The Financial Crimes Enforcement Network ("FinCEN") expanded its use of Geographic Targeting Orders ("GTOs") broadening efforts to combat money laundering in the luxury residential real estate market. FinCEN also provided guidance on the money laundering risks associated with transactions involving shell companies.
FinCEN GTOs require U.S. title insurance companies to identify the natural persons behind shell companies used in the purchasing of high-end residential real estate. On August 22, 2017, FinCEN revised the GTOs to (i) capture a broader range of transactions, (ii) include transactions involving wire transfers, and (iii) include transactions conducted in the City and County of Honolulu, Hawaii. The GTOs now cover seven metropolitan areas: New York, Miami, Los Angeles, San Francisco, San Diego, San Antonio and Honolulu.
FinCEN also issued an Advisory that provides financial institutions and the real estate industry with information on the money laundering risks associated with real estate transactions conducted using shell companies, particularly those that do not utilize traditional financing. FinCEN reported that about 30 percent of reported transactions "involve a beneficial owner or purchaser representative that was also the subject of a previous suspicious activity report." FinCEN stated that this data substantiates its concerns about the utilization of shell companies within this small segment of the luxury real estate market.
FinCEN Acting Director Jamal El-Hindi said in a statement that "[t]hrough this advisory and other outreach to the private sector, FinCEN, industry, and law enforcement will be better positioned to protect the real estate markets from serving as a vehicle to launder illicit proceeds."
Commentary / Joseph V. Moreno
Clearly, the use of GTOs over the past several years yielded information valuable to FinCEN's efforts. FinCEN's guidance substantiated previous concerns about the use of luxury real property purchases to camouflage illicit funds. The expanded use of GTOs into a seventh real estate market and the inclusion of transactions involving wire transfers demonstrates FinCEN's continuing interest in identifying and pursuing the beneficial owners of real property purchases. Lenders and title companies should be prepared for the likelihood of permanent beneficial ownership regulations, as well as greater AML compliance obligations and scrutiny across the real estate industry.
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