Press release | Aug. 23, 2017

US Treasury extends order to tackle abuse of high-end real estate by money launderers in seven hotspot markets

Yesterday, the US Treasury’s Financial Crimes Enforcement Network’s (FinCEN) announced that it will renew and expand an order aimed at cracking down on bad actors laundering money through high-end US real estate. The Geographic Targeting Orders (GTOs) could also target potentially illicit money coming from countries under US sanctions, such as Russia and North Korea.

Global Witness welcomes this decision as another small but significant step towards stemming the vast tide of  illicit flows entering the US through real estate purchases. This practice puts US national security at risk, while allowing criminals, terrorists and the corrupt to stash their dirty cash in the country and enjoy their criminal gains.

“This is good news for people concerned about the links between corruption, illicit finance, and real estate, and bad news for money launderers and their clientele,” said Mark Hays, Anti-Money Laundering Campaign Leader at Global Witness. “Treasury will now be able to do checks for suspect funds on more transactions in more cities. This will help stem the tide of dirty money flowing in our system, and provide more data that can be used to make the case for why these kinds of checks should be standard practice across the real estate industry.”

The order – initially issued during the Obama administration, and renewed this past February by the Trump administration – requires US title insurance companies to identify the real people behind shell companies used to pay for luxury real estate transactions. It focuses on a number of US metropolitan areas known to sometimes harbor risky and shadowy real estate purchases that can be used as a method of laundering illicit funds.

FinCEN has found that 30% of reported transactions in the six jurisdictions initially covered by the order involved buyers named in suspicious activity reports. Meanwhile, a recent Miami Herald report shows that of 32 cash purchases made in Miami-Dade County between Feb. 29, 2016 and March 9, 2017, half of the buyers had been the subject of a suspicious activity report.

This most recent order adds a seventh metropolitan area to the list of covered jurisdictions – Hononlulu, Hawaii – and includes a range of different purchase methods covered by the new rule. These include fund transfers, money orders, personal and business checks, and more. Previously, the rule only required title insurers to seek a declaration of beneficial ownership from companies buying properties in cash.

To stop the US real estate market from being a prime destination for money launderers, Global Witness calls on Treasury to rescind a temporary exemption that allows the real estate sector to bypass “Know Your Customer” due diligence requirements under 2001 PATRIOT Act provisions. Treasury must initiate a rule to require the real estate sector to do anti-money laundering checks on their clients and to turn away business if the funds are suspect. This needs to include identifying the beneficial owners of companies purchasing property and reporting this information to FinCEN.

“With shell companies and real estate in the news on a nearly daily basis, it’s well past time to make sure these financial professionals are helping the fight against money laundering. Treasury should rescind this outdated exemption and initiate a rule-making process that will provide guidance for these actors on how to meet their anti-money laundering obligations,” said Hays.



Notes to editor:

Since 2001, provisions of the PATRIOT Act required individuals involved in real estate closings and settlements to conduct “Know Your Customer” due diligence on parties involved in a transaction to guard against their involvement in potential money laundering activities – including potential links to terrorist activity. However, the real estate was granted a temporary exemption to this requirement, which has lasted for nearly 15 years.  

As of August 22, 2017, the FinCEN Geographic Targeting Orders (GTOs) requires "Covered Businesses to collect and report information about certain residential real estate transactions in the following jurisdictions: (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately to the north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; (6) the county that includes San Antonio, Texas (Bexar County); and (7) the City and County of Honolulu in Hawaii."

You might also like

  • Campaign

    Corruption and money laundering

    Ill-gotten gains don’t disappear by themselves. Dictators, warlords and other criminals need ways to hide their identity and move dirty cash around the world.
  • Anonymous Companies

    Tax evaders, terrorists, drugs cartels and corrupt politicians don’t want to keep their dirty money their own names.  So what they typically do is create a company – or a series of companies – and have the company own their assets.  The company can open a bank account, it can buy a yacht or a mansion, and it can wire money around the world.  And, importantly, it’s immensely difficult – sometimes totally impossible – to link the company back to the person who really owns it.  This makes it an attractive method for hiding, moving, and using money or other asse