Financial Crimes Enforcement Network Expands and Extends Geographic Targeting Order

Money laundering is concealing the true source of funds derived through illegal activity and transforming the assets to make it appear as though they were produced through legitimate, business activity.  Money laundering is a crime in the United States and the government undertakes strident measures to identify, combat, and prosecute money laundering.

The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury and was formed to support the government’s efforts to eradicate money laundering.  FinCEN was established in 1990 and its stated mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.

FinCEN recognized that criminals were increasingly using residential real estate purchases to launder illicit funds.  In an effort to curb this trend and identify the persons responsible, in 2016 FinCEN issued a geographic targeting order (GTO) that required the collection and reporting of data related to certain real estate transactions.  The first GTO required title companies to identify the natural persons behind legal entities, such as limited liability companies and corporations, that bought high-end real estate through all-cash transactions.  The first GTO only applied to property with a purchase price of $3,000,000 or more in Manhattan, New York and a purchase price of $1,000,000 or more in Miami-Dade County, Florida when the transaction was funded completely with cash.  It did not apply to transactions that utilized bank or wire transfers.

FinCEN has expanded and extended the GTO several times and it now includes properties in the following areas:  (i) the Texas counties of Bexar, Tarrant, and Dallas; (ii) the Florida counties of Miami-Dade, Broward, and Palm Beach; (iii) the New York Boroughs of Brooklyn, Queens, Bronx, Staten Island, and Manhattan; (iv) the California counites of San Diego, Los Angeles, San Francisco, San Mateo, and Santa Clara, (v) the city and county of Honolulu, Hawaii, (vi) the Nevada county of Clark, (vii) the Washington county of King, (viii) the Massachusetts counties of Suffolk and Middlesex, and (ix) the Illinois county of Cook.  The current GTO, issued on November 15, 2018, applies to properties with a purchase price of $300,000 or more when the transaction does not involve a bank loan and the purchase price is made, at least partially, utilizing cash, a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order, a wire or other funds transfer, or any form or virtual currency.  The current GTO does not apply to purchases made through a trust.  As you can see, the GTO in its current form applies to a significant range of transactions.

Under the terms of the GTO, title companies are required to collect and report data on individuals owning at least 25% of the beneficial interest of the purchasing entity.  That means that if the purchasing entity is owned by another entity or entities, the title company must continue to “go up the chain” until they get to the natural person or persons.  The data that must be collected and reported includes the name, address, identity, and occupation of the beneficial owners along with a copy of a government-issued form of identification or passport.

Failure to comply with the GTO can result in severe civil and criminal penalties.  Similarly, intentionally structuring a transaction to avoid the GTO reporting requirements is illegal.  Willful violation of the reporting requirements can result in fines of up to $500,000 and ten years in prison.  Structuring or assisting in the structuring of a transaction with the intent to avoid the reporting requirements can result in fines equal to the amount of the transaction and up to five years in prison.  In December 2018, FinCEN fined UBS bank $14.5 million for what it determined were the banks “anti-money laundering failures.”

It is important when structuring and executing a real estate transaction that all parties comply with the anti-money laundering laws and the requirements of the GTO.  We recommend that you consult competent legal counsel before purchasing real estate to ensure that the structure and transaction complies with the applicable laws.  Barbosa Legal has attorneys who specialize in, and offer legal counsel, in the areas of taxation, entity structuring, real estate, international business, and corporate law.

Maria Moller