The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) on Aug. 22, 2017, continued expanding its Geographic Targeting Orders (the GTOs) with respect to beneficial ownership transparency in real estate transactions. The revised GTOs issued on Aug. 22 expanded the prior GTOs by, among other changes, adding additional jurisdictions to the previous GTOs and closing a loophole in the prior GTOs by including wire transfers as part of the triggering transactions. The Aug. 22 GTOs are effective beginning on Sept. 22, 2017, and are scheduled to expire on March 20, 2018.
Background
FinCEN issued GTOs on Jan. 13, 2016, that temporarily required various United States title insurance companies to identify the natural persons behind companies1 used to pay "all cash"2 for high-end residential real estate purchased in the Manhattan borough of New York City and in Florida's Miami-Dade County in amounts of $3 million and $1 million or more, respectively. The Jan. 13 GTOs were effective for 180 days3 as of March 1, 2016, and expired on Aug. 27, 2016.
The GTOs required that the affected title companies file FinCEN Form 8300 within 30 days from the closing date reporting the identity of the individual primarily responsible for representing the buyer entity and the beneficial ownership of the entity, defined in the Jan. 13 GTOs as the individuals who own, directly or indirectly, 25 percent or more of the equity interests in the entity. Subsequently, on July 27, 2016, FinCEN took additional action and issued supplemental GTOs, effective as of Aug. 28, 2016, that expanded the reach of the Jan. 13 GTOs. The July 27 GTOs were directed to all boroughs of New York City, including Manhattan; Miami-Dade, Broward and Palm Beach counties in Florida; Los Angeles, San Francisco, San Mateo, Santa Clara and San Diego counties in California; and Bexar County in Texas. The July 27 GTOs set monetary thresholds ranging from $500,000 to $3 million, depending on the jurisdiction.
The New Additions
Adding to the prior GTOs, FinCEN has now, in its Aug. 22, 2017, GTOs, added the City and County of Honolulu, Hawaii, to the list of jurisdictions subject to the GTOs (for transactions in an amount of $3 million or more) and also expanded the GTOs to include wire transfers within the definition of "all cash" transactions. The addition of wire transfers to the triggering transactions closes a notable loophole left by the prior GTOs. The Aug. 22 GTOs are effective beginning on Sept. 22, 2017, and are scheduled to expire on March 20, 2018.
Additionally, along with the Aug. 22 GTOs, FinCEN issued an Advisory to Financial Institutions and Real Estate Firms and Professionals (the Advisory) urging "real estate brokers, escrow agents, title insurers, and other real estate professionals" to voluntarily report suspicious activity by filing a Suspicious Activity Report (SAR) with FinCEN, although currently not required.
Takeaways and Considerations
It is clear that FinCEN remains concerned that "all cash" purchases of real estate are being conducted by individuals seeking to hide assets and launder money through opaque entity structures. FinCEN Acting Director Jamal El-Hindi has notably stated on various occasions that the information obtained through the Jan. 13, 2016, and July 27, 2016, GTOs have provided valuable information regarding possible illicit activity. This information has also been useful to federal and state law enforcement agencies in aiding the discovery of potential assets held by persons of interest to them.
Based on FinCEN's and law enforcement's continued focus on the real estate industry, financial institutions and real estate professionals should take this opportunity to review their internal controls related to real estate transactions. While real estate professionals are not the subject of any GTOs or, otherwise, formally required to file SARs, it seems, based on the cautionary language in the Advisory, that such professionals are being encouraged to voluntarily adopt certain anti-money laundering measures such as filing SARs.
Holland & Knight attorneys are prepared to assist clients with evaluating their existing policies and procedures, or in creating new controls that adequately respond to the GTOs and the Advisory. For answers to questions or assistance related to the GTOs and Advisory, contact Andy Fernandez or Elena Otero.
Notes
1 The Jan. 13, 2016, GTOs define a "legal entity" as a corporation, limited liability company, partnership or other similar business entity, whether formed under the laws of a state, the U.S. or a foreign jurisdiction.
2 "All cash" includes currency, cashier's checks, certified checks, traveler's checks or money orders used as any part (no de minimus exception) of the purchase price. Business checks, personal checks and wire transfers did not trigger the requirements under the initial Jan. 13 GTOs, but business checks and personal checks were subsequently included with the extension of such GTOs on July 27, 2016. Now, the Aug. 22, 2017, GTOs also include wire transfers as part of the "all cash" definition.
3 GTOs are permitted to last only 180 days but are routinely extended.