On August 22, 2017, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) announced the 6-month renewal of the existing Geographic Targeting Orders (GTOs), originally issued in July 2016 and reissued in February 2017, relating to money laundering concerns in connection with all-cash purchases of high-end residential real estate properties. The GTOs require U.S. title insurance companies to identify and report the ultimate beneficial owner behind legal entities making certain all-cash real estate purchases. The renewed GTOs cover the same geographic areas at the same monetary thresholds for certain real estate purchases in New York, Florida, California, and Texas. FinCEN also issued a new GTO for real estate purchases over $3,000,000 in Honolulu, Hawaii and expanded the scope of the GTOs to include purchases made with wire transfers, rather than just those made with currency or checks. The inclusion of wire purchases closes a major gap in the existing GTOs and is likely to cover significantly more all-cash luxury residential real estate transactions.
These GTOs represent yet another expansion of the GTOs from the initial January 2016 GTOs that targeted only two real estate markets in New York and Miami. The renewed GTOs require U.S. title insurance companies to identify the natural person who is the ultimate beneficial owner behind limited liability companies, partnerships, and other legal entities involved in all-cash residential real estate sales in the five boroughs of New York City, three counties in Florida, five counties in California, and one county in Texas. The purchase price thresholds of the current GTOs remain the same. We advised in our past alerts that FinCEN considers the GTOs to be effective in gathering useful information on potential money laundering and that it may consider expanding them to cover other geographic areas suspected of being high-risk for money laundering through luxury real estate sales. In fact, FinCEN has issued a new GTO for all-cash transactions in residential real estate sales over $3,000,000 in Honolulu, Hawaii. Additionally, the GTOs now cover all-cash purchases made by wire transfer, in addition to currency, checks (including cashier’s checks), and money orders. The addition of wire transfers significantly expands the scope of the orders since it is a more common form of payment than cash or check. This change is expected to give the orders more teeth – it is likely to both increase the number of covered transactions and improve the effectiveness of the program from FinCEN’s perspective. FinCEN has provided a sample GTO and Frequently Asked Questions about the GTOs.
FinCEN also published an advisory to financial institutions and real estate firms and professionals detailing the risks of money laundering in the real estate sector. The advisory instructs financial institutions to indicate a connection between suspicious activity reported on a suspicious activity report (SAR) and real estate by referencing the advisory in the SAR narrative.
In a press release announcing the renewal and expansion of the GTOs, FinCEN stated that about 30% of the transactions covered by the GTOs involved a beneficial owner or purchaser representative that is the subject of a previous SAR. Accordingly, FinCEN is likely to continue the GTO program for the foreseeable future, and may potentially expand the orders further to cover other geographic areas suspected of being high-risk for money laundering through luxury real estate. Depending on the results of the GTOs, FinCEN may also implement further anti-money laundering compliance requirements in the real estate sector.
The renewed and expanded GTOs will take effect September 22, 2017, and will be in effect for 180 days (through March 20, 2018).