In AML Surveillance, Trending

FinCEN Real Estate Investigations Set to Continue

In last week’s Weekly Roundup, Global RADAR reported on the closing of a testing period for federal regulations that were enacted in 2016 with the purpose of shining a light on illicit money entering the U.S. real estate market. These regulations centered on Manhattan and Miami-Dade County of Florida due to the profound number of luxury homes that are available for purchase on the real estate market in each respective area. Over the past several years, the U.S. real estate market in general has become a hotbed for money laundering by foreign nationals and other notable international figures and criminals. As a result, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) set out to investigate unknown buyers who were potentially using shell companies to hide their identities when making real estate purchases with illicit funds in these high profile markets.

The results discovered from the trial investigations were staggering. In his article “U.S. to continue investigating money laundering by foreign real estate buyers”, cited in BSA News Now on March 2nd, 2017, Senior Financial Reporter Ben Lane writes that the investigation showed “more than 25% of transactions covered in the initial inquiry involved a ‘beneficial owner’ that is also subject of a ‘suspicious activity report,’ which is an indication of possible criminal activity” (Lane, 2017). In response to these findings, FinCEN has decided to continue their investigations for the next six months, extending their reach to other distinguished cities in the United States. Throughout the initial investigation, title insurance companies of Miami-Dade County and Manhattan were required to reveal the identity of the actual figure behind the shell companies being used to make the real estate purchases. Known as Geographic Targeting Order’s (GTO’S), FinCEN has found that these requirements have led to an increase in the effectiveness of the data provided to law enforcement in cracking down on money laundering through real estate within the United States. In working firsthand with title insurance companies, FinCEN believes that they now have access to the most “valuable information about real estate transactions of concern” (Lane, 2017).

The new GTO will now extend onto Bexar County, Texas, San Diego County, California, San Mateo & Santa Clara counties of California, Los Angeles & San Francisco counties of California, and Broward & Palm Beach counties of Florida, as well as each of the boroughs of New York City. The monetary thresholds for revealing the individual behind each cash transaction will differ for each area and will reflect current market values found within those regions however. The thresholds for Manhattan and Miami-Dade will remain the same as in the initial investigation ($3 million & 1 million, respectively). Each of the mentioned counties of California will have a reporting threshold of $2 million, and Bexar County will have the lowest threshold of the group at $500,000.

FinCEN has taken successful steps to improve financial security for financial service providers throughout the U.S. in the past, and the movement to limit the flow of illicit funds entering the real estate sector will help to ensure an all-around effective regulatory game plan in the years to come. The new GTO, which will last 180 days, took effect on February 24th, 2017.

Weekly Roundup

Manulife Financial Revealed As Fine Recipient

After months of speculation regarding which prominent yet unnamed Canadian bank was fined $1.15 million by the Financial Transactions and Reports Analysis Center of Canada (FINTRAC) in April of 2016, the guilty party has finally been revealed. Manulife Financial (MFC) was charged the aforementioned amount due to reports of “administrative lapses” that caused the firm to fall afoul of filing requirements with the Canadian government (Foster, 2017). The penalty handed down by FINTRAC has been referred to as a “diversion” rather than a harsh punishment for failures in meeting AML requirements. This is due to the lack of criminal and conscious intent involved – simply errors and mistakes in reporting.

FINTRAC has drawn criticism from Canadian small business owners, financial service providers, and the media recently for their inconsistencies in naming organizations that have been found in violation of AML rules. Over the past eight years, FINTRAC has named 40 companies for violating the law while keeping secret another 55 (Oved, 2017).

Canada’s AML Reform Is Not Cutting It

In recent years, Canada has emerged as something of a tax haven for powerful international figures that are using the world’s second largest country (by area) to create shell companies to help facilitate their tax evasion. In response to its new, less than sterling reputation, the Canadian government has adopted Bill C-25 to impede upon the ability of foreigners to use Canadian businesses as a means to wash their illicit funds. However, according to a former official from the Canada Revenue Agency and FINTRAC, “The bill falls short of its potential to address the real risks of money laundering, terrorism financing and tax evasion” (Oved, 2017).

While Bill C-25 does address corporate law to some extent, the Canadian government has failed to do away with a very problematic area that has a historical link to money laundering – bearer shares. Writer Marco Oved summarizes a bearer share as “checks made out to cash” which “can be bought and sold without leaving a trace” (Oved, 2017). While many of the world’s notorious tax havens have shed bearer shares in the past decade, Canada did not do so in their latest piece of legislation, only banning the issuance of “new” bearer shares. Yet even if the bill did put a full ban on these shares, many believe that tax evaders and financial criminals would continue to use Canadian companies to hide their ownership statuses and continue this troubling trend.

While Canada has aimed to shore up its AML shortcomings, large holes still remain in their legislation governing such matters, and the country’s reputation as a top tax haven is likely to continue for the foreseeable future.

U.K. Campaign Worker Sentenced for Fraud

George Cotrel, a former campaign worker for the UK’s Independence Party, has plead guilty to his role in a wire fraud scheme which he used to steal money by reportedly “posing as a money launderer” (AP, 2017). Cotrel was discovered by agents of the Internal Revenue Service’s Criminal Investigation division after unknowingly offering them money laundering services over the internet. Cotrel was one of several individuals targeted by the IRS in a sting for laundering money on behalf of drug traffickers. In addition to his eight-month sentence, Cotrel has also been fined $30,000 USD. Cotrel was the top aid to Nigel Farage, the former leader of the UK Independence Party (UKIP).

 

Citations

Associated Press. “British Political Aide Faces Sentencing in US

Criminal Case.” U.S. News. 27 Feb. 2017. Web.

Foster, Michael. “Manulife Responds to Penalty from Money

Laundering Watchdog.” Investopedia. 28 Feb. 2017. Web.

Lane, Ben. “U.S. to Continue Investigating Money Laundering by Foreign Real Estate

Buyers.” HousingWire.com. 24 Feb. 2017. Web.

Oved, Marco Chown. “New Law Won’t Stop Canada Being Used

for Money Laundering, Tax Evasion, Critics Say.” Thestar.com. 28 Feb. 2017. Web.

Oved, Marco Chown, Robert Cribb, and Riley Sparks. “Manulife

Admits It Was the Bank Fined $1.2 Million by Canada’s Money-laundering Watchdog.” Thestar.com. 27 Feb. 2017. Web.

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