Ctr. for Investigative Reporting v. U.S. Dep't of Treasury

THE CENTER FOR INVESTIGATIVE REPORTING, et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF THE TREASURY, Defendant.

Case No. 19-cv-08181-JCS

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

January 22, 2021

ORDER REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT

Re: Dkt. Nos. 29, 32

I. INTRODUCTION

In July of 2019, Plaintiffs Aaron Glantz and the Center for Investigative Reporting (collectively, "CIR") submitted a request to Defendant the Department of the Treasury's Financial Crimes Enforcement Network ("FinCEN") under the Freedom of Information Act ("FOIA") for documents indicating the "real human owners" of residential real estate purchased with cash since 2016. After FinCEN refused to produce documents, CIR filed this action, and the parties conferred, FinCEN determined that virtually all responsive documents in its possession are exempt from disclosure, primarily due to a statutory exemption for "records of reports" submitted to FinCEN under the Bank Secrecy Act ("BSA"). The parties have filed cross-motions for summary judgment, and the Court held a hearing on January 22, 2021. For the reasons discussed below, FinCEN's motion is GRANTED, and CIR's motion is DENIED.

II. BACKGROUND

This case turns on the extent to which individual beneficial owners of real estate may remain anonymous, and whether FOIA provides a mechanism to identify such beneficial owners. Dr. K-Sue Park, a professor at Georgetown University Law Center, states that public recording of land ownership has been a cornerstone of American property law since the founding of the United States. Park Decl. (dkt. 32-4) ¶ 4. The proliferation of limited liability companies ("LLCs") and similar corporate entities in recent decades has undermined that tradition by allowing an LLC to be recorded as the owner of property, with individual beneficial ownership unavailable to the public, "introduc[ing] problems of corruption, landlord negligence, and obstacles to enforcement that the system of transparency was designed to prevent." Id. ¶¶ 7-8. In response to those problems, some states, local jurisdictions, and foreign countries require public disclosure of beneficial owners of corporate entities, particularly in the context of real estate. See id ¶¶ 9-10. Farha Decl. (dkt. 32-3) ¶¶ 7-15. According to Leilani Farha, an international human rights lawyer and leading expert on rights related to housing, "the registration of beneficial owners and disclosure of their corporate data is quickly becoming the new international legal standard," albeit as a fairly recent development. Farha Decl. ¶ 6.

The BSA authorizes FinCEN to issue geographic targeting order ("GTOs") requiring financial institutions and other businesses in a specified geographic area to report certain transactions. The BSA also provides that while FinCEN must share these reports with state and federal regulators and intelligence agencies upon request, "a report and records of reports are exempt from disclosure under section 552 of title 5 [i.e., FOIA], and may not be disclosed under any State, local, tribal, or territorial 'freedom of information', 'open government', or similar law." 31 U.S.C. § 5319.

In January of 2016, FinCEN issued a GTO "requir[ing] U.S. title insurance companies to identify the natural persons behind all-cash purchases of residential real estate" exceeding one million dollars in the Borough of Manhattan and Miami-Dade County, in order to combat money laundering. Mosier Decl. (dkt. 29-2) ¶ 32. FinCEN issued additional GTOs targeting similar transactions in those and other geographic areas in July of 2016, February and August of 2017, March and November of 2018, and May of 2019. Id. The parties refer to the reports that title companies were required to submit under the GTOs as "GTO reports."

In 2018, CIR requested under FOIA all records containing information submitted in response to the GTOs, but FinCEN denied that request. Baranetsky Decl. (dkt. 32-1) ¶ 3. CIR's general counsel Victoria Baranetsky spoke to a FinCEN officer in early 2019 "who stated that,although the agency would not provide GTOs¹ or information contained therein, the agency might consider releasing records that are not themselves GTOs and that are not specifically exempted Bank Secrecy Act." Id. ¶ 5. On July 17, 2019, CIR submitted the FOIA request that gives rise to this case, which sought:

Any and all records -- including, data, documents, and correspondence that include information about the real human owners (in some cases known as beneficial owners) of all-cash real residential real estate transactions nationally from 2016 to the present, including but not limited to:

-- Addresses of all residential real estate purchased with the cash, which FINCEN is aware of

-- The amount of money transfered [sic]

-- The name of the true, human owners of each residential real estate purchased with cash, including but not limited to those purchased by LLC, LLP, and LP shell companies

-- The name of the individual responsible for representing the purchaser of the property

-- The address of the human owners, the address of the individual responsible for representing the purchaser

-- Any and all additional information FINCEN possesses about these purchases which is publicly disclosable.

Compl. (dkt. 1) ¶¶ 34-35 & Ex. A; see Answer (dkt. 14) ¶¶ 34-35 (admitting the authenticity of that exhibit).

FinCEN initially provided a "Glomar response," denying the request and stating that it could neither confirm nor deny the existence of such materials based on the confidentiality provisions of the BSA. Compl. ¶ 38 & Ex. C; Answer ¶ 38. CIR submitted an administrative appeal on August 1, 2019, and in response, FinCEN's deputy director remanded the request to FinCEN's FOIA office on October 17, 2019. Compl. ¶¶ 39, 42 & Exs. D, F; Answer ¶¶ 39, 42. CIR did not receive any further communication from FinCEN before CIR filed this action on December 16, 2019. See Compl. ¶ 43; Answer ¶ 43.

In January and February of 2020, FinCEN sent letters to CIR indicating that it had identified around 113,871 pages² of documents as responsive to CIR's request, but all would be withheld in full pursuant to statutory exceptions to disclosure under FOIA for BSA records, privileged materials, personal identifying information, and certain law enforcement records. Mosier Decl. Exs. 8-10. In June of 2020, FinCEN provided a further response stating that it had discovered an additional 1,799 pages of responsive documents (consisting of earlier versions or drafts of documents identified in its initial search) that it also largely intended to withhold in full, but that it would produce eleven pages with redactions. Id. Ex. 11. The documents produced with redactions consist of several FinCEN "Investigative Memos" and "Intelligence Assessments" with all contents except a general summary of the GTOs at issue redacted, as well as a chart of the GTOs at issue with some fields redacted. Id. Ex. 2.

FinCEN also produced a Vaughn index describing the documents it withheld and the grounds for withholding them. Id. Ex. 1. The first item addressed in the index is spreadsheet summarizing the reports submitted in response to the GTOs, as well as "Suspicious Activity Reports," which "matches and cross-references information drawn from fields appearing in these reports to identify possible patterns of transactions involving potentially illicit financial activity." Id. Ex. 1 at 2. FinCEN asserts that the spreadsheet is exempt from disclosure in full based on the exemption for BSA reports and records thereof, that it is also exempt in full based on an exception for law enforcement documents that would reveal techniques and procedures, and that it is exempt in part based on an exemption for law enforcement documents containing personally identifying information. Id. Ex. 1 at 2-3. Although FinCEN has also withheld other responsive documents, CIR is "chiefly concerned with the spreadsheet," Pl.'s Reply (dkt. 36) at 1 n.1, and focuses much of its briefing on the "names and addresses" contained therein, accepting that other information describing FinCEN's investigations could be redacted, e.g., Pl.'s Mot. at 10.

FinCEN invokes a number of exemptions to FOIA to justify its withholdings, but relies primarily on Exemption 3, which applies to documents specifically exempted from disclosure by another statute—here, the BSA. Because the Court concludes that Exemption 3 is sufficient to grant judgment in FinCEN's favor without reaching the other grounds for withholding that FinCEN asserted, this order focuses on the parties' arguments addressing Exemption 3, and does not reach either party's arguments as to other exemptions. This order also focuses primarily on the spreadsheet listed as Document 1 in FinCEN's Vaughn index. When asked at the hearing, counsel for CIR identified no evidence that any other document at issue would be subject to disclosure if the Court determines that the information contained in the spreadsheet falls within Exemption 3.

III. ANALYSIS

A. Overview of FOIA

"FOIA 'was enacted to facilitate public access to Government documents.'" Lahr v. Nat'l Transp. Safety Bd., 569 F.3d 964, 973 (9th Cir. 2009) (quoting U.S. Dep't of State v. Ray, 502 U.S. 164, 173 (1991)). Congress intended to "'ensure an informed citizenry, vital to the functioning of a democratic society, needed to check against corruption and to hold the governors accountable to the governed.'" Id. (quoting John Doe Agency v. John Doe Corp., 493 U.S. 146, 152 (1989)). Thus, FOIA "provides public access to official information 'shielded unnecessarily' from public view and establishes a 'judicially enforceable public right to secure such information from possibly unwilling official hands.'" Id. (quoting Dep't of the Air Force v. Rose, 425 U.S. 352, 361 (1976)).

Under FOIA, "each agency, upon any request for records which (i) reasonably describes such records and (ii) is made in accordance with published rules stating...