FinCEN should develop guidance for anti-money laundering tool – and maybe even a regulation, GAO says

Guidance for oversight, outreach and evaluation should be developed by the Treasury’s financial crimes law enforcement arm for its geographic targeting orders (GTOs) to make the orders more effective and efficient, the congressional watchdog said in a report Thursday.

In fact, the agency said, a regulation should be considered rather than a GTO.

In its report, the Government Accountability Office (GAO) said the Treasury’s Financial Crimes Enforcement Network (FinCEN) needs to consider some changes to the GTOs, which are used in combatting money laundering. GAO pointed out that FinCEN issued a GTO in 2016 requiring title insurers to report information on certain all-cash purchases of homes and other residential real estate by legal entities (including shell companies) in some areas.

The report notes that FinCEN had found that the use of legal entities to purchase high-value real estate, particularly in certain U.S. cities – such as New York City (Manhattan) and Miami-Dade County, Fla. – was prone to abuse. “FinCEN determined that imposing the real estate GTO reporting requirements on title insurers would cover a large number of transactions without unnecessary complexity,” GAO wrote.

GTOs in the past, GAO stated, had proven to be effective, and all were initiated at the request of other law enforcement agencies. But the real estate GTO was different from past such efforts: it was initiated by FinCEN itself.

“Thus, FinCEN had to take the lead in implementing and evaluating the GTO but lacked detailed documented procedures to help direct the GTO’s implementation and evaluation – contributing to oversight, outreach, and evaluation weaknesses,” GAO wrote.

For example, GAO said, FinCEN did not begin examining its first title insurer for compliance until more than three years after issuing the GTO. Further, GAO said, FinCEN did not assess whether insurers were filing all required reports. “Similarly, while FinCEN initially coordinated with some law enforcement agencies, it did not implement a systematic approach for outreach to all potentially relevant law enforcement agencies until more than 2 years after issuing the GTO,” GAO stated.

The congressional watchdog also said FinCEN has not yet completed an evaluation of the real estate GTO to determine “whether it should address money laundering risks in residential real estate through a regulatory tool more permanent than the GTO, such as a rulemaking.”

“Strengthening its procedures for self-initiated GTOs should help FinCEN more effectively and efficiently implement and manage them as an anti-money laundering tool,” GAO wrote.

Anti-money laundering: FinCEN Should Enhance Procedures for Implementing and Evaluating Geographic Targeting Orders