Understanding FinCEN’s Role in Real Estate Transactions

Money Laundering in Real Estate

The Financial Crimes Enforcement Network (FinCEN) is a division of the U.S. Department of the Treasury that plays a critical role in safeguarding the U.S. financial system from illicit activities, including money laundering, fraud, and terrorism financing. In recent years, FinCEN has extended its regulatory focus to the real estate industry, recognizing that the sector can be vulnerable to abuse by individuals and entities seeking to launder illicit funds.

The Problem of Money Laundering in Real Estate

Real estate has long been an attractive vehicle for money laundering. High-value assets like luxury properties provide a means for criminals to hide the proceeds of illegal activities. The anonymity offered by all-cash transactions or complex ownership structures, such as limited liability companies (LLCs), can make it difficult for authorities to trace the true owner of a property. This has prompted FinCEN to take action by expanding its oversight and establishing rules that help prevent the misuse of the real estate sector.

FinCEN’s Geographic Targeting Orders (GTOs)

One of FinCEN’s primary tools for combating money laundering in the real estate market is the Geographic Targeting Order (GTO). GTOs are temporary orders issued by FinCEN that require title companies and other entities involved in real estate transactions to report certain information about high-end real estate deals. These orders apply to specific geographic areas and require businesses to disclose the identities of the individuals behind shell companies used to buy properties.

The first GTO targeting real estate was issued in 2016 and applied to transactions involving all-cash purchases of residential properties in Manhattan. Over time, the program has expanded to include other major metropolitan areas, including Miami, Los Angeles, and San Francisco. The GTO requires title insurance companies to file reports with FinCEN when the purchaser is a legal entity (e.g., an LLC or Corporation) rather than an individual. The report must include the names of the individuals behind these entities, helping authorities track down potential money laundering schemes.

These orders are part of FinCEN’s broader strategy to increase transparency in the real estate market and provide law enforcement agencies with the tools needed to detect suspicious activity. By shedding light on the true parties behind high-value transactions, GTOs help prevent criminals from exploiting the real estate sector.

The Beneficial Ownership Rule

Another significant regulatory development is the Beneficial Ownership Rule, which was finalized by FinCEN in 2016 as part of the broader effort to combat money laundering in real estate. This rule requires certain entities involved in real estate transactions, including title insurance companies and financial institutions, to collect and report information about the beneficial owners of legal entities.

A beneficial owner is defined as the individual who ultimately owns or controls a legal entity, such as an LLC or a trust, and who benefits from the entity’s activities. The Beneficial Ownership Rule aims to prevent individuals from hiding behind complex corporate structures to disguise their true ownership of property. By requiring real estate professionals to disclose the identities of these individuals, FinCEN hopes to close loopholes that have traditionally allowed criminals to conceal their identities and activities.

On January 1, 2024, The Beneficial Ownership Rule was expanded by the Corporate Transparency Act to require most small- to mid-sized businesses registered in the United States to file a beneficial ownership information report with FinCEN.

Challenges and Criticisms

Despite FinCEN’s efforts, compliance with anti-money laundering regulations in real estate has proven challenging. The sheer volume and complexity of real estate transactions, combined with the varying regulations across states and municipalities, make enforcement difficult. Additionally, many real estate professionals are not financial crime experts and may not fully understand the nuances of identifying suspicious activities.

Critics of FinCEN’s approach argue that the regulations place a heavy burden on small businesses who may lack the resources to implement the necessary compliance infrastructure. In addition, there have been a number of legal challenges arguing that these laws impose significant privacy concerns or burdens on businesses, as well as foreign investors or companies who argue that the disclosure of their beneficial ownership could violate international privacy laws or treaties.

The Future of FinCEN’s Role in Real Estate

The most recent development took place on March 2, 2025, when the U.S. Department of the Treasury announced it would temporarily suspend enforcement of penalties related to the Corporate Transparency Act's beneficial ownership information (BOI) reporting requirements. This decision means that U.S. citizens and domestic reporting companies will not face fines for non-compliance under the existing regulatory deadlines. But that does not mean the end of GTOs. The Treasury plans to issue a proposed rule narrowing the scope of BOI reporting to apply only to foreign reporting companies. Treasury Secretary Scott Bessent stated that this action supports hardworking American taxpayers and small businesses, ensuring the rule is appropriately tailored to serve the public interest