Effective 06 November 2020, the Financial Crimes Enforcement Network (FinCEN) renewed geographic targeting orders (GTOs) for 12 metropolitan areas in the United States that the US government assesses are vulnerable to money laundering through real estate.
FinCEN has since 2016 administered a collection requirement using GTOs, imposing temporary reporting obligations on businesses in specific geographic areas on certain transactions involving currency, monetary instruments, or wire transfers. The GTOs require title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. These renewed GTOs are identical to the GTOs that were extended in May, and the purchase amount threshold remains $300,000 for each covered metropolitan area.
- Dallas-Fort Worth
- Las Vegas
- Los Angeles
- New York City
- San Antonio
- San Diego
- San Francisco
Real estate has long been a popular vehicle for laundering proceeds of criminal activity. In 2007, the Financial Action Task Force (FATF) – the international body tasked with tackling money laundering and the financing of terrorism – released a report on “Money Laundering and Terrorist Financing through the Real Estate Sector,” exploring numerous characteristics of real estate transactions which make the sector attractive to illicit financial actors.
In almost all case examples provided, wire transfers to channel the money have been involved at some stage. Also emerging markets seem to be more vulnerable to misuse of the real estate sector. Due to the worldwide market growth of real estate-backed securities and the development of property investment funds, the range of options for real estate investments has also grown. This effect has not gone without notice in emerging markets. Money laundering transactions can be easily camouflaged in genuine commercial transactions among the huge number of real estate transactions taking place. Complicating matter is the fact that often these less developed economies do not have an average market price for real estate, but rather prices varying across sectors and districts. To complete real estate transactions in some stage of the process involvement of legal expert is inevitable. The case examples have shown this category, when not covered by AML/CFT obligations, often becomes the weakest link in the process.
Real estate is an attractive vehicle for both licit and illicit actors, given its functionality, generally stable prices that appreciate over time, and respectability and legitimacy that make residential and commercial properties part of a reliable and profitable investment strategy. Purchasing real estate is usually part of the final stage of money laundering – integration of illicit proceeds into the licit economy. FinCEN’s goal is to gather financial intelligence by requiring real estate title insurance companies to collect and report information on the persons and entities involved in certain residential real estate transactions to help prevent the US real estate market from being abused by illicit actors.