Money launderers beware: The Financial Crimes Enforcement Network (FinCEN)—an agency within the Department of Treasury—has many ways of collecting information on financial activities, making life harder for criminals to hide their illicit cash.
What does money laundering look like?
Criminals who generate large sums of cash through illegal activities invariably must figure out where to safely park their loot. For some, the solution has been to use shell companies to buy luxury U.S. real estate.
Shell companies enable criminals to transact business under a company’s name, thereby hiding their individual identities. For example, criminals can set up shell companies in certain states without ever signing their names on paperwork. They can then use these shell companies to open bank accounts where they can “hide” these illicit funds within the financial system. Finally, they can then buy real estate to “clean” the money.
How does FinCEN use geographic targeting orders to find money laundering?
Since January 2016, FinCEN has implemented a real estate GTO that requires title insurers to report information on shell companies that are used to buy Manhattan or Miami homes with cash that cost $1 million or more. Over time, FinCEN has expanded the GTO to cover 12 metropolitan areas, lowered the property value threshold for reporting transactions, and broadened the definition of cash to include checks, funds transfers, and virtual currencies such as Bitcoin. With these changes, FinCEN has gained greater intelligence on the potential misuse of shell companies to launder money through real estate.
The Bank Secrecy Act prevents laundering secrets
The Bank Secrecy Act requires banks to file a variety of reports that could be useful to law enforcement for tracking money laundering. For instance, banks must file suspicious activity reports for transactions suspected of involving funds from illegal activities. They also must file currency transaction reports when customers deposit more than $10,000 in cash. In 2018, banks filed over 975,000 suspicious activity reports and nearly 14 million currency transaction reports.
In our report issued last month, we surveyed 6 federal law enforcement agencies and found that more than 72% of their staff used these Bank Secrecy Act reports from 2015–2018 for identifying new subjects to investigate or expanding ongoing investigations.
The Costs of compliance
While the Bank Secrecy Act reports benefit law enforcement, our September report also found that producing such reports and complying with other BSA requirements can be costly for banks. We reviewed 11 banks varying in size and location and estimated that their costs for complying with the BSA ranged from about $14,000 to about $21 million in 2018. We also found that these costs generally tended to be proportionally greater for the smaller banks than for the larger ones.
Want to learn more about our work on anti-money laundering efforts and the Bank Secrecy Act? Click here.