This article is Part II of a series in which we address the U.S. government’s attempts to combat money laundering in real estate transactions. Part I is available here.
On August 22, 2017, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued revised Geographic Targeting Orders (GTOs) requiring title insurance companies, and their subsidiaries and agents, to collect and report information about certain residential real estate transactions in the following jurisdictions: (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately to the north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; (6) the county that includes San Antonio, Texas (Bexar County); and (7) the City and County of Honolulu in Hawaii. In this article, which address the additional reporting and recordkeeping requirements imposed upon businesses that engage in transactions covered by the terms of the revised GTOs.
Which Title Insurance Companies Are Impacted by the Revised GTOs?
Any title insurance company, and its subsidiaries and agents, is deemed to be a “Covered Business” subject to the terms of the revised GTOs. In addition, each Covered Business must supervise, and is responsible for, compliance by each of its officers, directors, employees, and agents with the terms of the revised GTOs. Each Covered Business must transmit a copy of the revised GTO to each of its agents. Each Covered Business must also transmit a copy of the revised GTO to its Chief Executive Officer or other similarly acting manager.
What Type of Transactions Are Covered by the Revised GTOs?
A real estate transaction that is considered a “Covered Transaction” is subject to the revised GTOs. In order for a transaction to be “covered,” it must meet all of the following requirements:
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A “Legal Entity” (which is defined as a corporation, limited liability company, partnership, or other similar business entity, whether formed under the laws of a state or of the U.S. or a foreign jurisdiction) purchases residential real property:
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For a total purchase price of $500,000 or more in the Texas county of Bexar;
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For a total purchase price of $1,000,000 or more in the Florida county of Miami-Dade, Broward, or Palm Beach;
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For a total purchase price of $1,500,000 or more in the Borough of Brooklyn, Queens, Bronx, or Staten Island in New York City, New York;
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For a total purchase price of $2,000,000 or more in the California county of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara;
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For a total purchase price of $3,000,000 or more in the Borough of Manhattan in New York City, New York; or
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For a total purchase price of $3,000,000 or more in the City and County of Honolulu in Hawaii; and
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Such purchase is made without a bank loan or other similar form of external financing; and
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Such purchase is made, at least in part, 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, or a funds transfer.
For purposes of the revised GTOs, “residential real property” means real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families.
Payment of at least part of the purchase price using one of these methods, such as a wire transfer, a cashier’s check (sometimes referred to as a “bank check,” “official check,” or “treasurer’s check”), a personal check, a business check, or a certified check, triggers a Covered Transaction, assuming the other three criteria listed above are met.
Importantly, FinCEN has made clear that there is no de minimis exception to any of the methods of payment covered by the revised GTOs. If any part of the purchase price was made using one of the specified methods of payment in the revised GTOs, then the transaction is considered a Covered Transaction (assuming the other three criteria are met). FinCEN expects a Covered Business to take reasonable steps to determine whether any part of the purchase price was made using one of the specified methods of payment. FinCEN recognizes that in some instances a small percent of the purchase price of a residential real estate transaction may be held by a third party, such as a real estate agent holding an earnest money deposit. A Covered Business may reasonably rely on information provided to it by such third parties.
What Information Is Required To Be Reported Pursuant to the GTOs?
If the Covered Business is involved in a Covered Transaction, then the Covered Business shall report the Covered Transaction to FinCEN by filing a FinCEN Form 8300, which is entitled “Report of Cash Payments Over $10,000 Received in a Trade or Business.” This form must be filed within 30 days of the closing of the Covered Transaction. Each FinCEN Form 8300 filed pursuant to the revised GTOs must be (i) completed in accordance with the terms of the revised GTOs and FinCEN Form 8300 instructions (although when such terms conflict, the terms of the revised GTOs apply), and (ii) e-filed through the Bank Secrecy Act E-filing system.
Each Form 8300 filed pursuant to the revised GTOs shall contain the following information about the Covered Transaction:
Part I shall contain information about the identity of the individual primarily responsible for representing the Purchaser, which refers to the individual authorized by the entity to enter legally binding contracts on behalf of the entity. The Covered Business must obtain and record a copy of this individual’s driver’s license, passport, or other similar identifying documentation. A description of such documentation must be provided in Field 14 of the form.
Part II shall contain information about the identity of the Purchaser, which refers to the Legal Entity that is purchasing residential real property as part of a Covered Transaction. The Covered Business should select Field 15 on the FinCEN Form 8300, which will enable reporting of multiple parties under Part II of the form.
Part II shall also contain information about the identity of the Beneficial Owner(s) of the Purchaser. “Beneficial Owner” means each individual who, directly or indirectly, owns 25 percent or more of the equity interests of the Purchaser. The Covered Business must obtain and record a copy of the Beneficial Owner’s driver’s license, passport, or other similar identifying documentation. A description of such documentation must be provided in Field 27 of the form.
Part III shall contain information about the Covered Transaction as follows:
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Field 28: Date of closing of the Covered Transaction.
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Field 29: Total amount transferred using currency or a cashier’s check, a certified check, a personal check, a business check, or a money order in any form.
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Field 31: Total purchase price of the Covered Transaction.
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Field 34: Address of real property involved in the Covered Transaction.
With respect to information required to be reported in Field 29 of the Form 8300, the Covered Business should include the total amount of the purchase price, if any, that was paid 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. With respect to information required to be reported in Field 31, the Covered Business should include the total purchase price, if different from the amount included in Field 29.
Part IV shall contain information about the Covered Business.
The Comments section to the Form 8300 shall contain the following information:
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The term “REGTO” as a unique identifier for this Order.
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If the purchaser involved in the Covered Transaction is a limited liability company, then the Covered Business must provide the name, address, and taxpayer identification number of all its members.
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If a Form 8300 is being filed by an agent of the Covered Business named in this Order, then the agent shall include the name of such Covered Business.
When Are the Revised GTOs Effective?
The revised GTOs are effective beginning on September 22, 2017, and ending on March 20, 2018 (unless they are further extended by FinCEN).
What Records Relating to the Revised GTOs Must Be Retained?
Consistent with the general recordkeeping provisions of the regulations promulgated under the Bank Secrecy Act, each Covered Business must (1) retain all records relating to compliance with the revised GTOs for a period of five years from the last day that the GTOs are effective (including any renewals); (2) store such records in a manner accessible within a reasonable period of time; and (3) make such records available to FinCEN or any other appropriate law enforcement or regulatory agency, upon request.
What Are the Penalties for Noncompliance with the Revised GTOs?
Each Covered Business, and any of its officers, directors, employees, and agents, may be held liable for civil or criminal penalties for violating any of the terms of the revised GTOs.
What Procedures Should Covered Businesses Implement to Ensure Compliance with the Revised GTOs?
To assist Covered Businesses in complying with the revised GTOs, FinCEN has published an updated list of frequently asked questions (FAQs) in response to inquiries it has received. In those FAQs, FinCEN states that it expects a Covered Business to implement procedures reasonably designed to ensure compliance with the terms of the GTOs, including reasonable due diligence to determine whether it (or its subsidiaries or agents) is involved in a Covered Transaction and to collect and report the required information. In complying with the terms of the GTOs, a Covered Business may reasonably rely on information provided to it by third parties, including other parties involved in Covered Transactions. Covered Businesses may also contact the FinCEN Resource Center at (800) 767-2825.
To What Extent Must a Covered Business Verify Information About the Beneficial Owner of a Purchaser?
The revised GTOs require a Covered Business to collect and report certain identifying information about the Beneficial Owner(s) of the Purchaser in a Covered Transaction. For purposes of the GTOs, a “Beneficial Owner” means each individual who, directly or indirectly, owns 25 percent or more of the equity interests of the Purchaser. The GTOs provide that the Covered Business must obtain and record a copy of the Beneficial Owner’s driver’s license, passport, or other similar identifying documentation. The Covered Business may reasonably rely on the information provided to it by third parties involved in the Covered Transaction, including the Purchaser or its representatives, in determining whether the individual identified as a Beneficial Owner is in fact a Beneficial Owner.
Who Is Considered a Covered Business’s “Agents” for Purposes of the Revised GTOs?
“Agents” of a Covered Business refer to people or entities that are authorized by the Covered Business, usually through a contractual relationship, to act on its behalf to provide title insurance underwritten by the Covered Business (or its subsidiaries). FinCEN notes that the recordkeeping and reporting requirements under the GTOs are triggered only when a Covered Business (or its subsidiaries or agents) is involved in a Covered Transaction by providing title insurance underwritten by that Covered Business (or its subsidiaries) in connection with the Covered Transaction.
FinCEN also recognizes that a person or entity may be an independent agent of a Covered Business, and thus may act on behalf of multiple title insurance companies. A Covered Business is responsible for the recordkeeping and reporting requirements under the revised GTOs only when such agents are acting on its behalf in connection with a Covered Transaction.
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