HIGHLIGHTS:

  • The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has issued a temporary Geographic Targeting Order (GTO) requiring title insurance companies, subsidiaries and agents to identify the true owners of shell companies that purchase residential real estate in Miami-Dade County for cash in excess of $1 million.
  • The Order was issued in response to concerns by FinCEN and other law enforcement agencies that real estate transactions that do not involve financing make anti-money laundering enforcement more difficult.
  • The GTO takes effect on March 1, 2016, and ends on Aug. 27, 2016.

The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) on Jan. 13, 2016, issued a Geographic Targeting Order (GTO or the Order) requiring title insurance companies, subsidiaries and agents (each a Covered Business) to identify the true owners of shell companies that purchase residential real estate in Miami-Dade County for cash in an amount that exceeds $1 million. This Order arises in response to concerns within FinCEN and law enforcement agencies that one of the largest gaps with respect to enforcement of money laundering is in the area of real estate transactions that do not involve financing. The GTO is effective on March 1, 2016, and its term ends on Aug. 27, 2016, and applies to purchases of residential real estate in Miami-Dade County in which the purchasers are corporations, limited liability companies, partnerships or other similar business entities, when the property is purchased, at least in part, using currency or a cashier's check, a certified check, a traveler's check or a money order. A similar GTO was issued for the Manhattan borough of New York City on cash purchases exceeding $3 million.

GTO Reporting Exceptions

The Order will not impose reporting requirements on the title insurance company, its subsidiaries or agents in the below instances.

  • If any bank loan or similar form of external financing is involved, no additional reporting is mandated. Banks are already required to report this type of information in connection with financing real estate purchases.
  • Because the transaction is covered only if the purchase is made using currency or a cashier's check, a certified check, a traveler's check or a money order, the Order appears to exclude purchases made exclusively via wire transfer, which is not considered a Monetary Instrument under the Order. (Monetary Instrument is defined in the Bank Secrecy Act Regulations as (i) currency; (ii) all negotiable instruments in bearer form, endorsed without restriction, made out to a fictitious payee or otherwise in such form that title thereto passes upon delivery; (iii) incomplete instruments signed but with the payee's name omitted; and (iv) securities or stock in bearer form or in such form that title thereto passes upon delivery.1) However, if the bulk of the purchase price is made via wire transfer with a minimal amount of the purchase price held by a third party (i.e., a real estate agent holding an earnest money deposit), the transaction would be covered by the Order in its current form. The American Land Title Association (ALTA) has requested that FinCEN revise the Order to include a de minimis exception for this situation to protect title agents who may be unaware that part of the purchase price was paid with a Monetary Instrument. ALTA has also requested clarification on certain aspects of the Order.

Requirements for Covered Businesses

A Covered Business involved in a transaction subject to the Order must report the transaction to FinCEN by filing a Form 8300 through the Bank Secrecy Act E-Filing System within 30 days of the closing. The information reported on Form 8300 is as follows:

  • the identity of the individual primarily responsible for representing the purchaser; the Covered Business must retain a copy of the individual's driver's license, passport or similar identifying documentation
  • the identity of the purchaser; the Covered Business must retain a copy of the individual's driver's license, passport or similar identifying documentation
  • the identity of the beneficial owners of the purchaser – a beneficial owner is any individual who, directly or indirectly, owns 25 percent or more of the equity interests of the purchaser; the Covered Business must retain a copy of each beneficial owner's driver's license, passport or similar identifying documentation
  • date of the closing
  • total amount transferred in the form of a Monetary Instrument
  • total purchase price of the transaction
  • address of the real property
  • if the purchaser is a limited liability company, the name, address and taxpayer identification of all of its members must be provided to the extent not otherwise provided on Form 8300

The Covered Business must retain all records relating to compliance with the GTO for five years from the last day the Order is effective, including any renewals of the Order. The records must be stored in a manner that is accessible in a reasonable period of time and must be made available to FinCEN or other law enforcement or regulatory agency upon request. The Covered Business' failure to comply with the order can result in civil or criminal penalties for the Covered Business and any of its officers, directors, employees and agents.

Considerations for Affected Parties

Andres "Andy" Fernandez, a banking and financial services partner in Holland & Knight’s Miami office, is a member of FinCEN's Bank Secrecy Act Advisory Group and has indicated that the GTOs, such as the one affecting certain residential real estate transactions in Miami-Dade, are likely just the beginning of increased recordkeeping requirements with respect to real estate transactions and those who close real estate transactions. As such, parties involved in real estate closings should be conducting sufficient due diligence to understand and identify the parties involved in those transactions to avoid involvement with potential money launderers.