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  • FinCEN Updates GTOs for Title Insurance Companies in Several Major Metropolitan Areas, Issues Advisory to Financial Institutions and Real Estate Industry Regarding Associated Money Laundering Risks

    Agency Rule-Making & Guidance

    On August 22, the Financial Crimes Enforcement Network (FinCEN) published an announcement releasing revised Geographic Targeting Orders (GTOs) that “require U.S. title insurance companies to identify the natural persons behind shell companies used to pay for high-end residential real estate in seven major metropolitan areas[,]” without the use of a bank loan or other type of external financing but, rather, with the use of—at least in part—cash or a cashier’s check or similar instrument. The GTOs have also been expanded to now include high-end real estate transactions conducted in the following places: (i) Manhattan ($3 million) and all other boroughs of New York city ($1.5 million); (ii) Miami-Dade, Broward, and Palm Beach counties ($1 million); (iii) Los Angeles, San Diego, San Francisco, San Mateo, and Santa Clara counties ($2 million); (iv) Bexar County, Texas, which includes San Antonio ($500,000); and (v) city and county of Honolulu, Hawaii ($3 million). 

    Through the revised GTOs, FinCEN seeks to capture a broader range of transactions, including those involving wire transfers. According to FinCEN’s analysis of data covering GTOs, nearly 30 percent of the targeted transactions ended up involving a beneficial owner or representative who is already the subject of a previous suspicious activity report. The results appear to corroborate concerns underlying FinCEN’s rationale for issuing GTOs in the first place, and will assist future efforts to “assess and combat the money laundering risks associated with luxury residential real estate purchases.” For additional information concerning GTO compliance, FAQs released by FinCEN in August 2017 are available here.

    FinCEN also published an Advisory that same day to provide financial institutions and the real estate industry with information on the money laundering risks associated with real estate transactions, including those involving luxury property purchased through shell companies, particularly when conducted as “all-cash” transactions without traditional financing. The Advisory also provides an overview of anti-money laundering regulations affecting the real estate sector.

    Agency Rule-Making & Guidance FinCEN Anti-Money Laundering SARs GTO

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  • FinCEN Renews GTOs for Title Insurance Companies in Six Major Metropolitan Areas Upon Finding that GTOs Provide ‘Valuable Data’

    Agency Rule-Making & Guidance

    On February 23, the Financial Crimes Enforcement Network (FinCEN) announced the renewal of its existing GTOs Geographic Targeting Orders (GTOs), each of which temporarily require U.S. title insurance companies to identify the natural persons behind shell companies used to pay “all cash” for high-end residential real estate in six major metropolitan areas. Generally, the GTOs require all title insurance companies in the targeted cities to file a FinCEN Form 8300 within 30 days of closing a covered transaction, identifying the buyer, any beneficial owner of the buyer, and the individual primarily responsible for representing the buyer in an “all-cash” purchase of high-end residential real estate. Covered businesses must also retain their records for at least five years after the GTO expires.   

    Notably, the decision to continue the GTO program for another 180 days—beginning on February 24, 2017—was based largely on FinCEN’s finding that the first GTOs issued back in July are producing “valuable data” that is assisting both law enforcement and FinCEN’s efforts to address money laundering through real estate transactions. Nearly one-third of the targeted transactions covered by the July GTOs ended up involving a beneficial owner or representative who is already the subject of a previous suspicious activity report. The results appear to validate the concerns underlying FinCEN’s rationale for issuing GTOs in the first place, namely the use of shell companies to buy luxury real estate in all-cash transactions. 

    The targeted geographic areas and corresponding closing price thresholds include: (i) Manhattan ($3 million) and all other boroughs of New York City ($1.5 million); (ii) Miami-Dade, Broward, and Palm Beach counties ($1 million); (iii) Los Angeles County ($2 million); (iv) San Francisco, San Mateo, and Santa Clara counties ($2 million); (v) San Diego County ($2 million); and (vi) Bexar County, Texas, which includes San Antonio ($500,000). In targeting the above-listed metropolitan areas, FinCEN clarified that “GTOs do not imply any derogatory finding by FinCEN with respect to the covered companies.” Rather, as explained by FinCEN Acting Director Jamal El-Hindi, “Money laundering and illicit financial flows involving the real estate sector is something that we have been taking on in steps to ensure that we continue to build an efficient and effective regulatory approach.”

    For additional information concerning GTO compliance, FAQs released by FinCEN in August 2016 are available here.

    Agency Rule-Making & Guidance Financial Crimes FinCEN GTO Title Insurance

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  • FinCEN Expands Reach of Real Estate Geographical Targeting Orders

    Consumer Finance

    On July 27, FinCEN issued temporary Geographical Targeting Orders (GTO) requiring certain U.S. title insurance companies to identify and report the natural persons behind shell companies used to conduct “all-cash” purchases of high-end real estate in six major metropolitan areas. The GTOs cover the following areas: (i) all boroughs of New York City; (ii) Miami-Date, Broward and Palm Beach Counties in South Florida; (iii) Los Angeles County; (iv) San Francisco, San Mateo, and Santa Clara counties; (v) San Diego Country; and (vi) Bexar County, Texas, which includes San Antonio. FinCEN simultaneously released a table outlining the monetary thresholds that trigger the identification and reporting requirements in each jurisdiction. Upon taking effect, the GTOs will remain effective for 180 days absent an extension. As previously covered in InfoBytes, FinCEN remains concerned that all-cash purchases conducted through LLCs or other “opaque structures,” may be conducted by natural persons trying to hide their assets and identity. According to FinCEN’s Acting Director Jamal El-Hindi, “[b]y expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”

    Anti-Money Laundering Title Insurance FinCEN GTO

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  • FinCEN Director Calvery Opines on Agency Efforts to Increase Financial Transparency

    Consumer Finance

    On May 24, FinCEN Director Calvery delivered remarks before the House Committee on Financial Services at a hearing entitled “Stopping Terror Finance: A Coordinated Government Effort.” Calvery noted FinCEN’s commitment to fostering an environment of financial transparency, and provided insight on the recent issuance of a final rule, issued on May 6, which clarified customer due diligence (CDD) requirements for financial institutions: “[w]e are confident that the CDD final rule will increase financial transparency and augment the ability of financial institutions and law enforcement to identify the assets and accounts of criminals and national security threats. We anticipate that the CDD rule will also facilitate compliance with sanctions programs and other measures that cut off financial flows to these actors.” Calvery further emphasized the significance of recently proposed beneficial ownership legislation, noting that it and the CDD rule “dovetail together.” Calvery opined that the level of transparency that the proposed legislation and the CDD rule offer would assist law enforcement in identifying who the “real people are that are involved in a transaction,” furthering its efforts to combat money laundering and terrorism, enforce sanctions, and prevent other unlawful abuses of the U.S. financial system. Finally, she noted that the beneficial ownership legislation, if enacted, would provide FinCEN with the ability to collect information on all funds transfers (instead of only monetary instruments, as currently authorized) through the use of geographic targeting orders.

    FinCEN Department of Treasury GTO Customer Due Diligence CDD Rule Beneficial Ownership

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  • Treasury Announces Beneficial Ownership Legislation; Proposes Foreign-Owned Single-Member LLC Regulations

    Consumer Finance

    Recently, the Treasury Department announced that it is sending Congress legislation that would require companies formed within the United States, or “that [use] the mail, wire, or any facility in interstate or foreign commerce in its formation, transfer of ownership, or business activity,” to file beneficial ownership information with the Department, and would impose a $5,000 penalty for failure to comply. The proposed legislation defers to the Department of the Treasury to define beneficial ownership. The new draft legislation also proposes technical amendments to FinCEN’s Geographic Targeting Order (GTO) authority to provide FinCEN the authority to collect information on funds transfers in general, including regarding bank wire transfers, instead of transactions using “monetary instruments.”

    Treasury simultaneously announced proposed regulations to require foreign-owned “disregarded entities” to obtain an employer identification number with the IRS. The proposed regulations are intended to address “a narrow class of foreign-owned U.S. entities – typically single member LLCs – that have no obligation to report information to the IRS or to get a tax identification number.” These "disregarded entities” (which include foreign-owned-single-member LLCs) can, according to Treasury, be used to shield non-U.S. assets’ or non-U.S. bank accounts’ foreign owners. If finalized, the regulations would assist the IRS in determining whether a tax liability exists, and if so, how much. Finally, the regulations would allow the IRS to share information with other tax authorities.

    FinCEN IRS Department of Treasury GTO

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  • U.S. FinCEN Issues Geographical Targeting Orders Requiring Reporting of High-End Cash Purchases and Buyers of Residential Real Estate in Manhattan and Miami

    Consumer Finance

    On January 13, FinCEN issued two Geographical Targeting Orders (GTO) requiring certain U.S. title insurance companies to provide identification for certain “all-cash” buyers of high end real estate, and to report such transactions. One GTO focuses on the Borough of Manhattan in New York City, New York and the other focuses on Miami-Dade County, Florida.

    According to FinCEN, natural persons may be purchasing real estate without bank financing and through LLCs or “other opaque structures” in an attempt to hide their assets and identity. FinCEN commented: “Having prioritized anti-money laundering protections on real estate transactions involving lending, FinCEN’s remaining concern is with money laundering vulnerabilities associated with all-cash real estate transactions.” The two GTOS will be effective from March 1, 2016 through August 27, 2016, and will require certain title insurance companies to “record and report to FinCEN the beneficial ownership information of legal entities purchasing certain high-value residential real estate without external financing.”

    The GTOs are identical with the exception of the purchase price value applicable to the different locations. For purchases exceeding $3 million in the Borough of Manhattan, or $1 million in Miami-Dad County, that are made by a legal entity (as defined in the GTO), “without a bank loan or other similar form of external financing,” where “the purchase is made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, or a money order in any form,” a title insurance company, and any of its subsidiaries and agents, is required to file a Form 8300 within 30 days of closing.

    Among other information, the Form 8300 must:

    • Contain information about the identity of the individual primarily responsible for representing the Purchaser, including a copy of this individual’s driver’s license, passport, or other similar identifying documentation.
    • Contain information about the identity of the Purchaser.
    • Contain information about the identity of the Beneficial Owner(s) 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 “Beneficial Owner” means each individual who, directly or indirectly, owns 25% or more of the equity interests of the Purchaser.
    • 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 member

    This development is consistent with FinCEN’s long-term trend of pushing for greater transparency, exemplified by its pending proposed rule that would mandate enhanced customer due diligence related to beneficial ownership. See prior InfoBytes Alert and our description of the proposed rule.

    Anti-Money Laundering Title Insurance FinCEN GTO

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  • FinCEN Renews Southern California Geographic Targeting Order; Issues New Geographic Targeting Order on Border Cash Shipments in Texas

    State Issues

    On August 7, FinCEN renewed a Geographic Targeting Order (GTO) for common carriers of currency at two border crossings in Southern California. Similarly, FinCEN issued a new GTO for carriers at eight major border crossings in Texas. Designed to increase the transparency of cross-border money movements, the GTOs temporarily amend the Report of International Transportation of Currency or Monetary Instruments (CMIR) requirements for common carriers of currency when transporting cash in amounts exceeding $10,000 across the two California borders and the eight Texas borders. The GTOs require the relevant common carriers of currency to disclose 100 percent of information in the CMIRs, eliminating “the reporting exemption for these carriers that might otherwise apply to transporting currency from a foreign person to a bank.” Additional changes to the CMIR reporting requirements include providing the names and addresses for the following persons: (i) the currency originator; (ii) currency recipient; and (iii) all other parties engaging in the movement of currency and monetary devices. The Southern California GTO extends the CMIR reporting requirements until February 4, 2016; the Texas GTO is effective September 17, 2015, and is valid through March 15, 2016.

    FinCEN GTO

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