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.
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.3 GTOs 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,5 GTOs 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
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”).9 The 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
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.
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.
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.