FinCen director on all-cash scrutiny broadening anti-money laundering in real estate

Miami /
Apr.April 13, 2016 02:30 PM

A new requirement that title companies report all-cash luxury home purchases in Miami-Dade County has broadened a longstanding federal effort to deter money laundering via real estate transactions, said Jennifer Shasky Calvery, director of the Financial Crimes Enforcement Network (FinCen).

FinCen, an arm of the U.S. Department of Treasury that combats money laundering, issued geographic targeting orders, effective March 1, requiring title companies to report all-cash purchases of high-end residential real estate in Miami-Dade and Manhattan.

“This is not new ground. The real estate industry’s vulnerability to money laundering has been a focus of the U.S. Congress and FinCen for many years,” Calvery said in a speech Tuesday at a conference of the Association of Certified Anti-Money Laundering Specialists at the Diplomat Hotel in Hollywood.

“In the past five years alone, U.S. Attorneys’ offices in San Antonio, Houston, New York City, Miami and many other cities have brought major cases forfeiting tens of millions of dollars of real estate purchased with the proceeds of illegal activity,” she said. “The DOJ forfeiture cases continue to show corrupt politicians, drug traffickers and other criminals using shell companies to purchase luxury real estate with cash. … This is often enough to dramatically increase the difficulty of tracking the true owner of a property.”

FinCen designed its geographic targeting orders for Miami-Dade and Manhattan to gather data helpful to law enforcement agencies in identifying the greatest money-laundering risks in the real estate sector.

“It was troubling to read that some legal and real estate experts mobilized immediately after the GTOS [geographic targeting orders] were announced to provide suggestions about ways to avoid the reporting requirements. We all know that criminals seek the path of least resistance,” Calvery said.

The geographic targeting orders are “a pilot effort in two jurisdictions that are popular destinations for luxury buyers,” she said. “This pilot will help us gather information while furthering our incremental, risk-based approach to regulating this industry.”

Federal efforts to combat money launderers have been mounting since 1970 when federal lawmakers enacted the Bank Secrecy Act, authorizing the Treasury Department to impose obligations on financial institutions to deter money laundering. In 1988, the definition of a “financial institution” under the Bank Secrecy Act was amended to include people involved in real estate transactions.

After the 9/11 attacks, Congress passed the USA PATRIOT Act, which mandated that FinCen issue regulations requiring financial institutions to adopt anti-money laundering programs or apply for exemptions.

“Since that time, FinCen has been using a risk-based approach to establish anti-money laundering requirements for certain real estate businesses, focusing first on areas where illicit finance risk appears greatest,” Calvery said.

After the 2008 financial crisis, FinCen began requiring mortgage bankers, mortgage brokers and other non-bank lenders to establish deterrents to money laundering via home loans.

FinCen estimates that its anti-money laundering regulations cover about 78 percent of all home purchases nationwide.

“But what about the remaining 22 percent? That’s the ‘all-cash’ market, Calvery said. “And to be clear, when I say ‘all-cash,’ I am not talking necessarily talking about hard currency in a duffel bag, but rather properties purchased without a mortgage.”

She said FinCen’s geographic targeting orders for Miami-Dade and Manhattan will shed more light on all-cash luxury purchases, and that the first title-company reports for such purchases have been submitted.

“While our rules in the standard mortgage market have made it more inhospitable for fraudsters and money launderers,” she said, “cash purchases are a gap we need to address.”


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