U.S. Renews Real-Estate Data Targeting Order

Feb 23, 2017   

February 23, 2017
By Samuel Rubenfeld

The U.S. Treasury Department extended for another six months a data- collection program to aid a crackdown on money laundering in real estate.

The program, which began in March 2016 and was expanded in August, requires title insurance companies to identify the true owners of limited liability companies that buy luxury real estate in all-cash transactions in some large cities, including New York City, Los Angeles, San Francisco and Miami. It was set to end Thursday; the renewal expires Aug. 22.

Treasury’s Financial Crimes Enforcement Network, or FinCEN, which issued the directives, known as geographic targeting orders, said in a statement that the data collected thus far corroborate the agency’s concerns about the use of shell companies to buy high-end property.

Acting FinCEN director Jamal El-Hindi said in the statement that the geographic-targeting orders are “producing valuable data” that’s assisting law enforcement and are “serving to inform our future efforts to address money laundering in the real-estate sector.”

Stephen Hudak, a FinCEN spokesman, declined to comment on any future plans to address the issue. Risk & Compliance Journal reported last year on the orders representing the first step toward broader anti-money laundering compliance requirements for the real-estate industry, which had

previously fended off such efforts from the federal government after the Sept. 11, 2001, terrorist attacks.

The goal, Treasury says, is to make it more difficult for buyers, particularly foreigners, to launder money through U.S. property purchases. About one- third of the transactions covered by the orders involve a person who is already the subject of a suspicious-activity report, FinCEN said.

Treasury says the orders impose the requirements on title-insurance companies because such insurance is a common feature in the vast majority of real-estate transactions, including those that don’t involve banks, which would perform checks for money-laundering risks when considering whether to fund a mortgage. As such, Treasury says, the title insurance companies “can provide FinCEN with valuable information” about transactions of concern.

Michelle Korsmo, chief executive of the American Land Title Association, a trade group representing the companies covered by the orders, said the efforts of their member for the past year “appear to be beneficial” to the federal government’s work identifying money-laundering schemes in real- estate purchases.

“We continue to work closely with our members and FinCEN to collect the needed information as efficiently as possible,” said Ms. Korsmo.

FinCEN collects and analyzes suspicious-activity reports filed by financial institutions, and Mr. Hudak said banks have also been filing more reports related to potential money laundering involving real estate as a result of the attention generated by the geographic targeting orders.

Mr. Hudak said the orders flagged, among others, beneficial owners suspected of being involved in public corruption in Asia and South America, and a beneficial owner who engaged in $160 million of suspicious financial activity and sought to disguise ownership of related financial accounts. He declined to provide further detail.

At some point, said Andrew Ittleman, a partner at Fuerst Ittleman David & Joseph PL, FinCEN will have to start the process of writing regulations to permanently formalize the process.

“Kicking the can down the road isn’t the way this is supposed to be addressed. It’s not the way federal agencies are supposed to create rules,” he said.

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