Continuing its efforts to deter the use of real estate as a vehicle to launder proceeds of criminal activity, the Financial Crimes Enforcement Network (FinCEN) recently announced its plan to extend the reach and time frame of its existing Geographic Targeting Orders (GTOs) targeting “all cash” real estate deals. The new GTOs expand reporting requirements of “all cash” real estate purchases in Manhattan and Miami-Dade County by also including all New York City boroughs (Brooklyn, Queens, the Bronx and Staten Island), Broward and Palm Beach counties (just north of Miami, Fla.), as well as Bexar County, Texas and Los Angeles, San Diego, San Francisco, San Mateo, and Santa Clara counties in California. The new GTOs will begin on August 28, 2016, and continue for another 180 days. During that period, U.S. title insurance companies will be required to identify the natural persons behind shell companies and other entities used to engage in “all cash” purchases of luxury real estate.
Although the GTOs are directed at U.S. title insurance companies, the trends in transparency and enforcement affect all sectors of the real estate industry. Not only has the federal government pushed for disclosure of the true owners behind shell companies, but just last month, on July 20, 2016, the Department of Justice filed the largest forfeiture action to date, seeking to forfeit more than $1 billion in assets—including real estate—tied to an international money-laundering scheme.
Who Is Impacted by these GTOs?
The original GTOs issued in January 2016 required title insurance companies and any of their subsidiaries or agents to file with FinCEN a Form 8300 within 30 days of closing, identifying the true beneficial owners of limited liability companies and other entities that purchase high-end real estate using cash, certified check, cashier’s check, traveler’s check, or a money order in any form if the real estate purchase exceeded $3 million in Manhattan or $1 million in Miami-Dade County. The GTOs defined a beneficial owner as an individual who, directly or indirectly, owns 25 percent or more of the equity interests of the purchaser entity. As originally issued, the reporting requirements were in place for 180 days, beginning on March 1, 2016, and expiring on August 27, 2016. During this period, title insurers were required to not only identify the purchaser, the individual primarily responsible for representing the purchaser, and the beneficial owner(s) of the purchaser, but to obtain and record a copy of the natural person’s driver’s license, passport or other similar identifying documentation, as well as to retain the records for five years, making those records available to FinCEN or other regulatory bodies at their request.
Now, beginning the day after the initial GTOs are set to expire, the new GTOs will also require title insurers to continue the reporting requirements discussed above for another 180 days, from August 28, 2016, until February 23, 2017, for “all cash” real estate purchases of $1.5 million or more in Brooklyn, Queens, the Bronx and Staten Island, and $3 million or more in Manhattan. In Florida, Miami is covered under the new GTOs for purchases of $1 million or more, adding Broward and Palm Beach counties, also at purchases of $1 million or more. Behar County, Texas, which includes the San Antonio area, is now covered under the new GTOs for purchases of $500,000 or more, and in California, San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara counties are now covered for purchases of $2 million or more.
It is significant to note that while the original GTOs defined “all cash” to include a cashier’s check, a certified check, traveler’s check and money orders in any form, the new GTOs add personal and business checks to the definition of “all cash” purchases.
Both the original and new GTOs require title insurers to include certain items on the Form 8300, such as the date of closing, the total amount transferred, the total purchase price, and the address of the real property involved in the transaction. Title insurers must also indicate in the comments section to the Form 8300 certain information, including a unique identifier for the GTO. An additional requirement is that if a Form 8300 is filed by an agent of the covered title insurer, the agent must include the name of the covered title insurer in the Form.
Under both the original and new GTOs, the covered title insurance companies are responsible for compliance with the terms of the GTOs by each of their officers, directors, employees and agents. The company and individuals can be held liable both civilly and criminally for violating any terms of the GTOs.
Notably, FinCEN has stated that a significant portion of the covered real estate transactions reported under the original Manhattan and Miami GTOs have indicated possible criminal activity associated with the persons reported to be the beneficial owners behind the shell companies.