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FinCEN Director Warns That Real Estate Industry Remains Susceptible to Money Laundering's picture
Commentary by Colleen D. Kukowski

Financial Crimes Enforcement Network ("FinCEN") Director Jennifer Shasky Calvery warned of money-laundering vulnerabilities in the real estate industry, particularly the risks associated with "all-cash" real estate purchases.

Director Shasky Calvery explained that existing anti-money laundering ("AML") regulations cover approximately 78% of residential real estate purchases nationwide. However, she added, regulators still struggle to detect and address AML risks in the remaining 22% of residential real estate transactions, which are completed with cash and for that reason are not covered. FinCEN's January 2016 Geographic Targeting Orders ("GTOs"), which require U.S. title insurance companies to identify the natural persons behind high-end residential real estate transactions in Miami, Florida and New York City, are beginning to address that lack of insight by supplying regulators with a new source of data. These GTOs should be regarded not as part of an industry "crackdown," but as a first step in gathering information and analyzing trends of suspicious activities in all-cash real estate transactions, Director Shasky Calvery noted.

Director Shasky Calvery delivered her remarks at the Association of Certified Anti-Money Laundering Specialists' 21st Annual International AML and Financial Crime Conference in Hollywood, Florida.

Commentary's picture
Colleen D. Kukowski

The idea of money being laundered through all-cash purchases evokes images of black duffel bags handed off by shadowy figures in the criminal underworld. The Miami and New York GTOs might lack that flavor of film noir ambiance, but they do show that AML regulators are trying to unravel how criminal actors use foreign shell companies and domestic limited liability companies to launder funds through real estate purchases. Director Shasky Calvery's description of the GTOs as a "pilot" effort, and her references to regulators' "incremental approach" to AML rulemaking, signal that temporary GTOs soon will give way to the broad - and likely permanent - regulation of all-cash real estate transactions. FinCEN acknowledged that nearly one in four real estate purchases nationwide leave regulators in the dark. Those shaded (and potentially shady) purchases are not going to be stopped by regulatory requirements that temporarily shed light on criminal conduct in a total of two cities. Title insurance companies and others involved in closing all-cash real estate purchases need to prepare - soon if not immediately - for enhanced regulatory requirements nationwide.

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