GAO Says FinCEN Should Enhance Procedures for Implementing and Evaluating GTOs
The U.S. Government Accountability Office (GAO) recommended in a 41-page report that FinCEN develop additional guidelines to help with oversight, outreach and evaluation when issuing real estate geographic targeting orders (GTO).
The main purpose of the study was to look at the cost burden of the GTO and examine potential loopholes in the GTOs. In 2019, Sens. Sheldon Whitehouse and Chris Van Hollen requested the GAO study the issue of whether vulnerabilities in anti-money laundering laws applicable to the real estate sector present increased risk of criminal activity.
ALTA provided background information to GAO investigators to help with the study. ALTA also a call with GAO staff and 20 of ALTAs, including agents and underwriters. Additionally, ALTA connected the GAO with individual agents to learn about the GTO compliance process.
FinCEN issued its first GTO addressing money laundering in the real estate industry in 2016. The GTOS have been renewed and expanded over the past four years. The current GTO is effective through Nov. 5, 2020.
The GAO concluded that FinCEN lacked detailed documented procedures to direct how it would implement and evaluate the GTO. As an example, the GAO in its report said FinCEN did not begin examining its first title insurer for compliance until more than three years after issuing the GTO and did not assess whether insurers were filing all required reports.
Also, one of the GTO’s objectives was to provide information to assist law enforcement investigations. However, the GAO found that the delay in implementing a more systematic approach to outreach resulted in delayed awareness and use of GTO data by some law enforcement agencies. FinCEN did not begin to contact law enforcement systematically until more than two years after issuing the GTOs, according to the report.
Findings from the GAO report:
FBI officials said that their searches found that nearly 7 percent of the GTO reports identified individuals or entities connected to FBI’s ongoing cases since the issuance of GTO in 2016.
FinCEN found that nearly 38 percent of the real estate GTO reports filed from March 2016 through June 2019 did not identify a beneficial owner in the proper data field. FinCEN officials attributed the errors primarily to the use of a form not designed specifically for the GTO.
FinCEN calculated that 599 real properties with a total value of more than $147 million were subject to forfeiture in 2012–2015.
Federal law enforcement officials told the GAO that data from GTO reports can provide useful data points—or pieces of the puzzle—for an investigation. The officials added that law enforcement can use GTOs to start an investigation, but that GTOs more often serve as a secondary source of information to assist ongoing investigations.
FBI officials said that their agency used GTO data to conduct geospatial and temporal analyses to track real estate purchase trends in areas covered by the GTO
Through its analysis of GTO and other data, ICE-HIS officials told us FinCEN helped to identify new subjects for an ICE-HSI case, uncovered individuals of potential interest for a USAO investigation, and provided referrals to other law enforcement agencies.
Some officials from two federal task forces and a USAO official said that they generally support making the real estate GTO requirements permanent because the real estate GTO can generate useful investigative information and serve other purposes, including acting as a strong deterrent.
Officials from one of the task forces told the GAO that GTO reports are a useful investigative tool but that the GTO should be used to target specific areas and not be expanded to cover the entire United States.
Officials from another task force told the GAO that assessing the effectiveness of GTO reports in the short term is difficult because investigations and prosecutions take a long time. They said making the real estate GTO requirements permanent would provide them with the time needed to assess the GTO.
Federal law enforcement officials and AML experts the GAO interviewed provided several reasons why data collected through the real estate GTO still could be useful even if a beneficial ownership registry were created.
Without the GTO, law enforcement agencies would have to rely on multiple sources to connect beneficial owners to real estate purchases, which could be more costly and time consuming
FinCEN officials said that the agency has been continuing to assess more permanent solutions regarding BSA/AML requirements for persons involved in real estate closings and settlements.
For example, ALTA staff told the GAO that FinCEN should impose AML obligations on the real estate industry, including real estate agents and attorneys, because agents and attorneys interact more closely with buyers and are more involved in the transactions than title insurers.