On January 13, 2016, the U.S. Treasury’s financial intelligence unit, known as the Financial Crimes Enforcement Network (FinCEN), announced the issuance of geographic targeting orders (GTOs) to certain unnamed real estate title insurance companies. These orders will require the subject title insurance company to find out who the true flesh-and-blood purchaser (“beneficial owner”) is when a legal entity buys real estate and to report that information to FinCEN. FinCEN issues GTOs to target certain behaviors in certain geographical areas for limited time periods in furtherance of its mission of enforcing the Bank Secrecy Act. In this case, the title insurance companies that receive these orders will be required to report to FinCEN any purchases of residential real estate in Manhattan or Miami when the purchase price exceeds $3 million, the buyer is a legal entity, there is no bank loan, and the purchase “is made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, or a money order in any form.” The orders will remain in force for 180 days, beginning March 1, 2016, and expiring August 27, 2016.
The stated purpose of the GTOs is to gather information on “individuals attempting to hide their assets and identities by purchasing residential properties through limited liability companies [LLCs] or other opaque structures.” Recently, the news has been full of stories about corrupt foreign officials and their family members hiding their wealth in high-end U.S. residential real estate by creating layers of LLCs to act as the buyers. FinCEN seems to be using the GTOs to test the waters of luxury residential real estate to determine how much of a problem money laundering presents in that area. Presumably, if the GTOs yield evidence of a significant problem, FinCEN will use the information as the basis for the creation of a regulation requiring title insurance companies nationwide to collect beneficial owner information permanently.
I suspect that these GTOs will eventually lead to the creation of permanent bank-like anti-money-laundering/know-your-customer rules that close the real estate loophole that currently allows the concealment of purchasers’ identities.