A regulation implemented last year by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to crack down on money laundering activities, set to take effect Dec 1, is drawing fire in the form of a lawsuit from a major title insurance underwriter.
Fidelity National Financial, along with its subsidiary Fidelity National Title Insurance Co. (Fidelity), have filed suit against The Department of the Treasury and Treasury Secretary Scott Bessent, along with FinCEN and its director, Andrea Gacki. The suit was filed May 20 in the U.S. District Court, Middle District of Florida, Jacksonville Division.
In the court filing, Fidelity argues that FinCEN’s “Anti-Money Laundering Regulations for Residential Real Estate Transfers” final rule imposes “severe burdens” on the plaintiff and other title insurance companies. The rule demands extensive disclosures, burdening title insurance companies and invading privacy in regular real estate transactions, while increasing disclosure reports by 4,000 percent, Fidelity argued.
Fidelity additionally contended the reporting obligations called for by the rule exceeds FinCEN's authority and would cause high costs without significant benefits.
The rule requires certain individuals involved in real estate closings to submit reports and keep records on non-financed transfers of residential properties to specific legal entities and trusts nationwide. Transfers to individuals are not included. The rule also outlines when to file reports, who must file, what information is needed and deadlines.
According to FinCEN, these reports aim to help U. S. authorities address financial crimes in residential real estate.
In its suit, Fidelity opposed this position, likening the rule to a wide net that demands excessive information on real estate transactions with too few exceptions.
“In essence, with certain exceptions, the rule requires reporting a raft of intrusive information on every residential real estate transaction in the country that does not involve financing (like a mortgage) and that transfers real estate to a trust or certain other legal entities,” Fidelity’s suit reads in part. “Millions of perfectly lawful transactions are swept into FinCEN’s dragnet.”
Fidelity further argued that current laws established by the Bank Secrecy Act (BSA), the act that established FinCEN as a regulatory agency, only allow FinCEN to require reporting on “suspicious transactions relevant to a possible violation of law,” and that the rule goes beyond this by demanding reports on a whole category of transactions without proving they are all “suspicious.”
Fidelity also pointed out that although FinCEN has previously focused on certain areas, it did not provide data to support a nationwide rule, not did it prove these transactions to be suspicious. The rule also contradicts the requirement that reports only be for “suspicious transactions relevant to potential violations of law,” the plaintiff addsed.
Fidelity also contended the rule is arbitrary and unfair because FinCEN did not perform a proper cost-benefit analysis prior to the rule’s promulgation. According to Fidelity’s complaint, the rule places a significant burden on the industry, requiring about 800,000 to 850,000 reports each year at an estimated cost of $428 million to $690 million in the first year and $401 million to $663 million after that. This does not account for additional costs for systems and training, resulting in an extra cost of $472to $829for each affected real estate transaction, the plaintiff added.
On the other hand, Fidelity claimed that FinCEN did not make a good faith effort to estimate the economic benefits of the rule and did not explain why it cannot estimate the expected decrease in illegal activity from the rule and its economic benefits. Therefore, it has not provided a meaningful cost-benefit analysis to justify the large new burden on the industry.
The rule further requires collecting private information without any clear suspicion or link to illegal actions, which Fidelity argued breaches the Fourth Amendment’s ban on unreasonable searches without a warrant. The rule’s broad demand for reporting private transaction information, lacking prior judicial review for suspicious connections, acts as an illegal general warrant, the suit contended.
Lastly, the suit claimed that the rule goes beyond what Congress could delegate to the executive branch under the Commerce Clause and that it does not regulate interstate commerce but requires financial institutions to report activities. It mainly regulates intrastate transactions without a link to interstate commerce – Fidelity argued that Congress did not give the Department of the Treasury authority to regulate these transactions.
The counts Fidelity is leveraged against FinCEN, the Treasury, Bessent and Gacki are as follows:
- The rule exceeds FinCEN’s statutory authority
- The rule is arbitrary and capricious
- The rule violates the Fourth Amendment prohibition against warrantless searches
- The rule violates the First Amendment’s prohibition on compelled speech
- The rule exceeds any authority Congress could have delegated under the Commerce Clause or its other Article I powers
In terms of relief, Fidelity is asking the court to render the rule invalid and unenforceable and award the plaintiffs their costs, attorney fees and any other relief the court finds appropriate.
Other opponents to the rule include the American Land Title Association, which recently called on the Office of Management and Budget to rescind the controversial regulation.