A federal judge in Texas has vacated the Financial Crimes Enforcement Network’s (FinCEN) nationwide anti-money laundering (AML) rule — creating a legal vacuum and uncertainty among title and real estate professionals.
While the ruling eliminates a significant compliance burden that industry groups had criticized, legal observers warn that FinCEN retains broad authority over real estate transactions — and could ultimately impose stricter requirements.
“FinCEN clearly has the authority to regulate persons involved in real estate transactions,” James Vivenzio, a partner at Seattle-based law firm Perkins Coie and former director for the Bank Secrecy Act (BSA) and anti-money laundering policy at the Office of the Comptroller of the Currency (OCC), told HousingWire in a recent interview. “And typically, the way FinCEN regulates financial institutions is they will require them to establish a BSA compliance program and also require them to file suspicious activity reports.”
The AML rule, which took effect March 1, mandated reporting for any non-financed residential real estate transfer where ownership was held by an entity or trust — with no geographic or price threshold.
Jamie Schafer, a fellow partner at Perkins Coie, said the trajectory of legal challenges will likely mirror those under the Corporate Transparency Act (CTA).
“With the Corporate Transparency Act, there was a temporary order that went all the way to the Supreme Court and then was reversed in the Supreme Court and then FinCEN took action,” she said. “So, we could see quite a lot of flip flopping, just based on the precedent we have.”
Flowers Title Companies LLC challenged the AML rule under the Administrative Procedure Act, arguing that FinCEN lacked authority under the Bank Secrecy Act to impose such sweeping reporting requirements.
The court found that FinCEN failed to demonstrate that non-financed residential real estate transfers to entities or trusts are categorically suspicious.
A separate challenge brought by Fidelity National Financial in the Middle District of Florida had previously resulted in the rule being upheld.
AML act authority
The 2020 Anti-Money Laundering Act gave FinCEN additional authorities, including the ability to impose reporting requirements in a “streamlined and non-complex manner.”
Vivenzio — who was involved in drafting those provisions while in government — said the concept originated from an OCC interpretive letter that permitted banks to automate certain filings.
“The provision actually references structuring transactions as a category of transactions for FinCEN to consider this for, clearly kind of giving a nod to the OCC interpretive letter from the earlier year,” he said. “The idea was that FinCEN can actually determine what is suspicious and kind of mandate that banks file in a streamlined, non-complex manner.
“And that was the idea behind that particular provision in the AML act that was struck down by this court.”
‘Be careful what you ask for’
The Department of Treasury has for years identified the real estate sector as a major vector of money laundering in its national threat risk assessments — suggesting that federal oversight in some form is likely to persist regardless of the Texas ruling.