FinCEN Geographic Targeting Orders
FinCEN Geographic Targeting Orders – The Financial Crimes Enforcement Network (“FinCEN”) announced on November 15 that it has renewed and revised its Geographic Targeting Orders (“GTOs”) that require U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing. The new GTOs extend through May 15, 2019.
Notably, the list of covered geographic areas has expanded, and the monetary threshold has been reduced significantly to $300,000 so that it now no longer applies only to so-called “high end” real estate purchases. Further, purchases involving virtual currency are now included within the reach of the GTO — an expansion which is consistent with prior expansions which extended the GTOs’ reach to transactions involving wires and personal and business checks. Currently, the GTOs broadly apply to any purchases made using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order in any form, a funds transfer, or virtual currency.
A “legal entity” subject to the GTO reporting regime 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 United States, or a foreign jurisdiction.” The “beneficial owner” who must be identified is defined as “each individual who, directly or indirectly, owns 25% or more of the equity interests of the Legal Entity purchasing real property in the Covered Transaction.” This definition tracks the Beneficial Ownership rule issued by FinCEN in 2016 for customer due diligence by covered financial institutions for new legal entity accounts by focusing on 25% or more ownership percentage, but it differs from the Beneficial Ownership rule by not including a “control” prong in its definition of a beneficial owner.
The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area. FinCEN is also requiring that covered purchases using virtual currencies be reported. Previous GTOs provided valuable data on the purchase of residential real estate by persons implicated, or allegedly involved, in various illicit enterprises including foreign corruption, organized crime, fraud, narcotics trafficking, and other violations. Reissuing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.
Today’s GTOs cover certain counties within the following major U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.
FinCEN appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.
The reporting is done through a special Currency Transaction Report or CTR; the template for GTO reporting is here. Covered entities must retain relevant records for five years from the last effective day of the Orders (i.e., May 15, 2024) and must make them available to FinCEN and upon appropriate requests by law enforcement. FinCEN continues to maintain FAQs regarding the GTOs.
FinCEN’s press release states that the new GTOs “will inform FinCEN’s future regulatory efforts in this sector.” Presumably, FinCEN is using the data collected over the last three years to prepare to propose regulation which will formalize FinCEN’s scrutiny of the residential real estate market. Indeed, the website for the OMB’s Office of Information and Regulatory Affairs currently states that, by the end of 2018, “FinCEN will issue an [Advance Notice of Proposed Rule Making] soliciting information regarding various businesses and professions, including real estate brokers that could be covered by the BSA as persons involved in real estate closings and settlements[,]” with the comment period to extend through to December 2019.
You can read the actual FinCEN GTO here.