Back in January, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued Geographic Targeting Orders (GTOs) requiring title insurance companies, subsidiaries and agents to identify the true owners of shell companies that purchase residential real estate in Manhattan for cash exceeding $3 million, and in Miami-Dade County for cash in an amount that exceeds $1 million. The GTOs arose in response to concerns within FinCEN and law enforcement agencies that one of the largest gaps with respect to the enforcement of money laundering is in the area of real estate transactions that do not involve financing. The GTOs apply to purchases of residential real estate in Manhattan and Miami-Dade by corporations, limited liability companies, partnerships, or other similar business entities (though not including trusts), 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. The GTOs were due to expire in August but have been extended until February 2017.
In July, FinCEN announced that it will broaden these reporting requirements to a number of new markets. Beginning on August 28, 2016 and continuing for the next 180 days, the newly issued GTOs will cover:
- The boroughs of Brooklyn, Queens, The Bronx, and Staten Island, in New York City;
- Broward and Palm Beach counties in Florida;
- Los Angeles County, California;
- Three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties);
- San Diego County, California; and
- Bexar County (San Antonio), Texas.
As with the previous GTOs, each new locality is assigned a specific reporting threshold, as follows:
|Brooklyn, New York||$1,500,000|
|Queens, New York||$1,500,000|
|The Bronx, New York||$1,500,000|
|Staten Island, New York||$1,500,000|
|Palm Beach County||$1,000,000|
|San Diego County||$2,000,000|
|Los Angeles County||$2,000,000|
|San Francisco County||$2,000,000|
|San Mateo County||$2,000,000|
|Santa Clara County||$2,000,000|
A business involved in a transaction subject to the GTOs must report the transaction within 30 days of the closing. Information required to be reported includes:
- the identity of the individual primarily responsible for representing the purchaser;
- the identity of the purchaser;
- the identity of the beneficial owners of the purchaser, meaning those directly or indirectly owning 25% or more of the equity interests;
- the date of the closing;
- the total amount transferred in the form of a monetary instrument;
- the total purchase price of the transaction;
- the address of the real property; and
- if the purchaser is an LLC, the names, addresses and taxpayer identifications of all members.
The initial GTOs have proved helpful for law enforcement in identifying possible illicit activity. In particular, a considerable number of covered transactions have indicated possible criminal activities associated with the individuals reported as the beneficial owners behind shell company purchasers. This corroborates the concerns that the transactions covered by the GTOs are ripe for money laundering. FinCEN expects that the expanded reach of the GTOs will continue building on the useful data generated thus far.
By instituting these GTOs, FinCEN can determine the benefits and burdens of reporting before imposing permanent regulations on the real estate industry. Based on the current level of success, this is likely just the beginning of increased recordkeeping requirements with respect to real estate transactions. Friedman LLP has extensive experience advising parties involved in real estate transactions with compliance and regulatory requirements. If you have questions regarding your reporting obligations, please contact us.