Case Highlights Confidentiality of BSA Statements and Continued Focus on Real Estate as a Money Laundering Tool
The Northern District of California granted summary judgment to the Financial Crimes Enforcement Network (“FinCEN”) in a Freedom of Information Act (“FOIA”) matter regarding an attempt by a group of investigative journalists to obtain information reported to FinCEN about beneficiaries workforce of high-end real estate. This case makes it clear that the Bank Secrecy Act (“BSA”) will continue to impede efforts by journalists to seek, through the FOIA, sensitive and protected information reported to FinCEN. Of course, and as the world has witnessed, journalists can always turn to data leaks and hacks to obtain and disseminate this information. This case also reminds us that the use of real estate as a potential means of money laundering remains a hot topic not only for regulators and law enforcement personnel, but also for journalists and monitoring.
In The Center for Investigative Reporting, et al. vs. United States Treasury Departmentthe Court ruled that FinCEN was not required to produce documents indicating the “true human owners” of residential real estate purchased with cash that had been requested by The Investigative Reporting Center (“RIC”). The court’s decision – upholding the privacy protections that are essential to effective reporting by financial institutions under the BSA – comes at a pivotal time, as journalistic agencies such as the International Consortium of Journalists investigation (“ICIJ”) and BuzzFeed News reported less than six months ago on leaked documents called “FinCEN Filesoutlining alleged transactions valued at more than US$2 trillion and reported by financial institutions to FinCEN through Suspicious Activity Reports (“SARs”). As part of the BSA, it is illegal to reveal the decision to file or not to file a SAR about SAR. The ICIJ also played a key role in the release of the famous Panama paperswhich detailed an alleged international money laundering and tax evasion network obtained through a massive data leak.
The GTO Reporting Regime
FinCEN acquired the information the CIR was seeking through the Geo-Targeting Orders (“GTOs”), which require US title insurance companies to identify the natural persons behind the legal entities used in certain purchases of goods residential properties made in specified geographic areas without a bank loan or similar form of external financing. We frequently GTO blog. The stated purpose of GTOs is to close loopholes in the current AML regime and identify bad actors who may launder money and conceal their identities by using legal entities, such as front companies, and avoiding Bank BSA/AML systems. by carrying out real estate transactions entirely in cash without a loan.
FinCEN has issued numerous GTOs since January 2016, when it first issued a GTO “requiring U.S. title insurance companies to identify individuals behind cash purchases of residential real estate” exceeding one million dollars in the Borough of Manhattan and Miami-Dade County. Each GTO was in effect for a period of six months. On November 5, 2020, FinCEN published its Newest GTO. The current monetary reporting threshold has been lowered to $300,000. In addition, GTOs now broadly cover purchases involving virtual currency as well as “fiat” currency, wire transfers, personal or business checks, cashier’s checks, certified checks, travelers checks, money order under any form or a transfer of funds. Nine jurisdictions are currently covered by the GTOs.
FinCEN must share GTO reports with state and federal regulators and intelligence agencies upon request. However, the BSA also states at 31 USC § 5319 that “a report and records of reports” are exempt from public disclosure under the FOIA.
The CIR complaint
The CIR first attempted to obtain information associated with FinCEN’s GTOs by filing a FOIA request while searching:
the addresses of all residential real estate purchased with cash of which FinCEN was aware; the amount of money transferred; the name and address of the actual human owners behind each residential real estate purchase; the name of the person responsible for purchasing the property; and persons responsible for representing buyers.
CIR explained its motivation for seeking this information, noting a statistic from a 2017 FinCEN press release that all-cash transactions now account for a quarter of all residential real estate purchases, “totaling hundreds of billions of dollars. at national scale”. When the CIR filed another FOIA request in July 2019, FinCEN responded that it could neither confirm nor deny the existence of the documents and cited to the BSA. CIR then appealed the claim, lost, and appealed again. Interestingly, FinCEN finally informed the CIR in early 2020 that it had identified over 115,000 pages of responsive documents, which gives insight into the amount of information FinCEN collects through GTOs.
On December 9, 2019, the CIR initiated this lawsuit, filing a complaint arguing that FinCEN had “no legal basis to refuse to disclose the records” under the FOIA. The Court disagreed, finding that FOIA “Exemption 3” was sufficient to conclude that FinCEN was not required to disclose the requested information.
FOIA Exemption 3, at 5 USC § 552(b)(3), states that the law does not apply to material that is:
specifically exempt from disclosure by law (other than Section 552b of this title), if that law—
(i) require the questions to be concealed from the public in such a way as to leave no discretion in the matter; Where
(ii) establishes particular criteria for withholding or refers to particular types of questions to be withheld; and
(B) if enacted after the date of enactment of the OPEN FOIA Act of 2009, specifically cite this paragraph.
The Court’s finding that FinCEN was under no obligation to provide the requested information was based on the BSA’s provision that “a report and records of reports” are absolutely exempt from disclosure under the FOIA. The Court held that the BSA “specifically exempts[s] disclosure within the meaning of Exemption 3, and reports and “reporting records” submitted under the BSA fall within this exemption. Given this categorical prohibition on disclosure, FinCEN did not have to demonstrate any foreseeable harm resulting from the disclosure. The fact that FinCEN took information from the GTOs and incorporated that information into a new internal document created by FinCEN did not change the outcome; the new internal report was still a “record of report” protected from disclosure by Section 5319. eastern and southern districts of California. as a District Court for the District of Columbia.
Finally, the CIR failed to demonstrate that the information could be disclosed under the public domain doctrine because it had not “submitted any evidence to show that the information actually collected by FinCEN overlaps with the information actually placed in public domain” under state and local laws in Philadelphia, New York, and the District of Columbia, as well as foreign laws in the United Kingdom, Ireland, and Ukraine, which allegedly require disclosure of beneficial ownership of a property in certain circumstances.
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