On August 22, 2017, FinCEN (Financial Crimes Enforcement Network) published a new Advisory regarding Geographic Targeting Orders (GTOs) covering residential real estate transactions in certain counties or boroughs of New York, Florida, California, Texas and Hawaii (newly added in this GTO). The triggering purchase amounts are:
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$500,000 in Texas (county of Bexar)
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$1,000,000 in Florida (county of Miami-Dade, Broward or Palm Beach)
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$1,500,000 in New York (New York City, Borough of Brooklyn, Queens, Bronx or Staten Island)
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$2,000,000 in California (county of San Diego, Los Angeles, San Francisco, San Mateo or Santa Clara)
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$3,000,000 in Hawaii (county of Honolulu)
Previous GTO’s issued by FinCEN included cashier’s checks, certified checks, traveler checks, personal checks, business checks or money orders; as reportable methods of payment for real estate purchases, but not funds transfers, known as wire transfers. The addition of wire transfer record keeping and reporting requirements in this GTO are viewed by FinCEN as necessary to the process of compliance with the Bank Secrecy Act (BSA).
The GTO applies to a “Covered Business”; which means Title Insurance companies and any of their subsidiaries or agents for “Covered Transactions”.
Covered transactions are purchases of residential real property made by a legal entity, without a bank loan and made at least or in part by using currency or cashier’s check, certified check, traveler’s check, personal check, a business check, or money order in any form, or a funds transfer (wire transfer).
A Legal Entity is defined as a corporation, limited liability company, partnership or other similar business entity, formed under the laws of a state or of the United States or a foreign jurisdiction. A Legal Entity purchasing residential real estate property is known as the Purchaser, and each individual who directly or indirectly owns 25% or more of the equity interest of the Purchaser is a Beneficial Owner of the Purchaser. The Title Insurance Companies must obtain copies of the Beneficial Owner’s driver’s license, passport or similar identifying documentation.
The “Covered Business” that is involved in the “Covered Transaction” must fill out FinCEN Form 8300 - which is e-filed through the BSA E-filing system within 30 days of the “Covered Transaction”. FinCEN Form 8300 is the Report of Cash Payments over $10,000 received in a Trade or Business. Form 8300 has a Comments Section on Page 2 which requires under the GTO, that if the Purchaser is an LLC, then the “Covered Business” must provide the name, address and Tax Identification number of all of its members.
There are no minimum thresholds for “Covered Transactions” in this order and the terms are effective beginning on September 22, 2017 and ending on March 20, 2018. Of note is that the “Covered Business” or any of its officers, directors, employees or agents are liable without limitation for civil and/or criminal penalties for violating any of the terms of the Order.
The luxury real estate market and certain geographical areas of the US have been recognized as money laundering conduits. Because most “luxury” residential real estate closings are done via wire transfer, the addition of wire transfers to the Methods of Payments closes a previously “perceived loophole” in the GTOs issued by FinCEN in its quest to target the use of shell companies like LLCs to launder money and to evade taxes.
