On February 23, the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) announced the renewal of existing Geographic Targeting Orders (GTOs or Orders) to identify purchasers of luxury real estate in six major metropolitan areas in the United States. The GTOs require title insurance companies to identify and disclose information of individuals behind shell companies used to pay “all cash” for high-end residential real estate. The Order will be effective for additional 180 days beginning on February 24, 2017, and ending on August 22, 2017.
The renewed Order requires domestic title insurance companies to report on certain covered transactions. For purposes of the GTOs, “covered transactions” include any transaction in which (i) a legal entity (ii) purchases residential property (iii) for a sales price exceeding the following thresholds for each geographic area:
$500,000 or more in Bexar County, Texas, which includes San Antonio. $1,000,000 or more in Miami-Dade, Broward, and Palm Beach Counties, Florida. $1,500,000 or more in the Boroughs of Brooklyn, Queens, Bronx, and Staten Island, New York City, New York. $2,000,000 or more in San Diego, Los Angeles, San Francisco, San Mateo, and Santa Clara Counties. $3,000,000 or more in the Borough of Manhattan, New York City, New York.
Such purchases must also have been made (iv) without a bank loan or other similar form of external financing, and (v) using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, or a money order in any form.
Pursuant to the GTOs, title insurance companies are required to collect and report certain identifying information about the beneficial owners behind the shell companies used to purchase residential real estate, including driver’s license, passport, or other similar identifying documentation. For purposes of the GTOs, a “Beneficial Owner” means any individual who, directly or indirectly, owns 25% or more of the equity interests of the Purchaser. Title insurance companies must retain all records relating to compliance with the GTOs for at least five years from the last day that the GTOs were effective.
Financial institutions located in these geographic areas should be aware of the obligations imposed by the GTOs. In particular, title insurance companies and any of its officers, directors, employees, and agents may be liable for civil or criminal penalties for non-compliance with the Order.
Although the six GTOs have been in place since August 2016, FinCEN had already been targeting real estate transactions for over a year. The original GTO came into effect on March 1, 2016, when FinCEN started requiring title insurance companies to identify purchasers of luxury real estate in Manhattan and Miami-Dade County. These six areas have been specifically identified by FinCEN as vulnerable to money laundering.