Published On: February 5th, 2019 / Categories: money laundering, record keeping /

recordkeeping and reportingI’ve previously reported in this blog on efforts by the federal government to combat money laundering by imposing certain reporting and record-keeping requirements for high-value residential real estate transactions in specific locations around the country. Recently, the agency responsible for this program modified these standards for the purpose of casting a wider net for suspicious dealings. While the goals being advanced by these changes are salutary, the impacts on the real estate industry could be substantial—for those of us in Silicon Valley in particular, and specifically regarding title insurance company transactions.

In November 2018, the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department issued a new targeting order revising the existing rules:

  • Five more geographic regions have been added to those previously included under the prior rules: Chicago; Las Vegas; Seattle; the Dallas-Fort Worth metroplex; and the Boston metropolitan area.
  • The purchase price threshold amount triggering these requirements, which had previously been individually established for each geographic region covered, is now $300,000 for all covered regions.
  • In addition to cash, certified funds, and wire transfers, cryptocurrency and other virtual currency are now included in the types of purchase funding subject to record-keeping and reporting.

According to FinCEN, these new standards “will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector”. For those of us in the San Francisco Bay Area, however, and particularly for those of us who work regularly with title insurance companies, some of these new mandates could have a serious impact on our daily business and workload.

For title insurance companies, which are already required to collect and provide information about persons holding more than a 25% beneficial ownership interest in the entity involved in a covered transaction, these new rules will likely expand the amount of recordkeeping and reporting that they must do by a significant factor. According to some experts, these new requirements could have the following three potential impacts on the title insurance industry:

  • Title insurance companies will likely need to deploy additional technology in their attempt to comply with these additional requirements; the type of anti-money laundering computer models like those used by banks could be a potential tool.
  • The cost of compliance with these new obligations may encourage mergers among title insurers, as these companies attempt to mitigate the high costs of compliance with these mandates across a higher volume of business by joining with other firms that may already have the necessary infrastructure to help reduce these costs.
  • FinCEN may expand its record-keeping and reporting requirements to further widen its net to industries beyond banks and title insurance companies, which could create even broader networks of reporting among these industries.

Beyond these possible impacts, as a real estate lawyer who handles many transactions here in the Valley, I have a couple of observations about the current situation facing title insurance companies and the potential impacts of these new requirements. As with most industries in this region related to real estate, title insurance companies have been doing a high volume of business for the last several years, with no clear end in sight. One of the most significant challenges to getting real estate projects finished here is having the manpower to carry out all the various tasks involved, and title companies play an important part in that process; imposing greater record-keeping and reporting requirements can only add cost and delay to the final product.

By broadening the categories of funding that trigger these requirements, and, more importantly, by lowering the threshold purchase price subject to record-keeping and reporting from $2,000,000 to $300,000, these new directives will place a major burden on title insurance companies underwriting policies in this area. From my perspective, these new rules will only make it more time consuming and costly to do business in this field.

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