In January 2016, FinCEN issued two geographic targeting orders (GTOs) aimed at combating money laundering in all-cash real estate transactions in the Borough of Manhattan, New York, and Miami-Dade County, Florida—two areas identified by FinCEN as having “a higher than average percentage of all-cash transactions.” The GTOs, which took effect in March 2016, required certain title insurance companies to identify the natural persons behind entities using cash to purchase high-end real estate—properties with a sales price of more than $1 million in Miami-Dade County and more than $3 million in Manhattan.
In an April 12, 2016, speech, former FinCEN Director Jennifer Shasky Calvery highlighted the risks in the industry. She noted that although most real estate transactions already are subject to AML scrutiny through the AML programs and controls of banks and residential mortgage lenders and originators, “none of the parties involved in the transaction are subject to AML program requirements ” in the case of an all-cash purchase made “without a mortgage issued by a bank or mortgage broker.” According to former Director Shasky Calvery, the beneficial ownership identification requirement is key to AML risk assessment and enforcement in this area because the use of shell company purchasers “is often enough to dramatically increase the difficulty of tracking the true owner of a property in a transaction.”
In August 2016, FinCEN implemented a major expansion of its GTOs aimed at high-end cash buyers of real estate to a total of six separate metropolitan areas. The August GTOs covered all title insurance companies, rather than the handful of insurers subject to the initial orders issued in January 2016 that expired on August 27, 2016.
In the expanded GTOs, the two narrowly drawn areas in the initial GTOs were expanded to include all five boroughs of New York City as well as Broward County and Palm Beach County in Florida. Four other markets were added: Los Angeles County, California; San Diego County, California; the three California Bay Area counties of San Francisco, San Mateo, and Santa Clara; and Bexar County, Texas, which includes San Antonio. Similar to the initial GTOs, each county has a separate dollar threshold for covered transactions. The new GTOs are in effect from August 28, 2016, until February 23, 2017.
The scope of “covered transactions” that must be reported on a Form 8300 also was significantly expanded in the August 2016 GTOs by the addition of personal checks and business checks to the types of monetary instruments that trigger reporting.
FinCEN has cited the diverse approaches to real estate transactions and closings in different states (and even municipalities) as an impediment to expanding compliance requirements in the real estate industry. The title insurance industry was a convenient first step for FinCEN to expand its efforts because of the percentage of all-cash transactions that involve title insurance and because title insurers are regulated at the state level. Now that FinCEN has taken this step, we expect the agency to use the experience and data from the GTOs to extend its reach to more participants and transactions in the real estate industry.