FinCEN Sets Its Sights On Luxury Real Estate

On January 13, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued Geographic Targeting Orders (GTOs) that will temporarily require title insurance companies to report the identities of the natural persons behind companies paying cash for high-end residential real estate in Manhattan and Miami-Dade County. FinCEN exercised its authorities under the Bank Secrecy Act (BSA) to impose these new requirements, which become effective March 1, 2016.1

The issuance of the GTOs marks the first time that the federal government has required real estate companies to disclose the names behind cash transactions. The GTOs reflect FinCEN's concern that some individuals use all-cash purchases, made without bank financing, to "hide their assets and identity."2 Information gathered pursuant to the GTOs will be stored in a FinCEN database intended to help law enforcement identify the natural persons involved in transactions vulnerable to money laundering abuse.

The GTOs are indicative of a recent increase in law enforcement scrutiny of the real estate industry. Treasury and federal law enforcement officials have signaled their interest in investigating luxury real estate sales that involve LLCs, partnerships, and other legal entities as buyers. Governmental interest is due partly to media reports on the rising use of companies by foreign buyers to shelter money in the United States. For example, an investigation by The New York Times found many hidden owners of high-end real estate who were the subjects of government investigations, including foreign government officials.3 In addition, the FBI recently created a new unit to focus on money laundering, for which real estate will be one main focus, and Justice Department lawyers have begun to build cases around money laundering in real estate deals.4

GTO Requirements

The GTOs require certain title insurance companies to identify the beneficial owner behind a legal entity involved in residential real estate transactions worth more than $3 million in Manhattan and more than $1 million in Miami-Dade County. The GTOs define "beneficial owner" as "each individual who, directly or indirectly, owns 25 percent or more of the equity interests" of the legal entity that bought the property. The title insurance company must identify the beneficial owner(s), obtain and record each beneficial owner's driver's license or passport, and report the names of the beneficial owner(s) to FinCEN...