FinCEN Reissues Real Estate Geographic Targeting Orders: What Does this Mean for Your FI?
On May 8, 2020, the Financial Crimes Enforcement Network (FinCEN) reissued their Geographic Targeting Orders (GTOs) to include the same 12 metropolitan areas issued in November 2019 (read here). GTOs are authorized under the Bank Secrecy Act to detect money laundering and other illicit activity through the purchases of real estate. The purchase amount threshold remains at $300,000 and will remain in effect until November 5, 2020.
The GTO requires U.S. title insurance companies, their subsidiaries, and agents, to determine the beneficial owners (natural person) behind certain entities used in “covered” residential real estate transactions, including cashier’s checks, certified checks, traveler’s checks, personal checks, business checks, money orders, funds transfers, or virtual currency. Previous GTOs have provided valuable information to law enforcement by following the funds used for various criminal activities, including foreign corruption, organized crime, and drug trafficking.
Real estate purchases have been a successful vehicle for laundering money for many years, particularly through shell companies, which this GTO aims to negate.
Under the continuing GTO, the purchase price of residential real estate property remains at $300,000. The threshold amount was lowered in 2018, as it was determined that money laundering is widespread in accessible real estate, not only on higher-end properties.
New York City and Miami were the original targets under the first order in 2016, but it has expanded periodically since then. The newest order includes:
- Dallas-Fort Worth
- Las Vegas
- Los Angeles
- New York City
- San Antonio
- San Diego
- San Francisco
What does this GTO mean to your financial institution?
Financial institutions should have procedures in place to ensure detection of these transactions.
While it is the title insurance companies that are required to collect and report data on covered transactions, financial institutions should have procedures in place to ensure detection of these transactions. Additionally, they should include reasonable due diligence to determine whether activity that would require suspicious activity reporting.
Pay attention to red flags for suspicious activity related to real estate purchases.
These red flags include cash payments/payoffs on loans, early payoffs, large wire transfers for loan payment, and other red flags for suspicious activity. Monitoring systems and/or procedures should automatically alert the BSA department to these types of activity.
Real estate lending BSA training should include GTO guidance.
This training should specifically include how to identify red flags at loan origination. With the new Customer Due Diligence rule fully in force, beneficial ownership should be a given for all lines of business but enhanced training on “why” collecting beneficial ownership information is critical will equip your lenders with what they need to know to detect and report illicit activity.
FinCEN issued guidance in 2017 for financial institutions and GTO responsibilities which are still applicable today (FIN-2017-A003), which can be found here. FinCEN also issued FAQs which you may find here.