real estate sector has high AML risks, which industry players often fail to appreciate and/or mitigate.  The Updated Guidance explains how various industry players can use an RBA to mitigate those risks.  It identifies sector-specific risks, sets forth strategies for assessing and managing those risks, and describes challenges the industry faces in doing so.  The FATF also offers specific guidance for “private sector players” and “supervisors” (e.g., countries and self-regulatory boards) for going forward.  The Updated Guidance includes tools, case studies, and examples of both private sector and supervisory practices to show real estate supervisors and practitioners how to implement FATF standards in an adequate, risk-based and effective manner.

The FATF is an inter-governmental policymaking body dedicated to creating AML standards and promoting effective measures to combat money laundering (“ML”) and terrorist financing (“TF”).  The FATF issued the Updated Guidance with input from the private sector, including from a public consultation with thirteen private-sector representatives (including from sector specific professional associations, the legal profession, FinTech providers, and non-profit organizations) in March and April 2022.  This consultation urged FinCEN, among other things, to provide greater clarity in the Updated Guidance regarding its applicability to the real estate sector and related professions (such as lawyers, notaries, and financial institutions) and extend FATF recommendations to broader real estate activities (such as property development and leasing).…

Continue Reading  FATF Updates Risk-Based Approach Guidance for the Real Estate Sector

FinCEN announced yesterday that, once again, it is extending the Geographic Targeting Order, or GTO, which requires U.S. title insurance companies to identify the natural persons behind so-called “shell companies” used in purchases of residential real estate not involving a mortgage.  FinCEN also has expanded slightly the reach of the GTOs.

The new GTO is…

On December 6, FinCEN announced that it was issuing an Advanced Notice of Proposed Rulemaking (“AMPRM”) to solicit public comment on potential requirements under the Bank Secrecy Act (“BSA”) for certain persons involved in real estate transactions to collect, report, and retain information.  If finalized, such regulations could affect a whole new set of professionals and one of the largest industries in the U.S.—an industry which, heretofore, has not been subject to the requirements of the BSA, with limited exceptions.

The ANPRM envisions imposing nationwide recordkeeping and reporting requirements on specified participants in transactions involving non-financed real estate purchases, with no minimum dollar threshold.  Fundamentally, FinCEN highlights two alternate, proposed rules.  One proposed option, promulgated under 31 U.S.C § 5318(a)(2), would involve implementing specific and relatively limited reporting requirements, similar to those currently required of title insurance companies in the non-financed real estate market.  This rule would require covered persons to collect and report certain prescribed information, such as, presumably, beneficial ownership.  Alternatively, FinCEN is considering imposing more fulsome Anti-Money Laundering (“AML”) monitoring and reporting requirements, including filing Suspicious Activity Reports (“SARs”) and establishing AML/CFT programs under 31 U.S.C. § 5318(g)(1) and 31 U.S.C. §§ 5318(h)(1)-(2).   This latter option would require covered persons to adopt adequate AML/CFT policies, designate an AML/CFT compliance officer, establish AML/CFT training programs, implement independent compliance testing, and perform customer due diligence.

Notably, FinCEN suggests that any new rule may cover attorneys and law firms, along with other client-facing participants.  FinCEN also is considering regulations applicable to both residential and commercial real estate transactions.

As we discuss, real estate and money laundering has been a long-simmering issue.  We repeatedly have blogged on AML and real estate, and previously published a detailed chapter, The Intersection of Money Laundering and Real Estate, in Anti-Money Laundering Laws and Regulations 2020, a publication issued by International Comparative Legal Guides.  FinCEN’s ANPRM appears to represent the culmination of an inevitable march towards the issuance of regulations under the BSA regarding real estate transactions, following years of increasing focus by the U.S. government and others on perceived AML risks in the real estate industry.
Continue Reading  Real Estate and Money Laundering: FinCEN Issues Advanced Notice of Regulations for the Real Estate Industry

I am very pleased to be part of two upcoming panels focused on key current risks relating to money laundering and anti-money laundering (“AML”), joined by wonderful and distinguished speakers.  I hope that you can join – the discussions should be lively, informative and useful to legal and compliance professionals.

ACAMS: Money Laundering and Real

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The Financial Crimes Enforcement Network (“FinCEN”) has been busy during the last few weeks – and presumably will remain busy for the rest of 2021, as it attempts to satisfy numerous mandates imposed by the Anti-Money Laundering Act of 2020.  In October, in addition to issuing an analysis of Suspicious Activity Reports and ransomware, FinCEN extended its Geographic Targeting Order for real estate transactions; issued exceptive relief providing that a casino may use suitable non-documentary methods to verify the identity of online customers; and reminded U.S. financial institutions to account for the fact that the Financial Action Task Force added and removed countries from its list of jurisdictions with anti-money laundering (“AML”) deficiencies.  We discuss each of these developments in turn.
Continue Reading  FinCEN Round-Up:  Real Estate GTOs, Exceptive Relief for On-Line Gaming for Non-Documentary Customer Verification, and the FATF Grey and Black Lists

Lawmakers Targeted “Gatekeeper” Professions Following the Pandora Papers Leak

Motivated by revelations contained in the recently-released Pandora Papers, on October 6, 2021, four U.S. Representatives – Tom Malinowski (D-NJ), Maria Elvira Salazar (R-FL), Steve Cohen (D-TN), and Joe Wilson (R-SC) – introduced House Resolution 5525, named the Establishing New Authorities for Business Laundering and Enabling Risks to Security (“Enablers”) Act.  Generally, the Pandora Papers are an 11.9 million document stockpile published by the International Consortium of Investigative Journalists (“ICIJ”) that revealed the offshore accounts of dozens of world leaders and more than one hundred billionaires, celebrities, and business leaders.  Analysis of the leaks unveiled how the wealthy allegedly used offshore accounts, hidden trusts, and shell companies to hide trillions of dollars, evade tax collectors, and launder money.

The Enablers Act targets the so-called “middlemen” in the United States who allegedly assist with those bad acts.  In a press release, Representative Wilson stated bluntly who he believed to be the “U.S. enablers of kleptocracy”: “unscrupulous lawyers, accountants, and others” that allegedly fail to conduct adequate due diligence in international transactions.

The Act, if passed, would amend the Bank Secrecy Act (“BSA”) to require the Treasury Department to promulgate due diligence requirements for the “middlemen,” which include investment advisors, art dealers, attorneys involved in financial activity, accountants, third-party payment providers, and others.

The Act is nascent proposed legislation that is still subject to refinement as it winds its way through the House Financial Services Committee.  Suffice to say, however, there are some initial questions about the bill’s scope and function that give us pause.  The details are catalogued below.
Continue Reading  The ENABLERS Act Seeks to Impose BSA/AML Requirements on an Array of “Middlemen” Professionals

Meanwhile, Congress Wants a Report on Russian Money Laundering and Its Relationship to the Real Estate Industry

FinCEN announced today that, once again, it is extending the Geographic Targeting Order, or GTO, regarding real estate transactions.

FinCEN’s press release is here.  The new GTO is here.  It is identical to the most recently…

Case Highlights Confidentiality of BSA Reporting and Continued Focus on Real Estate as Money Laundering Tool

The Northern District of California granted summary judgment to the Financial Crimes Enforcement Network (“FinCEN”) in a Freedom of Information Act (“FOIA”) case pertaining to an attempt by a group of investigative journalists to obtain information reported to FinCEN on the beneficial owners of high-end real estate.  This case clearly indicates that the Bank Secrecy Act (“BSA”) will continue to prevent efforts by journalists to seek, via FOIA, sensitive and protected information reported to FinCEN.  Of course, and as the world has witnessed, journalists still can turn to leaks and data hacks to obtain and distribute such information.  This case also reminds us that the use of real estate as a potential vehicle for money laundering remains a hot topic not only for regulators and enforcement personnel, but also for journalists and watchdog groups.

In The Center for Investigative Reporting, et al. v. United States Department of the Treasury, the Court held that FinCEN was not required to produce documents indicating the “real human owners” of residential real estate purchased with cash that had been requested by The Center for Investigative Reporting (“CIR”).  The Court’s ruling – affirming the confidentiality protections that are critical to the effectiveness of financial institution reporting under BSA – comes at pivotal moment, as journalistic agencies such as the International Consortium of Investigative Journalists (“ICIJ”) and BuzzFeed News reported less than six months ago on leaked documents referred to as the “FinCEN Files,” describing alleged transactions valued at over $2 trillion U.S. dollars and reported by financial institutions to FinCEN through Suspicious Activity Reports (“SARs”). Under the BSA, it is illegal to reveal the decision to file or not file a SAR to the subject of the SAR.  The ICIJ also played a key role in the release of the notorious Panama Papers, which detailed an alleged web of international money laundering and tax evasion obtained through a massive data leak.
Continue Reading  Investigative Journalists Lose FOIA Bid to Obtain GTO Info Reported to FinCEN