The Financial Crimes Enforcement Network's (FinCEN) continuing efforts to address the "real estate industry's vulnerability to money laundering” were outlined by FinCEN Director Jennifer Shasky Calvery in an April 12, 2016, speech. Although most real estate transactions already are subject to anti-money laundering (AML) scrutiny through the AML programs and controls of banks and other mortgage lenders and originators, she noted that in the case of an all-cash purchase made "without a mortgage issued by a bank or mortgage broker," "none of the parties involved in the transaction are subject to AML program requirements."

In January 2016, FinCEN issued two geographic targeting orders (GTOs) aimed at combating money laundering in all-cash real estate transactions in Manhattan and Miami-Dade County, Florida—two areas identified by FinCEN as having "a higher than average percentage of all-cash transactions." The GTOs, which took effect in March, require certain title insurance companies to identify the natural persons behind entities using cash to purchase high-end real estate—properties with a sales price of more than $1 million in Miami-Dade County and more than $3 million in Manhattan.   

The GTOs are designed to help close the gap in AML controls for all cash transactions. According to Director Shasky Calvery, the beneficial ownership identification requirement is key to AML risk assessment and enforcement in this area because the use of shell company purchasers "is often enough to dramatically increase the difficulty of tracking the true owner of a property in a transaction." The GTOs represent just one facet of the government's current campaign to identify the true beneficial owners involved in financial transactions in general. This campaign includes pending proposed regulations by FinCEN, which would require certain financial institutions to identify the beneficial owners behind entities that open accounts.

Director Shasky Calvery highlighted the productive discussions that she has had with the real estate industry as part of the GTO initiative. Her positive comments have been echoed by our clients and other friends in the real estate industry who have engaged directly with FinCEN this year on this effort. As FinCEN continues its "incremental, risk-based approach to regulating this industry," the real estate industry should continue to engage constructively with FinCEN to ensure that regulatory requirements are properly designed to combat money laundering without unnecessary burdens on closing transactions.