FinCEN Proposes Expansion of Geographic Targeting Order Reporting

Over the past decade the Department of the Treasury, through their Financial Crimes Enforcement Network (FinCEN) division, has been investigating and collecting information regarding certain real estate transactions with the goal of identifying money laundering. To date these data collection efforts have been done through Geographical Targeting Orders (GTOs) which create an obligation on title companies to report the beneficial ownership information regarding buyers on real estate transaction when the buyer is taking title to a property through an entity. The GTOs require such reporting in the areas identified in the orders. For example, the current GTO requires reporting for covered properties in 5 Counties in California, namely San Diego, Los Angeles, San Francisco, San Mateo, and Santa Clara.

This program has resulted in some success at identifying and prosecuting bad actors using real estate as a vehicle to launder money. Based upon these successes and the continuing concern relative to the use of real estate as a vehicle to launder money, FinCEN has proposed a new regulation expanding the GTO program to include all transactions with an entity buyer anywhere in the United States.

Such a proposal raises privacy concerns for consumers. These concerns primarily revolve around the privacy of sensitive personal data, the security measures in place to protect this data from unauthorized access, and the transparency about how this information is used. Consumers are apprehensive that extensive data collection could lead to potential misuse or exposure of their personal and financial details, potentially resulting in identity theft or financial fraud. Additionally, there is unease regarding the extent to which this information is shared with various governmental or private entities, and the lack of control over who ultimately accesses their information. In light of these concerns, consumers are urging FinCEN to enforce strict guidelines on data handling, ensure robust security protocols, and provide clear, accessible information on the necessity and use of data collected under GTOs.

Escrow and other settlement service providers have several concerns regarding the potential expansion of the GTO program to properties across the entire country as well. These concerns include:

  • Increased Compliance Costs: Expanding the GTO program nationwide would likely require escrow and settlement companies to implement more comprehensive compliance frameworks. These changes could involve additional staff training, upgrading software systems for monitoring and reporting, and possibly hiring additional compliance officers, which would significantly increase operational costs.
  • Operational Burden: The broadening of reporting requirements would mean handling more paperwork and more rigorous verification processes for each transaction. This could slow down the processing time for closings, potentially affecting the overall customer experience and transaction efficiency.
  • Privacy and Data Security Concerns: With the expansion of data collection requirements, there would be increased responsibility on service providers to safeguard sensitive client information. This raises concerns about data privacy, the risk of data breaches, and the consequent liability.
  • Legal and Regulatory Uncertainty: The expansion of the GTO requirements could introduce new legal complexities. Providers would need to keep abreast of changes in the regulatory landscape, which might differ significantly across jurisdictions, adding to the complexity of compliance. Further, the services required to be performed under the program could expand into the legal realm such that non-attorney settlement services provider could be at risk of violating their state’s unauthorized practice of law rules.
  • Customer Relations and Trust: Escrow and settlement service providers may face challenges in maintaining trust with clients who might view the enhanced data collection as intrusive. This could lead to a reluctance among buyers and sellers to engage in transactions due to perceived overreach or privacy concerns.
  • Impact on Smaller Companies: Smaller escrow and settlement firms might find it particularly challenging to meet the increased regulatory demands due to limited resources compared to larger firms, potentially affecting their competitiveness in the industry.

Overall, while the intent behind expanding the GTO program is to enhance transparency and curb illicit activities in real estate transactions, it poses significant privacy concerns for consumers and operational, financial, and regulatory challenges for escrow and settlement service providers.