GAO recommended that FinCEN undertake additional procedures to implement and evaluate the effectiveness of geographic targeting orders ("GTO") for certain real estate transactions between 2016 and 2020. The GTO, which was extended several times, required title insurance companies to collect and report beneficial ownership information for certain all-cash real estate purchases in Manhattan and Miami, initially, and later for other New York City boroughs and certain other cities.
In the anti-money laundering report to Congress, GAO highlighted the benefits of the GTO, and noted FinCEN's assessment that the GTOs had identified numerous instances of laundering money through real estate transactions by attempting to conceal beneficial ownership information. GAO identified significant weaknesses in the implementation and evaluation of the real estate GTO that limited its effectiveness and its stated purpose of reducing the money laundering risk in all-cash real estate transactions. Among the primary weaknesses identified:
- FinCEN failed to coordinate with law enforcement in establishing and implementing the GTOs, particularly as to how to share data from the reported transactions;
- FinCEN failed to monitor compliance by title insurance companies with the reporting requirements of the GTO; and
- FinCEN failed to consider whether the GTO process should be replaced by a formal rulemaking and how best to apply AML requirements to the real estate industry.
FinCEN concurred with the GAO recommendations.
The GAO report was commissioned by Congress because of continuing concerns about the use of real estate to launder illegal proceeds, and the relative lack of information being released about how the GTOs were being used to target criminal organizations. FinCEN was not adequately monitoring the reports submitted pursuant to the GTO and was not sufficiently sharing data with law enforcement partners as a result. By focusing on the lack of guidelines under which FinCEN can most effectively issue GTOs, the GAO report should lead to more transparency about when a GTO might be issued by FinCEN and what use the agency will make of the reporting resulting from a GTO. Moreover, by offering observations about FinCEN's failure to monitor industry compliance with the GTO, it is likely that future GTOs will include internal requirements for FinCEN to audit compliance and to punish noncompliance more effectively than it has done thus far with the real estate GTO.
- GAO Report: Anti-Money Laundering - FinCEN Should Enhance Procedures for Implementing and Evaluating Geographic Target Orders
- GAO Press Release: FinCEN Should Enhance Procedures for Implementing and Evaluating Geographic Targeting Orders
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