

On December 6, 2021, the Financial Crimes Enforcement Network (FinCEN) issued a press release requesting comments from the public on the state of money laundering in the US real estate market. To address the money laundering risks both in and to the US housing market, FinCEN has been issuing Geographic Targeting Orders (GTOs) to obtain more information on cash buyers of real estate in specific counties around the country. This strategy has been effective in some respects, but it might be time to think about a more broad-based and tunable approach for monitoring this type of activity.
Under GTOs, title insurance companies are required to gather additional information on buyers of real estate when no loans are used for the purchase. FinCEN first issued GTOs in 2016 for Miami-Dade County and Manhattan. Since then, the agency has renewed these orders every 180 days, adding more than 20 locations to the coverage area over that time. They have also recently instituted a uniform reporting threshold of $300,000 in all covered jurisdictions.
Real estate is often utilized in the integration phase of money laundering because it allows criminals to move large amounts of money. These properties can be lived in by the purchasers, rented out, and eventually resold for potential profit. The goal of a criminal is ultimately to portray the funds associated with this purchase as being derived from legitimate activity while minimizing the risk of lost capital. Because criminals are primarily interested in legitimizing the funds, they aren’t as price-sensitive as the general population. When enough of this type of activity occurs, it could begin to artificially inflate prices in the market.
GTOs have been a great tool to help protect the real estate market by disincentivizing criminals. All-cash purchases in Miami fell by 70% after the GTOs went into effect. While it can’t be assumed that this precipitous decline was entirely composed of illicit actors, it is clear that the loss of anonymity that was offered by the prior regime was enough to deter some entities from this type of activity in the relevant jurisdiction, or at the very least change their methods. What is interesting, though, is that shortly after the GTOs were announced to the public and implemented, FinCEN found that roughly 30% of the entities recorded on these reports had at some point been included in Suspicious Activity Report (SAR) filings. This overlap occurred even though wire payments, a popular method for “cash” purchases of real estate, were not originally included in the required reporting. These reports that FinCEN collected contained only entities who paid in physical cash, cashier’s checks, personal or business checks, traveler’s checks, or money orders.
GTOs have been effective at reducing cash purchases in the targeted areas, and some might point to this as evidence of their impact. However, it is precisely this fact that may be the true mark of their inefficaciousness. There are many areas not covered in the GTOs that still provide a burgeoning real estate market: ideal for minimizing loss of capital and avoiding the additional reporting requirements. While some are caught up in this regulatory regime, it could be argued that the holes in the coverage show criminals what to do to avoid getting caught.
With FinCEN now getting set to revisit, and hopefully revamp, this area of information collection there will be some new strategies proposed. Something that would allow our industry to improve on this regulatory regime would be to extend this regime across the US, using the current standard dollar limit everywhere, modeling this standard after the Currency Transaction Report (CTR) regulations. Like CTR requirements, the agency should reserve the option to set different limits in individual locations as necessary. As FinCEN has already proved they can assess specific geographic areas and industries, it would make sense to at least try this method of monitoring for the real estate sector. Doing so can help law enforcement identify and catch more criminals and help make a more stable and equitable financial market.