The current leadership of the Financial Crimes Enforcement Network (FinCEN) aggressively has sought to close gaps in its anti-money laundering enforcement efforts. We’ve blogged about some of FinCEN’s recent efforts (here and here) to broaden regulation and bring new types of enforcement actions. Along similar lines is FinCEN’s increasing use of Geographic Targeting Orders (GTOs) – temporary, geographically limited, anti-money laundering regulations that sometimes (but not always) pave the way for broader, permanent actions.
The authority to issue GTOs comes from the Bank Secrecy Act, at 31 U.S.C. § 5326, the primary statutory basis for anti-money laundering regulations. While GTOs were issued rarely after they were first authorized in 1988, their use recently is on the rise. In 2015 alone, FinCEN publicly issued three new GTOs—focusing on electronics exporters in Miami, check cashers in South Florida, and common carriers of currency crossing the border in Texas.
Most recently, on January 13, 2016, FinCEN issued two additional GTOs – targeting real estate transactions in Manhattan and Miami. These GTOs generally require title insurance companies to identify and report to FinCEN the ultimate purchasers – the individuals, not corporate names –of high-end residential real estate acquired without financing (i.e., “all-cash” transactions). These GTOs are rooted in concerns that these purchases often are made with, and used to conceal, illegally-obtained wealth.
While FinCEN’s increased use of GTOs understandably may generate skeptics in the affected areas, GTOs are smart tools that may have some benefits for industry. FinCEN generally uses GTOs when it has concerns about a discrete category of transactions but has not determined that new, permanent regulations are needed. Businesses covered by a GTO can face civil and criminal penalties for noncompliance, but GTOs are more limited than most forms of anti-money laundering regulation in that GTOs are issued for only a limited time period (180 days) and specific geographic areas.
The GTOs issued in January will be in force from March 1, 2016 to August 27, 2016, after which they will sunset if not renewed by FinCEN, and they are geographically limited to certain purchases of residential real property that occur in the Borough of Manhattan, New York, New York and Miami-Dade County, Florida. Another GTO issued, originally issued in April 2015 and renewed in October 2015, focused on electronics exporters in Miami and limited its “Covered Geographic Area” to five specific zip codes.
GTOs can help FinCEN achieve greater transparency, identify criminal activity, and determine if greater enforcement efforts are required. FinCEN sometimes decides from the data gathered that new, more permanent regulations are appropriate. For example, in the late 1990s, FinCEN issued a GTO requiring licensed money transmitters in the New York metropolitan area to report information about cash-purchased transmissions to Colombia. After its issuance, FinCEN saw a significant reduction in the flow of narcotics proceeds to Colombia through New York City money transmitters. This contributed to a FinCEN decision that more permanent regulation in this sector was needed, and FinCEN subsequently issued rules imposing registration and reporting requirements on Money Services Businesses (MSBs).
In this way, GTOs allow FinCEN to test the waters before imposing permanent regulations on an entire industry. Through GTOs, FinCEN can determine the benefits and burdens of regulation using a limited time period and geographic area, resorting to more burdensome regulations only where warranted.