Breaking from its recent practice of making public announcements about Geographic Targeting Orders, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) last month quietly extended its real estate GTOs for another six months. The new expiration date is September 16, 2018. FinCEN’s move to continue the GTOs a fourth time suggests that the orders are generating meaningful intelligence for law enforcement regarding potential money laundering involving luxury real estate in the United States.
In January 2016, FinCEN announced with significant fanfare the initial issuance of the real estate GTOs, proclaiming in a press release that “FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami.” Those initial orders required certain title insurance companies to identify the natural persons behind companies used to pay all cash for luxury residential real properties located in the borough of Manhattan and Miami-Dade County. All-cash transactions exceeding $3 million in Manhattan, or exceeding $1 million in Miami-Dade County, were to be reported to FinCEN with an identification of the “beneficial owner” behind the transaction.
On the eve of the expiration of the original Manhattan and Miami-Dade GTOs in August 2016, FinCEN announced a significant expansion of their scope with the issuance of additional GTOs covering the following geographic areas: (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; and (6) the county that includes San Antonio, Texas (Bexar County). The monetary thresholds for each geographic area varied.
In February 2017, FinCEN announced that its efforts to combat money laundering in the luxury real estate market were being extended for an additional six months. At that time, then-FinCEN Acting Director Jamal El-Hindi said that the real estate GTOs were “producing valuable data that is assisting law enforcement and is serving to inform our future efforts to address money laundering in the real estate sector.” FinCEN also revealed that approximately 30 percent of the transactions covered by the GTOs involved a beneficial owner or purchaser representative that is also the subject of a previously-filed “suspicious activity report,” thereby corroborating FinCEN’s long-expressed concerns about the use of shell companies to buy luxury real estate in all-cash deals.
Six months later, in August 2017, FinCEN announced the issuance of revised 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 metropolitan areas. Following the recent enactment of the Countering America’s Adversaries through Sanctions Act, FinCEN revised the GTOs to capture a broader range of transactions and include transactions involving wire transfers. FinCEN also expanded the GTOs to include transactions conducted in the City and County of Honolulu, Hawaii. In addition, FinCEN published an Advisory 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 without traditional financing. Such transactions are vulnerable to abuse by criminals seeking to launder illegal proceeds and mask their identities. The Advisory provided information on how to detect and report these transactions to FinCEN.
The latest iteration of the real estate GTOs was set to expire on March 20, 2018. Without issuance of a press release and nary a public statement, FinCEN quietly extended those orders for another six month period, through September 16, 2018. A Miami Herald article reporting on this development included the following quote from a FinCEN spokesman:
“The GTOs issued to date have provided FinCEN and law enforcement important information about money-laundering vulnerabilities in the real estate sector,” Stephen Hudak, a FinCEN spokesman, wrote in an email Wednesday. “GTOs are a valuable tool and FinCEN is extending the current GTOs to continue studying this vulnerability.”
With this fourth extension, the real estate GTOs – which by statute are supposed to be temporary measures – have now been in effect for more than two full years. Although FinCEN has made only a few public statements about whether the GTOs are generating meaningful intelligence and leads, it can be safely assumed that they are working. It remains to be seen whether these enhanced (and temporary) reporting requirements imposed by the real estate GTOs will be made permanent through passage of legislation or regulations.
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