United States: Cadwalader Attorneys Analyze FinCEN Real Estate GTO
Last Updated: September 5 2017

Cadwalader attorneys analyzed the recent Geographic Targeting Order ("GTO") that the Financial Crimes Enforcement Network ("FinCEN") released in their continuing effort to "combat money laundering within the real estate sector" (see previous coverage).

The new GTO was characterized as "one of FinCEN's most aggressive exercises of its GTO powers to date." The GTO expands applicability to an additional market (in Hawaii) and "applies not only to non-financed transactions paid in cash but also to those paid by check, money order, or wire transfer." The GTO also imposes additional filing requirements for title insurance companies.

In addition, the Cadwalader attorneys examined a FinCEN Advisory that details risks related to real estate transactions and "encourages real estate brokers, escrow agents, title insurers, and other real estate professionals who are not required to file [suspicious activity reports] to do so voluntarily."

These actions highlight "FinCEN's continued interest in identifying money laundering risks inherent in the purchase of luxury residential real estate through shell companies." The actions also may indicate FinCEN's commitment to applying an elevated level of scrutiny to title insurance companies and their advisers, as well as FinCEN's expanding use of GTOs:

"FinCEN is surely going to continue aggressive GTO efforts, potentially continuing to expand to new markets and applying it to commercial as well as residential transactions."

The Cadwalader memorandum was authored by attorneys Jodi Avergun, Jonathan Bailyn, Nicholas Brandfon, Steven Herman and Joseph Moreno.

Commentary / Joseph V. Moreno

FinCEN's latest GTO and the accompanying AML Advisory illustrate that the program is clearly paying dividends as an investigative tool. As a result, the program is likely to continue for the foreseeable future. This is the third renewal of the GTO since it was first issued in January 2016; it has been further broadened to cover a seventh U.S. real estate market, and it now captures not only cash deals but also transactions involving wire transfers due to recent statutory changes signed into law by President Trump. From commentary in FinCEN's Advisory, one should expect that future GTOs may also cover commercial as well as residential real estate purchases. Title insurance companies, lenders and others involved in the real estate industry should be prepared for greater scrutiny by regulators. It may be only a matter of time before attorneys find themselves with reporting obligations that raise legal issues regarding attorney-client confidentiality.

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