Jason Corley (foreground) and Federal Register (background)
A Lubbock County commissioner sued the federal government to stop “anti-money laundering” regulations aimed at disrupting criminals set to take effect later this year.
Jason Corley – commissioner for Precinct 2, representing Slaton and Southeast Lubbock – sued the U.S. Treasury Department and the federal Financial Crimes Enforcement Network (FinCEN) in mid-April.
Corley wants to transfer a residential property from his private ownership to his LLC. Starting in December, there’s new federal paperwork to do that.
“You’re going to have to answer a whole bunch of damn questions you normally wouldn’t have to answer. It’s none of the government’s business,” Corley said.
A local attorney, Zachary Long, also sued the feds alongside Corley.
“They’re requiring you to disclose very personal and detailed information about yourself and your spouse, the legal entity, the property and the ‘reporting person,’ which would be me as the attorney. This includes information like full legal names, birthdays, addresses, contact information, and Social Security numbers of everyone involved,” Long said.
The disclosure also includes dollar amounts, property descriptions and more, Long said.
“None of which is the federal government’s business. … It’s just unbelievable,” Long said.
“When reporting as a Texas resident, you can’t just say, ‘I’m John Doe and I transferred the property to ABC Rentals, LLC’ and leave it at that. You’d then have to provide all of his wife’s information and all of the details of ABC Rentals, LLC, like who owns and controls it,” Long said.
Some of his clients were already filling out extra paperwork under a similar but different provision of federal law called the Corporate Transparency Act, which we’ll explain later.
“I had to explain this a million times to clients and go over the same thing with them. They were just all incredulous, like, ‘Why am I having to do this? I set this up 15 years ago. What the hell is all this even about?’” Long said.
Corley said if you want an attorney to help report your transaction, that costs money.
Anti-Money Laundering Regulations for Residential Real Estate Transfers
The new regulation, starting on December 1, forces people or businesses to report if a residential property is transferred to a corporation, partnership, estate, association or limited liability company. There are exceptions for banks, insurance companies, certain kinds of trusts and other “highly regulated” entities which already have federal reporting requirements.
According to the Federal Register, “FinCEN is issuing a final rule to require certain persons involved in real estate closings and settlements to submit reports and keep records on certain non-financed transfers of residential real property to specified legal entities and trusts on a nationwide basis. Transfers made directly to an individual are not covered by this rule.”
A home loan is an exception to the rule, because the home is financed. Estate planning is also an exception.
The new rule defines certain residential property deals to be “high risk” for money laundering by drug cartels and human traffickers.
“Non-financed transfers to legal entities and trusts heighten the risk that such transfers will be used for illicit purposes,” the register said.
“This illicit use of the residential real estate market threatens U.S. economic and national security and can disadvantage individuals and small businesses that seek to compete fairly in the U.S. economy.”
The penalty
Violations could result in a civil penalty of “not more than $1,394,” the Federal Register said. There could be a fine up to $108,489 for a “pattern of negligent activity.”
Prison time is possible.
“Willful violations of the final rule could result in a term of imprisonment of not more than five years or a criminal fine of not more than $250,000, or both,” the register said.
“This penalty structure generally applies to any violation of a BSA [Bank Secrecy Act] requirement,” according to the register.
Help from the Texas Public Policy Foundation
Corley and Long are suing the feds with help from the Texas Public Policy Foundation – a nonprofit meant to “defend liberty, personal responsibility, and free enterprise,” according to its website.
Corley talked with someone at the foundation about a completely different topic when this issue came up in conversation. He decided to go forward, he said.
Clayton Calvin, a foundation attorney, said federal regulators went too far.
“They simply lack the power under the Constitution to operate in that space,” Calvin said.
The government has no right to force citizens to disclose information about the transfer of their own residential property, Calvin wrote in the lawsuit.
Click here to read the lawsuit.
“The federal government can only do a handful of things. It’s expressly laid out in the Constitution,” Calvin said.
Calvin wrote in court records he would like the judge to “declare that the Anti-Money Laundering Regulations for Residential Real Estate Transfers Rule is unconstitutional on its face because it is unsupported by any power granted to any branch of the Federal Government by the United States Constitution … ”
Other side of the story
The Treasury Department did not respond to our request for an interview. However, the department defended its side of the story in the Federal Register as mentioned above.
“General support for the rule was expressed by law enforcement officials, transparency groups, certain industry associations, and individuals,” the register said.
During the comment period for this rule, 25 attorneys general said it gives law enforcement information about suspicious real estate transfers from a single source.
“ … The information would aid them in identifying suspicious residential real estate transfers on a nationwide basis that might otherwise remain undetected,” the register said.
The department said FinCEN (which is a bureau within the Treasury Department) has constitutional backing to enforce the rule.
“FinCEN has clear statutory authority to require ‘persons involved in real estate closings and settlements’ to file reports on suspicious activity, and courts have long affirmed the constitutionality of such reporting requirements,” the register said.
The idea was to keep the reporting burden low especially for small businesses but still make it useful for law enforcement.
“Transfers to individuals, as well as certain transfers commonly used in estate planning, do not have to be reported,” the register said.
Not convinced
“The whole concept and theory of it originated with the government saying that this is all necessary to prevent and track down corrupt actors and activities – money laundering, drug cartels, organized crime, international criminals, and so on,” Long said.
But then, people who obey the law are “basically penalized,” Long said.
“It’s an egregious constitutional violation that the government is committing,” Long said.
Calvin said, “If they knew everything about every single person, that would help them fight crime. It would also exceed their power.”
Corley said, “Yeah, people get drunk and drive cars. So, we haven’t outlawed cars. Where do you want to draw the line?”
Similar cases in the court system
LubbockLights.com found similar challenges in the court system. While they are similar, Calvin said, they’re based on a different federal law – the Corporate Transparency Act (CTA).
A case from East Texas, Texas Top Cop Shop v. Garland, went to the U.S. Supreme Court where the federal government – at least temporarily – prevailed. The court struck down a nationwide temporary injunction and allowed federal regulators to continue enforcement while the case goes through the appeals process.
In another case, Samantha Smith & Robert Means v. U.S. Department of the Treasury, a federal court injunction remained in place against the CTA. In the Smith & Means case, the injunction was limited only to the plaintiffs and not the entire nation.
The Trump Administration removed reporting requirements in March for U.S. companies and persons under the CTA.
The Treasury Department website said it intends to reinstate the rule but only on foreign companies doing business in the U.S.
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