Fincen Anti-money Laundering Rule Struck Down In Court

A federal judge in Texas has vacated the Financial Crimes Enforcement Network’s (FinCEN) nationwide anti-money laundering rule requiring title insurance companies to report details of millions of residential real estate transactions.

U.S. District Judge Jeremy Kernodle of the Eastern District of Texas decided Thursday that FinCEN exceeded its statutory authority with the rule, which took effect March 1.

The rule 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.

Thursday’s decision vacates the rule entirely, restoring the status quo that existed before the regulation took effect.

Flowers Title Companies, LLC, the plaintiff, challenged the rule under the Administrative Procedure Act, arguing that FinCEN lacked authority under the Bank Secrecy Act to impose such sweeping reporting requirements.

“FinCEN claimed sweeping power to require reporting anytime someone pays cash for a house,” said Luke Wake, an attorney with Pacific Legal Foundation, which represented the plaintiff. “But Congress limited FinCEN to regulating only objectively ‘suspicious’ transactions; that was not a license for the agency to require reports simply because the government might find the data useful.”

Kernodle agreed on both statutory grounds the agency cited — finding that FinCEN failed to demonstrate that non-financed residential real estate transfers to entities or trusts are categorically suspicious.

“The fact that some bad actors have conducted non-financed real estate transactions does not make such transactions categorically ‘suspicious,’” Kernodle wrote. “If it did, then nearly every type of transaction imaginable would be ‘suspicious.’”

The judge noted that by FinCEN’s own estimates, the rule would have covered between 800,000 and 850,000 transfers annually at a compliance cost of up to $690 million.

Kernodle also rejected FinCEN’s argument that existing law independently authorized the rule and allowed the agency to require financial institutions to “maintain appropriate procedures, including the collection and reporting of certain information.”

Washington, D.C.-based Financial Accountability and Corporate Transparency (FACT) Coalition, which works to combat harmful financial practices, voiced displeasure upon the rule being overturned.

“In striking down this rule, the district court in Texas has just sided with cartels, money launderers and U.S. adversaries and given them free license to continue moving their dirty cash through U.S. real estate,” said Ian Gary, executive director of the FACT Coalition. “Two other federal courts have recently upheld the rule as lawful and constitutional.

“We therefore expect the government to swiftly appeal this outlier decision and the appellate court to overturn it.”

For title insurance and real estate operations, the decision eliminates a significant compliance burden that industry groups had railed against — citing costly reporting obligations without clear evidence of effectiveness.

FinCEN had argued the rule was necessary to close loopholes that allowed money launderers, drug traffickers and other illicit actors to use shell companies and trusts to purchase property with anonymity.

The agency pointed to geographic targeting orders issued since 2016 in select metropolitan areas, which it said demonstrated the effectiveness of such reporting.

A separate challenge brought by Fidelity National Financial in the Middle District of Florida had previously resulted in the rule being upheld.